Short sale compliance for CDPE agents covers three areas: state disclosure requirements (disclosing short sale status to buyers), federal program compliance (HAFA certification and anti-fraud requirements), and brokerage compliance (documentation, dual agency disclosure, and record retention). Completing this checklist protects both the homeowner and the agent from post-closing liability.
State disclosure requirements
- Short sale MLS disclosure: Most states require the MLS listing to indicate the property is a short sale or subject to third-party approval. Verify your state's specific language requirement.
- Purchase agreement language: Include a short sale contingency addendum identifying: the requirement for lender approval, the timeline, the buyer's right to cancel if approval is not received by a specified date, and what happens to earnest money if the deal falls apart.
- Seller property disclosure: Sellers must complete standard condition disclosures even in short sales. Lender approval does not waive seller's disclosure obligations.
- Deficiency and tax implications disclosure: Inform the seller in writing to consult an attorney regarding deficiency risk and a CPA regarding tax implications. Document this referral.
Federal program compliance
- HAFA certification: If proceeding under HAFA, verify the homeowner has completed required HAFA documentation and the loan meets eligibility requirements.
- Anti-flipping provisions: FHA and other investor guidelines may include anti-flipping provisions prohibiting the buyer from reselling within 90 days. Confirm approval letter language.
- Arms-length transaction certification: Most approvals require all parties to certify the transaction is at arms length — no undisclosed relationships, no side agreements, no commitments to the seller beyond the purchase price.
- Dodd-Frank certification: Where required by the servicer, ensure the homeowner completes the borrower certification.
Brokerage and documentation compliance
- Third-party authorization: Obtain a signed authorization before communicating with the servicer. Keep in file.
- Dual agency disclosure: If representing both buyer and seller, ensure written dual agency disclosure is completed. Many CDPE practitioners avoid dual agency in distressed transactions as a matter of policy.
- Timeline documentation: Document all servicer communications: dates, names of representatives, content of key conversations.
- Approval letter review: Before the seller accepts, review for: deficiency language, closing deadline, conditions on the buyer, approval amount variance.
- Record retention: Maintain the complete file for the period required by your state commission (typically 3 to 7 years).
Common compliance failures to avoid
Missing the short sale addendum: Accepting an offer with no short sale language exposes the buyer to contract obligations without a clear exit if approval is denied.