California Real Estate Commissioner Issues Short Sale Consumer Alert | Business Wire

SACRAMENTO, Calif.–(BUSINESS WIRE)–The California Real Estate Commissioner, Jeff Davi, announced the

issuance of a Consumer Alert by the California Department of Real Estate

(DRE) warning consumers and real estate agents about the perils and

potential pitfalls of short sales. The alert has been posted on DRE’s

Web site at:

“The number of short sales is on the rise and many consumers don't

understand the consequences of such a transaction,” DRE Commissioner

Jeff Davi said. “Moreover, the Consumer Alert educates consumers and

real estate agents to recognise the elements of a fraudulent or

questionable deal.”

To put it simply, a short sale transaction involves the sale of a

property wherein a seller receives an offer from a buyer that's less

than the amount of the mortgage loan(s) on the property. In order to

complete the sale, the seller requests the lender to accept less than

what's owed in order to allow the transaction to close. While short

sales are a popular alternative to foreclosure, like all real estate

transactions, they're complicated and sellers need to lookout for the


For example, in some instances a seller may be required to pay taxes on

the forgiven debt. In addition, a seller may be an unwitting participant

in a fraudulent transaction wherein an unscrupulous agent or a short

sale negotiator working with a straw buyer will make a lowball offer to

the seller and in turn misrepresent the true market value of the

property to the lender. If the lender accepts the offer, the straw buyer

immediately re-sells it at the true market value, with the profits split

among the conspirators. Had the property been sold for the most amount

of money that the market will bear, the potential tax consequence to the

seller is diminished and the lender would've received fair market


A few of the key elements a homeowner should look out for are the


  • Short sale negotiators must be licensed real estate brokers (or a

    licensed real estate salesperson where that person is working under

    the supervision of his or her broker).

  • Any and all payments must be fully disclosed and made part of the

    escrow documents. If there are any fees to be paid “outside” of

    escrow, this may be the red flag that the payment is illegal.

  • If your agent explains that the buyer is a fictitious person or

    entity. Your buyer is purchasing the property under a

    power-of-attorney or is a limited liability company (LLC), this may be

    a red flag that fraud is involved in your transaction.

  • If you're told that an unlicensed processor, negotiator or

    facilitator is handling your short sale, this is a red flag that

    unlicensed activity is taking place. Only real estate licensees,

    California lawyers acting as lawyers and investors acting on their own

    behalf can engage in short sale negotiations.

For more information about DRE and its programs visit