It has long been a standard operating practice in my office to make immediate inquiry with Sellers and in the public records to try to ascertain the status of a seller's mortgage liens at the outset of every Chicago area short sale transaction I work on. Buyers certainly want to know information like this as they determine how much (or whether) to make an offer in a short sale situation. If the deal is unworkable, why bother putting up earnest money or wasting time, right?
Do listing agents have a duty to disclose this, even without a specific inquiry? According to one appellate court in California, the answer seems to be yes.
RIS Media reported today on a California appellate court decision earlier this week (Holmes v. Summers) to the effect that real estate practitioners (Realtors) have the same responsibility as sellers to disclose information they have that affects the “value and desirability of the property.”
In that case, the seller and the listing associate withheld from potential buyers knowledge of three mortgages against the property totaling $1.141 million. The sellers accepted a buyer’s offer of $749,000, but the deal fell apart because the sellers couldn’t deliver clear title. According to RIS, the would-be buyers sued the real estate firm and the court found that the real estate practitioner had a greater duty to disclose facts affecting the desirability and marketability of the property than he did to protect the privacy of the seller.
Analysts say this decision makes it incumbent on practitioners with short-sale listings to provide specific information about circumstances surrounding the sales, including approvals required for the sales to close.
This is not Illinois law, but certainly seems like good advice to listing agents out there. Buyers and Co-operating agents should be asking this question as a matter of course as well.
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