Is it Active or Pending?
Confusion on reporting the status of a short sale transaction continues to reign supreme when it comes to questions on MFR’s requirements. The Board of Directors has fine-tuned the Rules to clarify that Short Sales must be reported pending within two business days, has clarified the rules of compensation as they apply to short sales; and has now addressed the most recent “Hot Topic” on short sales.
The Hot Topic: Short Sales & Right of First Refusal
What do you do when you have obtained a short sale listing and have a contract between the buyer and seller but the bank needs to approve the sale price? According to the MFRMLS rules and regulations, you must mark your listing as pending within two business days.
Over the last several months, listing agents have been interpreting the Rules, “Section 15. Contingency Applicable to Listing”, as justification to leave a short sale with an accepted offer as “active.” This section of the rules and regulations states that a listing may only remain in active status when a contract to purchase contains a Right of First Refusal clause. Other contingencies such as “third party approval” do not apply to this exception. Further clarification has been recently added to clarify that Section 15 does not apply to short sale listings under any circumstances.
What is MFR’s Definition of a Right of First Refusal?
A Right of First Refusal is a contractual right that gives the buyer the option, according to specified terms, to perform under the conditions of the contract before the owner is entitled to enter into that transaction with a third party.
Example: Abe owns a house that he plans to sell to Bo for $1 million. However, Carl holds a right of first refusal to purchase the house. Therefore, before Abe can sell the house to Bo, he must first offer it to Carl for $1 million. If Carl accepts, he buys the house instead of Bo. If Carl declines, Bo may now buy the house at the proposed $1 million price.
Right of First Refusal does not apply to short sales; a right of first refusal exists when a third party has the right to acquire a property by replacing – or stepping into the shoes of – another buyer. The lender is not stepping into the shoes of the buyer – but instead is simply approving or disapproving the amount it will accept to release its mortgage lien.
Tip: If the seller of any property wishes to solicit back up offers (including short sale transactions that are pending), the listing must still be marked as pending within two business days of the signed contract; however, while editing the listing status, the option exists to choose “back ups requested” in the contract status field.
How Was This Decision Made?
Over the last year (and then some) a Short Sale Task Force, the Policy Committee, the Board of Directors and legal counsel have been listening to member concerns and have wrestled with the pros and cons of short sale reporting requirements, compensation and issues such as the applicability of a short sale and the right of first refusal. They have heard all sides of the issues and have considered the rules and requirements from the National Association of Realtors. They and have spent countless hours in debate and ultimately in arriving at the decisions that have been made or clarified in recent months. Each member of these committees recognized the varied opinions on the issues and understood that MFR needed to have sufficient guidelines to reduce the frustration of the members. They have worked collectively to bring forward MFR’s stand on these topics.
The rule change to clarify that short sales cannot be left active under the “Right of First Refusal” exceptions is only one of several recent changes. Please remember when you have a short sale listing to follow the MFRMLS Rules and Regulations. Click here for the Article 4.1-1C: Short Sale Listings.
All members are encouraged to look at their short sale listings and make any necessary adjustments needed to comply with MFRMLS Rules and Regulations. Short sale listings that have an offer pending, but are currently active with terminology related to Right of First Refusal, must be changed to pending status. The month of April will be considered a month of amnesty and no fines will be assessed on existing listings that need to be corrected.
We sincerely appreciate your assistance in bringing all listings into compliance. Our goal is to keep your database as clean and consistent as possible. If you need assistance in updating your listings, please contact our help desk team at 1-800-686-7451; select option 1 to connect with one of our Help Desk Technicians.
If you have questions regarding any MFRMLS Rules and Regulations, please contact the Administration Department at 1-800-686-7451 or locally at 407-218-8607; select Option 3 to connect to the Administration and Membership Department.