Massachusetts Real Estate


Ethics in a Short Sale ~ The Responsibilities of a Realtor

Massachusetts Short Sale RealtorWith the rise in short sales happening all around the country it is important to know what your responsibilities are as an agent representing a seller in this situation.

A "short sale" is when a mortgage lender agrees to accept less than the total amount remaining on the mortgage, allowing the homeowner to sell the property at a lower price and pay off the balance of the loan.

As foreclosures increase across the United States, lenders are more willing to negotiate short sales to avoid the expense and troubles of taking a delinquent customers home.

Foreclosing on a home and selling it at an auction costs around $50,000 on average. Banks are not in the business to own homes and would just assume to work something out with the homeowner is it makes good fiscal sense.

I can not speak for other parts of the country but as a Realtor selling homes in Massachusetts the law is quite clear. Article two of the Real Estate code of ethics states that "Realtors shall avoid exaggeration, misrepresentation or concealment of pertinent facts relating to the property or the transaction."

This situation certainly can come to pass in a short sale. There will be times as a listing agent that you are representing a seller and find out that your client (the seller) is in financial trouble and their mortgage on the property is higher than what you can sell the home for.

The question that arises is should the seller's agent let the buyer's agent know these facts? The answer is not cut and dry. If the sale is not going to take place because of the "short sale" then it must be disclosed. If homeowner has an agreement with the lender and the deal will close as it was scheduled then the disclosure is not required. As a Realtor you need to make sure you avoid misleading the status of the transaction. If you find out that the sale is not going to occur you need to disclose this information immediatly to the buyer's agent.

As a Realtor when you find yourself in a short sale transaction is makes good sense to get things in writing. As an example, If a seller has told you he has an agreement with his or her bank, make sure you get confirmation of this. The last thing you want is to have a buyer take legal action against you because you trusted the seller was giving you accurate information.

A short sale is a complicated transaction where you will be asked for advice. Above all else do not try to act as an attorney. Make sure you have your seller client speak with appropriate council. These types of transactions can be filled with emotion. After all who wants to lose their home! In a short sale you more often than not will be investing a lot of time and hard work. A short sale has more parties to satisfy including the lender, homeowner, buyer, agent, and investor who has the mortgage.

In Massachusetts like many other parts of the country, the "short sale" will be a common term for a while.  Here are a few other Reall Estate articles on short sales worth reading:

Short Sales in Massachusetts

Short Sale Realtor Massachusetts

Getting Massachusetts short sale debt released

Avoiding foreclosure through a short sale

Short sales and deed in lieu of foreclosure


About the Author: The above Real Estate information on ethics in a short sale the responsibilities of a RE/MAX Executive RealtyRealtor was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at or by phone at 508-435-5356. 

Have a home to sell in Metrowest Mass? I have a passion for Real Estate and love to share my marketing expertise! 

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I service the following towns in Metrowest Massachusetts: Hopkinton, Milford, Upton, Southboro, Westboro, Ashland, Holliston, Mendon, Hopedale, Medway, Grafton, Northbridge, Uxbridge, Franklin, Douglas, and Framingham MA.

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Building lasting relationships by helping people move in and out of Metrowest Massachusetts for the last 23 years.

Bill Gassett is a thirty-two year veteran to the real estate industry. He enjoys providing helpful information to buyers, sellers and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, National Association of Realtors, Inman News, Placester, RESAAS, Credit Sesame and others.

Comment balloon 17 commentsBill Gassett • August 24 2007 03:32PM


Bill - Thank you for pointing this out.  I have actually been in the situation where the buyers had already started to like a house, and I called for a re-show only to find out that there were a lot of problems with the illegal apartment attached to it, and that it was subject to a short sale.  Buyers need to be aware of this, because there is no guarantee that their offer will be accepted by the bank even if it is accepted by the homeowner.  Luckily, I found out before things got serious, but in the situation that these buyers are in, I wouldn't have even shown them a home that was subject to a short sale.
Posted by Adam Waldman, Realtor - Long Island (Westcott Group Real Estate Company) about 12 years ago
Adam - Thanks for dropping by. It sure is a wake up call when you find yourself in situations like these. I was involved with what would be like a short sale but not exactly this past June. The seller was short at closing and luckily had the funds to cover but got no assistance from the bank. He actually tried but they said no. The property went under agreement in early May before the real trouble hit in the mortgage markets. This was a real eye opener for me and made me realize what some of the ramifications would be if he was not able to bring the funds at closing.
Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) about 12 years ago


You touch on a topic that is not very well defined!  This was never a issue.  Iin the past we never had to consider, but with the current times, it will be around for some time!  Here in PA, we have a S/S Addendum to address disclosing the Home Owners situation.  However, most Agents do not even know that it is available. 

