Regional Short Sale Field Guide Final 2009 12 7

" Ethics Dialogue Workgroup Dulles Area Association of REALTORS® Fredericksburg Area Association of REALTORS® ()*" Greater Piedmont Area Association of REALTORS® Northern Virginia Association of REALTORS® " !"#$%&'()*+%,-)*'(") Prince William Association of REALTORS® ! Dulles Area Association of REALTORS® !".","&/")01$2")) Fredericksburg Area Association of REALTORS® Greater Piedmont Area Association of REALTORS® Prince Williams Association of REALTORS® Northern Virginia Association of REALTORS® " " !"#"$ % & ' " " Presented by: Ethics Dialogue Workgroup Version 1: 11/2009"

) ) ) !"#$%#&'$(&')$*(%$*(#&'+,'%-#'./%-*01'2*$3456#'74"8'9"46:;' ) Release Date: November 1st, 2009 Author: Matthew Rathbun Fredericksburg Area Association or REALTORS® +"#"$ % & ' " "

3%&-"&-4) I. Introduction II. Dissection of a Short Sale III. Confidentiality Issues IV. When is Ratification? V. Escrow Handling VI. Commission Handling VII. MRIS Policy VIII. Short Sale Credit Issues IX. Presenting Short Sale Offers X. Forms XI. Appendixes a. Guidebook Sources b. Lem Marshall’s Commonwealth Short Sale Article c. NAR Short Sale Workflow d. VAR Short Sale Tip Postcard e. MRIS Short Sale Do’s and Dont’s f. Short Sale Ethics Reference ,"#"$ % & ' " "

56 5&-,%21/-$%&) As a result of the evolving real estate market and challenges presented by an unstable economy, leaders from five REALTOR® Associations decided to take on the task of creating tools to increase the professionalism of REALTORS®, and in this application, during the Short Sale process. In the earliest discussions, the Workgroup found that one of the most pressing needs was a guideline of common assumptions to facilitate the process. The ubiquitous nature of this form of transaction means there is risk to Practitioners as well as Consumers. The risks escalate for Practitioners because of the layering on by MLS policies, the VREB and the REALTOR® Code of Ethics. This Reference Guide is one part of the ongoing effort of the Ethics Dialogue Workgroup to provide better education and tools for REALTOR® members. This Guide will be updated with the best and latest recommended practices dealing with distressed properties. It’s important to stress that these are only guidelines and do not take the place of the Broker’s application of established office practices. They are designed to be a reference mirroring the market place at the time of creation. Practitioners are always encouraged to seek the advice of their Brokers and if necessary legal counsel. The Associations of the Ethics Dialogue proudly offer the Reference Guide as a tool for its members to use to serve clients with utmost professionalism. The Associations are committed to ongoing monitoring of the marketplace and offering education and useful tools to their members. " " " -"#"$ % & ' " "

556 7$44"/-$%&)%.)')*+%,-)*'(") The economic world is in turmoil. A policy paper released by the Mortgage Bankers Association on May 28, 2008 stated that an industry average for taking a home into REO would be about $50,000; or as much as 30% to 60% of the outstanding loan balance. The name of the report is “A Report on Lenders’ Cost of Foreclosure from the Mortgage Bankers Association” and can be found at www.NGA.org. The Agent needs to understand why a Lender generates such cost and how a Short Sale may be in the Lender’s interest. A summary of some of the categories of Lender loss in a foreclosure is as follows: ! Lost principal and interest payments ! Tax and insurance payments ! Maintaining the property ! Lost servicing fee income ! Costs of collection efforts / servicing ! Legal costs for handling the foreclosure ! Administrative fees ! Costs of restoring the property to saleable condition ! Real estate commission for REO agents This issue is compounded by the knowledge that the market isn’t going to turn around suddenly and practitioner, home owners and Lenders will need to weather the problems associated with Short Sales for years to come. The Short Sale transaction is wrought with issues and potential liabilities, but so is the practice of real estate in general. Now is the time for Practitioners to step up to serve clients in their true time of need. Experience and education is a powerful combination in the quest to provide exceptional service and reduce litigation exposure in today’s marketplace. Chapter IX, Listing and Selling the Short Sale, addresses the application of confidentiality principles to a Short Sale transaction. Both Virginia law and the Code of Ethics address this issue. All financial information is confidential and thus can only be disclosed upon approval by the client. In a Short Sale situation, the disclosure that it is ."#"$ % & ' " "

