Listing your Short Sale with your Dad, who happens to be a Realtor? Proceed with caution...

If you follow me on Facebook or Twitter, you will already know that I am experiencing a little frustration regarding a short sale I am negotiating for another agent. Because I am so well-versed in short sales and they require a special expertise, there are several other Lyon Real Estate agents who engage me to negotiate their short sale listings...our arrangement usually is that I am paid a percentage of the listing agent's commission from the transaction, and just deal with the lender loss mitigation reps. The other agent is responsible for all other pieces of the transaction like dealing directly with the seller, buyer's agent, etc.

Well for the last couple months or so, I had been negotiating a short sale with this type of arrangement for another Lyon agent. This agent listed his son's property. Fine...seemed like no big deal - just any old short sale.

The loss mitigation rep from the lender contacted me yesterday. "Erin, I have some good news, and I have some bad news. The good news is that the short sale has been approved! The bad news is because the listing agent and the seller are related, we are reducing the listing agent's commission to $0." WHAT!?

The loss mitigation rep explained that it is their policy that ALL short sale transactions must be at "Arm's Length."

Well no kidding! I have dealt with Arm's Length transactions before and have blogged about them...in fact most lenders will require buyer and seller to sign an affidavit swearing that they are not related, and not business associates. The agents are not principles to the transaction...

I got my managing broker involved...basically Lyon Real Estate must still facilitate the transaction, but receive zero compensation, but accept all of the liability for the legal ramifications of the transaction. My managing broker suggested we switch listing agents...so we tried to convince the short sale lender to accept a substitute listing agreement, naming me as the sole listing agent rather than the seller's father. The short sale lender said no and they would cancel the approval if another listing agreement was presented.

So.....corporate legal counsel is now getting involved, and without going into more detail - the transaction is moving forward with no compensation to the listing side. Coincidentally, the buyer's agent commission was actually not reduced at all. The listing agent and his son (the seller) are just happy this short sale transaction was approved, and have assured me that my efforts will be compensated in some way...frankly, they are fortunate that Lyon Real Estate is still willing to facilitate the transaction.

So.....just be aware that this may happen if you list your short sale with a family member who is a Realtor. It looks like this transaction will have a happy ending, but I can see where this situation may cause problems for others.