As additional CYA, I use a custome disclosure to address this a second time.

Posted by Jeff Beatrice almost 11 years ago

Jeff - I am sure the short sale disclosure varies slightly from state to state. What is important is that we are honest with all parties with the situation.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

As I understand it the Government is foregoing the repayment of the deficiencies of short sales for this year.  What about that difference?  The house has a total debt of $150,000.00 and sells for $125,000.00.  Does the seller have to pay taxes as income on the $25,000.00 not payed back to the lender?


Posted by Doug over 10 years ago

Doug I believe you are confusing the two items. The government has waived the taxes on the unpaid debt as of right now. This was introduced in one of the stimulus packages.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

So what you're saying is that the unpaid debt needs to be repaid but the taxes on the shortfall doesn't?  Or are they both being waived compliments of the recent stimulus package.

Posted by Doug over 10 years ago

Hi Doug - The unpaid debt in many cases will be waived. That will be up to the lender. So far on every short sale I have been involved in the seller will not be paying back the debt. The taxes are being waved as part of the stimulus package.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

Thanks for the clarification


Posted by Doug over 10 years ago

Our listings tend to be changed to short sale when the price is lowered enough to cause this.  They are defiinitely common here in California.

Posted by Christine Donovan, Broker/Attorney 714-319-9751 DRE01267479 - Costa M (Donovan Blatt Realty) over 10 years ago

Christine - It works the same way here in Massachusetts as well. As a agent as soon as you know a home will be a short sale it MUST be disclosed.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

Can someone tell me if the following situation is considered ethical in reall estate. I put an offer on a short sale home on January 26th, 2009. The seller accepted my offer on the 28th of January. I have been told in recent weeks that mine is the number one offer on the table and to be patient. The sellers agent told my agent that she could not disclose the $ amount of the other offers on this property. On Friday 5/1/09 a friend called as a interested party for the same property and spoke to the sellers agent to say she was interested in the home that my offer has been on the table for more than 3 months to see what they would say. The sellers agent told her they had an offer (the same $ amount that I offered)  and that the bank would be making a decision very soon so that if she was interested she would have to make an offer right away and that it would have to be what was the equivalent of $6,000.00 more than my offer. This makes me very angry and I was wondering if this kind of thing is accepted in this industry. Thanks for any info you can provide me with.

Posted by Patty over 10 years ago

Patty - The agent that is representing the seller obviously does not know how to properly do a short sale. The seller should be accepting one offer and submitting it to the bank. This is a perfect example of a Realtor that does not know what they are doing.

Aside from the fact that the agent is not properly handling the short sale they should not be discussing the other offers on the table.

The seller still owns the property the bank does not. The seller and their agent should be submitting the strongest offer that is most likely to be approved by the bank. What is the point of collecting all of these other offers?

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

Bill - Thank you so much, you have been extremly helpful.

I am in the state of Oregon and am wondering if you can tell me if there is somewhere I might be able to report their practices. I would guess that my situations is not the only one that they are handeling in this fashion. It just seem so unethical. Again, thank you!



Posted by Patty over 10 years ago

Patty - Most states have an ethics board that you can report an agent if you fell they have done something unethical in a Real Estate transaction. Technically the agent has not done anything unethical but submitting multiple offers, however he is not handeling the short sale properly.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

OK Bill - I guess I need to just let this go. I appreciat the good information you provided and your time.

Have a wonderful day.

Posted by Patty over 10 years ago

We have had an offer pending n a short sale in Hawaii since September 2009. Five weeks ago we were provided with a Settlement Statement (Estimated) which indicated a contract sales price which we had agreed to. Now on the verge of closing we are being told the bank is asking for another $9,000. Can they do this?

Posted by T Nash over 9 years ago

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