a Short Sale is the disclosure of confidential information and thus can only be done with the approval of the Seller. This leads to the second type of Short Sale. The second type of Short Sale is where the Borrower, in an attempt to sell their home, asks the Lender to forgive their deficiency in funds and release the deed. This becomes a significant issue for Sellers, Buyers and their REALTORS®. This type of Short Sale is a long process for many and represents over 50% of all transactions for many markets across Virginia. There are several types of certifications and designation programs to prepare the REALTOR® for who wishes to represent Short Sale Clients. Here is a brief summary: Acronym Program Sponsor Website SFR Short Sale Foreclosure Rep NAR REBAC www.rebac.net CDPE Certified Distressed Property Expert CPDE www.cdpe.com CSP Certified Short Sale Professional RealtyU www.realtyuonline.com LMC Loss Mitigation Consultant Massachusetts AR www.marealtor.com There are a number of individuals and entities involved in the approval of a Short Sale and the Practitioner must coordinate them all. This is a long term transaction that could take between 30 and 100 days longer than a normal transaction. Clients should be properly prepared for these delays. This may be a huge deterrent to many Buyers. There are a number of disclosures and special documents that have been created for the REALTOR® to use. The forms are available in Chapter XII and include disclosures to potential Short Sale Buyers and Sellers, and specific addendums for Offers to Purchase and Listing Agreements. Lastly, Brokers are encouraged to have specific company policies to guide Agents and ensure that proper care is given, this is covered in Chapter XI. " " " " " /"#"$ % & ' " "

5556 3%&.$2"&-$'($-8)5441"4) A Short Sale transaction presents different confidentiality issues from a regular transaction. The most important one is whether the Seller discloses the fact that the transaction could be a Short Sale. It’s important to note that in accordance with the REALTOR® Code of Ethics and Virginia law, a Seller pursuing a Short Sale is considered confidential financial information. The Listing Agent MUST have the Seller’s permission to disclose such information and the permission should be obtained in writing. A Short Sales situation may present an appealing financial opportunity to the Buyer, but there are some concerns. Consider the following: - Military or executive relocations Buyers usually have a limited time to find a home and go through the negotiation process. A Short Sale may not be realistic for that type of Buyer. Very few practitioners and even fewer Sellers are proficient enough in the process to have everything in order for a quick decision by the Lender. In the case where a Lender withdraws the approval, precious time is lost for both the Seller and the Buyer. - Short Sale Buyers should be diligent in uncovering liens. Sellers who can not make the mortgage payment may not be paying other debt obligations. - Remember that in most cases, contracts are ratified when there is a meeting of the minds. The “Third Party Approval” of a Lender is a contingency. It typically takes awhile for Lenders to approve such a sale. Buyer Agents would be wise to put language in the contract that ensures the Buyer’s contingencies (such as home inspections) do not begin until approval from the Lender to proceed at the current price. Otherwise they may be liable for settlement services, home inspector fees, etc… Buyer Agents must be more diligent. Whether a property is a Short Sale is a fact that is material to the transaction. Regardless of the Listing Agent’s ability to disclose the status of the property, the diligent Buyer Agent should always ask the Listing Agent about the status of a given property. Virginia law protects Sellers in a real estate transaction by forbidding the disclosure of confidential financial information by their Agent. As already stated, whether the sale of a property will result in a Short Sale is information that is protected by the confidentiality provisions of the statute. Therefore, unless a Seller has provided written authorization 0"#"$ % & ' " "

