NAR defines a short sale as “a transaction where title transfers; where the sale price is insufficient to pay the total of all liens and costs of sale; and where the seller does not bring sufficient liquid assets to the closing to cure all deficiencies.”

The question of disclosing a potential short sale (technically, it is not a short sale until it closes) in the MLS deserves careful consideration. According to Lem Marshall, VAR Counsel, in the May/June 2008 issue of Commonwealth Magazine, “You can’t make this decision by yourself, regardless of what you hear from other REALTORS. The Virginia Code requires you to ‘maintain the confidentiality of all personal and financial information received from the client during the brokerage relationship … unless otherwise provided by law or the seller consents in writing to the release of such information.’ This certainly includes the fact that the seller cannot pay off his mortgage(s) from the anticipated proceeds of the sale.”

“Your seller will need your professional guidance here. There might be an imperative that he get the best offer he can quickly (if he is already under the gun of foreclosure or behind in his payments” even if it is well below what he owes. In such a situation, it might make sense to let participants in the MLS know how thing stand. On the other hand, he might insist on trying the market without letting prospective buyers know of his distress. …If you do agree to notify the world of a possible short sale, be sure to get the seller’s consent in writing.”

New Rule: Effective July 1, 2008, MLS Participants, with Seller’s permission, may, but are not required to, disclose potential short sales to other MLS Participants and Subscribers. When disclosed, Participants may, at their discretion, advise other Participants whether and how any reduction in the gross commission established in the listing contract, required by the lender as a condition of approving the sale, will be apportioned between listing and cooperating Participants.

NOTE: The MLS rules require all offers of compensation to be unconditional. This new rule, mandated by NAR, gives listing agents the option – with Seller’s permission – of putting fellow agents on notice (a) that the commission is subject to lender approval and (b) how any reduction in total commission would be shared. Any such disclosure must be made in the private REALTOR to REALTOR remarks.

New Rule: Some lenders involved in potential short sales are requiring listings to remain active in the MLS, even after the Seller has accepted a contract. The result is a listing agent and Seller caught between the lender and the MLS rules, which require ratified contracts to go into a Pending status. Effective October 1^st, 2008 the MLS will introduce a new contingency, “Contingent Pending Lien Holders Approval” (PLHA).

A listing agent, with Seller’s permission and Lien Holder’s requirement for participation, may change the listing to add the contingency “Contingent Pending Lien Holder’s Approval” (PLHA) within 24 hours of Seller’s acceptance of a contract that requires the approval of the Lien Holder. The first line of the private REALTOR to REALTOR remarks must be changed to read “Contract Accepted by Seller Pending Lien Holder’s Approval.” A yellow contingency flag with the letter “L” will appear on any PLHA listings. A search of Active listings will pull up any PLHA listings meeting the search criteria.  NOTE: Should the Seller not choose to add the PLHA contingency, then the existing MLS rules would apply and the listing status would need to be changed to Pending within 24 hours (or by 5PM next business day) of delivery to all parties of a fully ratified contract.