to disclose such information, the Listing Agent cannot disclose whether a sale will result in a Short Sale to anyone by any means. Virginia Code 54.1-2131 A 3. Maintain confidentiality of all personal and financial information received from the client during the brokerage relationship and any other information that the client requests during the brokerage relationship be maintained confidential, unless otherwise provided by law or the seller consents in writing to the release of such information; It is important for the Buyer Agent to also be prudent. One possible solution is to write language into the Offer to Purchase that compels the Seller to disclose their pursuance of the Short Sale, as a term of ratification. Since it is possible for Listing Agents to present more than one offer to the Lender, the Buyer and their Agent may wish to make the ratification contingent on only that offer being presented to the Lender. The above paragraph is purely a recommendation and needs to be approved by the Practitioner’s Broker and legal counsel. However, this paragraph could be very useful in the Offer to Purchase. The first section makes it a requirement for the Seller to disclose if they wish to ratify. If the Seller declines to agree to this term it may indicate that it is an undisclosed Short Sale and the Buyer should act accordingly. The second section is a protection for the Buyer, should the Seller find out in the course of the transaction that they cannot pay off all indebtedness and need to revert to a Short Sale transaction. 1"#"$ % & ' " "

596 :+%)',")-+");('8",4)'&2)<+'-)$4) !'-$.$/'-$%&=) Frequently the question arises: “Can we leave it as active in MLS, if the transaction is contingent on Third Party Approval?” The governing entities dictate the answer- MRIS policy, the REALTOR® Code of Ethics, Virginia law and the contractual agreement. The contractual agreement has little to do with leaving the listing “Active” it simply dictates which policy is triggered. At the heart of the matter is the answer to the question, is there a ratified contract? The Virginia Statute of Frauds requires that residential sales contracts be reduced to writing, in order to be enforceable. Just as a reminder: the elements of a ratified contract are (1) offer & acceptance, (2) consideration, (3) legally competent parties, (4) consent and legal purpose. An offer is not considered ratified until the other party has been notified. The parties need to agree first, then sign the contract and finally deliver the signed contract to the other side of the transaction. The Regional Contract defines “ratification” as “Date of Ratification means the date of final acceptance in writing of all terms of the Contract (not the date of expiration or removal of contingencies).” <source: NVAR K1321 Paragraph 29.C> Also reference paragraph 1 and 2 of the Virginia Jurisdictional Addendum. The contract makes it clear, that signatures and delivery convey a meeting of the minds and therefore a ratified contract. Acceptance by the Lender in a Short Sale is simply a contingency and does not affect ratification. Remember that some companies are using “subject to” clauses which delay ratification until Lender approval. Since these contracts are not truly ratified; the Buyer may keep looking for better deals at better prices and the Seller may still keep looking for better Buyers. Both Buyers and Sellers should be very clear, when deciding not to ratify, that either party may bump them from the “deal”. " " " " " " 2"#"$ % & ' " "

96 >4/,%<)?'&2($&#) An often asked question regarding the deposit of escrow is “when”. Fortunately, the Virginia laws regarding escrow do not change if it is a Short Sale. Virginia law requires earnest money deposits (“deposits”) to be deposited into Broker’s escrow accounts within 5 days which the bank is open. (This means if the bank is opened from 9-12 on a Saturday, it counts as a day) It’s important to remember: The law does not change because the Seller is pursuing a Short Sale. Virginia Code 18 VAC 65-30-120. Escrow account. Within five banking days after the day of receipt of any money from the contract buyer and until the time the money is invested in a trust, life insurance, or annuity policy, the contract seller or the contract provider shall deposit the money into an escrow account in a bank or savings institution approved to do business in the Commonwealth. Deposits are not required for a contract to be considered ratified, but many Short Sale Lenders will not seriously consider a contract if there is no reasonable deposit. Some Agents have considered using promissory notes that mature upon written notice of the Lender that the Short Sale has been approved. Remember that promissory notes need to have a definite end date. In addition, if the note is released it should be done in the same manner as an escrow mutual release agreement. Deposits can only be released in one of three manners: 1) mutual consent of the principals; or 2) order from a court of competent jurisdiction; or 3) if it is clear by the terms of the contract then the Broker may send a letter to all parties giving them 30 days to stop the disbursement. (specific steps must be followed for option 3 so please read the statute prior to using that method of disbursement). The issue of the release of the deposit is complicated in a Short Sale transaction if the Seller’s Lender declines to agree to the contract terms. If the Seller wishes to continue to try and get an answer or is trying to keep the Buyer in the contract, he or she may decline to reimburse the escrow back to the Buyer. The Broker may not disburse the funds without the requisite 30-day letter, mutual agreement executed by all parties, or a court order. It is important for the Buyer Agent to explain all of this to the Buyer at the time they are making an offer to avoid incorrect presumptions. The rate of failure for a Short Sale is very high and often Buyers are expecting an immediate release of the deposit. The !3"#"$ % & ' " "

Agent will serve themselves and their clients well by setting reasonable expectations early on. As an added reminder, Brokers are compelled by the 2008 change to the Virginia law to report any mishandling of escrow in a timely manner. This includes agents in the Broker’s own office. Virginia Code 18 VAC 135-20-180. Maintenance and management of escrow accounts. C. Actions including improper maintenance of escrow funds include: 5. Failing, as principal broker, to report to the board within three business days instances where the principal broker reasonably believes the improper conduct of a licensee has caused noncompliance with this section. REALTORS® are highly encouraged to handle escrow deposits as a serious matter and ensure that these funds are turned into the Broker as soon as the contract if ratified. Remember that ratification occurs when the Buyer and Seller, as Principals execute and deliver the contract to each party. The Lender as the “Third Party Approver” is not a Principal and therefore irrelevant to the issue of escrow deposit." " " " " " " " " " !!"#"$ % & ' " "

956 3%@@$44$%&)?'&2($&#) From time to time the issue of commission comes up in the process of selling a Short Sale. Many Lenders have tried to encourage REALTOR® to “give up” part of their commission to make a transaction close. However, Fannie Mae and Freddie Mac have agreed that they will not require a reduction if the total commission is less than 6% for any of their loans. The Lender is not a Principal to the transaction, and can only say yea or nay to the total proceeds. Occasionally a Listing Agent agrees to reduce his or her commission in order to “make the deal work”. That decision does not affect the Buyer’s brokerage commission, unless the Buyer’s Broker has agreed to such changes. MRIS sets the subscriber policy for how commissions are shared. In December of 2008, MRIS released a policy clarification on how REALTOR® make offers of compensation in the MLS. The Policy set forth in Article X – Section 2 of the MRIS Policy Manual states that compensation is delivered in one of three ways: a.) By showing a percentage of gross selling price; b.) By showing a definite dollar amount; or c.) Commission may be paid on net sales price (sales price minus seller concessions) or on base price in new construction if specified in the system. Section 6, had this change: References to special compensation in any other field, other than the compensation fields are not intended to, or shall be construed to permit any conflict with the unconditional offer of cooperation and compensation made in the compensation field(s). If there is any conflict between the unconditional offer made in the compensation field(s) and any other field. MRSI policy is that the information I the compensation field will control. This clarification addresses the practice by Listing Brokerages of including comments like “50% split with commission received from Lender”, or other similar comment. There are two issues with these types of statements. First it reveals the Seller is pursuing a Short Sale and therefore requires prior permission from the Seller. The second issue is that the Buyer Agent is slave to the Listing Agent’s ability to negotiate with the Lender. Therefore the policy says that the compensation offered in the compensation field !+"#"$ % & ' " "

controls the amount paid the Buyer Agent, regardless of what the Listing Agent agrees to negotiate away with the Lender. Another tactic used by some Brokerage companies is to counter the receipt of an Offer on the Short Sale property with an agreement between the Brokerages to share any commission received in an equitable split. The question then becomes, what happens to the Offer to Purchase should the Buyer’s Brokerage refuse to agree to the new commission agreement? . Chapter X addresses this issue more thoroughly, but the short answer is that it’s against the REALTOR® Code of Ethics and Virginia law to withhold an Offer to Purchase from the Seller unless specifically agreed to by the Seller. Likewise, a Buyer Agent who does not like the offer of compensation in the MLS, may not attempt to negotiate a higher compensation in the terms of the Offer to Purchase, as this would be a potential violation of Article 16 (SOP 16-16) of the REALTOR® Code of Ethics. " " " " " " " " " " " " " " !,"#"$ % & ' " "

9556 A!5*);%($/8) Once a contract is ratified, the listing status must be changed in MRIS to reflect the actual status. Some agents are using the CNTG/KO. That’s fine, so long as the kick-out clause addendum is used and it is very clear that the property does have a kick-out and all parties understand what that means and how it will be enforced. A listing cannot be “Active” in MRIS, if the contract is ratified. Here is what MRIS has to say: "Short Sales" have become the subject of great discussion and debate among practitioners, regulators, and policymakers alike. With input and guidance from the MRIS Board of Directors, the MRIS Compliance Committee, the REALTOR® Shareholder Associations and the MRIS subscribers, and taking into consideration the new policy changes approved by NAR at this year’s mid-year conference, MRIS is updating its policies related to Short Sales. The goal is to provide a balanced approach that addresses issues on both the seller and buyer sides of transaction. There are several points that MRIS subscribers will need to consider: Definition of Short Sale. MRIS is adopting the definition of "short sale" established by NAR: "As used in MLS rules, short sales are defined as a transaction where title transfers; where the sale price is insufficient to pay the total of all liens and costs of sale; and where the seller does not bring sufficient liquid assets to the closing to cure all deficiencies." Definition of Potential Short Sale. A potential short sale describes a property that may reasonably be expected to become subject to a short sale. Going forward, MRIS’s new policy is that all Potential Short Sale listings must be disclosed unless local laws require otherwise. The potential for a short sale is considered a material fact. Lender Approval. Seeking Lender approval is part and parcel of the typical short sale transaction. The bottom line: If Lender approval is to be sought in a transaction, then this fact must be disclosed to the potential buyer and buyer’s agent unless local laws require otherwise. It is your responsibility to properly determine what your legal obligations are, and to act in accordance with these obligations. Compensation Data Field. Since only listings with unconditional offers of compensation may be entered in MRIS, the compensation entered in the compensation field is the compensation that any cooperating broker should expect to be paid as result of the sale. !-"#"$ % & ' " "

MRIS will continue to treat commission related issues and disputes as the purview of the arbitration panel of the appropriate local Realtor® Association. MRIS is not a party to any short sale transaction or compensation agreement, and will not adjudicate compensation related disputes among subscribers. Appropriate status. The status for any listing where a ratified contract is subject to a Lender approval must be changed to CNTG/KO or CNTG/NO KO, indicating a third-party approval contingency. MRIS’s perspective is that a listing broker, in such an instance, may continue to market the property and continue to accept back-up offers. The MRIS Rules and Regulations require that the listing’s status be changed within 48 hours excluding weekends and holidays. Please refer to the Short Sale FAQ at http://www.mris.com/compliance/faq.cfm for more information. Note: Virginia considers the pursuance of a short sale as a confidential financial fact and thus cannot be disclosed in MLS or anywhere else without the written permission of the Sellers.” The Virginia Administrative Code also addresses this issue: 18 VAC 135-20-190. Advertising by licensees. 3. All online listings advertised must be kept current and consistent as follows: a. Online listing information must be consistent with the property description and actual status of the listing. The licensee shall update in a timely manner material changes to the listing status authorized by the seller or property description when the licensee controls the online site. b. The licensee shall make timely written requests for updates reflecting material changes to the listing status or property descriptions when a third party online listing service controls the website displaying the listing information. c. All listing information shall indicate in a readily visible manner the date that the listing information shown was last updated. " " " " !."#"$ % & ' " "

95556 *+%,-)*'(")3,"2$-)5@B'/-4) 456""789:';'"<*''=5'*>?"@(()*A'5"B)*"CDDE"F8(;'" The impact of a Short Sale on a Seller’s credit score may be an issue for some Sellers. This issue has evolved quickly in the wake of the current market, but one thing has stayed the same. Short Sales negatively impact a Sellers’ credit history. However, REALTORS® are encouraged to not give advice on such matters, unless they have specific training in that area. The client should be given a resource to rely upon and referred to an attorney or CPA. Michele Freemeyers, attorney and instructor gave this advice in a June 18th, 2008 article: The Story I had a client call me the other day… his story was similar to many we have all heard over the last year and a half. He had been trying to sell his investment property for over two years but was very resistant to dropping the price, which he recognized was necessary to get any offer of purchase. His life savings had been depleted trying to keep current on this property and he had reached the end of the line. He was depressed, frustrated and resigned to losing the property and taking a credit “hit”. The bottom line for him was whether he should he “go to the trouble of trying for a short sale” or just “let it go to foreclosure”. He definitely wanted the easier road, which he thought would be a foreclosure. The consequences would be similar between the two . . . . right? What do Lenders Say? I flashed back to about two weeks prior when I was teaching a Short Sale and REO Transaction class for a local Lender. The Senior Loan Officer had some material to share with us. First, she showed us actual credit reports of clients who had gone through a Short Sale. There was a “Before” and “After’ credit report for the same borrower. The Short Sale basically dropped this borrower’s credit score by one hundred (100) points. The mortgage also showed as “Paid in full but settled for less than was owed.”…. Okay, this was kind of what we would have anticipated and is certainly consistent with the information we have received from the lending institutions over the last year. Then we see the real show stopper. The Loan Officer hands out the new Fannie Mae underwriting guidelines that go into effect May 31, 2008. Guess what? The rules have changed. !/"#"$ % & ' " "

REALITY BITES The reality for my client on the phone becomes painfully clear. My advice: You better find a good agent who is competent and experienced in handling a Short Sale transaction. Under the new Fannie Mae guidelines the effect of a Foreclosure on a borrowers’ credit worthiness is substantial, devastating and decisive. A Short Sale may reduce your clients’ credit score and will stay with them for about a one year or twelve month period of time. For all our clients who have “let it go to foreclosure”, I have some very, very bad news. Effective May 31, 2008, according to the Fannie Mae guidelines, a client who has filed a foreclosure will be “ineligible” for a period of five years. That is FIVE YEARS (5 years) for a foreclosure compared with a one year “ineligible” for a Short Sale. That difference is significant and will have an immediate effect on our business. Don’t be Surprised It should be no surprise to us that the lending guidelines would adjust. We should have all seen this coming, right? Certainly the prior estimates of a 2 year credit hit for a Short Sale as compared to a 3 year hit for a Foreclosure were astonishing and somewhat unbelievable, leaving many of us to wonder if the effect of either outcome made no significant difference to our Seller, then why did it matter which outcome they pursued? The implementation of these new guidelines solidifies the rules and changes the desired outcome for many of our Sellers. As a result, I think we will all become experts on the Short Sale transaction. " " " " " " " " " " !0"#"$ % & ' " "

5C6));,"4"&-$&#)D..",4) An Agent must present all offers to their client. Here is Virginia Statute: 54.1-2131. Licensees engaged by sellers A. A licensee engaged by a seller shall: 2. Promote the interests of the seller by: c. Receiving and presenting in a timely manner written offers and counteroffers to and from the seller and purchasers, even when the property is already subject to a contract of sale; and Here is what the REALTOR® Code of Ethics states: · Standard of Practice 1-6 REALTORS® shall submit offers and counter-offers objectively and as quickly as possible. (Adopted 1/93, Amended 1/95) · Standard of Practice 1-7 When acting as listing brokers, REALTORS® shall continue to submit to the seller/landlord all offers and counter-offers until closing or execution of a lease unless the seller/landlord has waived this obligation in writing. REALTORS® shall not be obligated to continue to market the property after an offer has been accepted by the seller/landlord. REALTORS® shall recommend that sellers/landlords obtain the advice of legal counsel prior to acceptance of a subsequent offer except where the acceptance is contingent on the termination of the pre-existing purchase contract or lease. (Amended 1/93) These requirements do not state that the Offer has to meet the Listing Agent’s approval, nor does it dictate the format of the Offer. There is no “required” contract format. All Offers have to be presented, even if on a napkin. Whereas the Virginia Code section actually specifies “written” Offers, the Code of Ethics compels REALTORS® to present “all” offers, which could include oral Offers or even letters of intent. There are some basic elements that make an Offer to Purchase, but that’s a post for a different time. What’s a buyer to do? Almost as daunting as the issue of Listing Agents not presenting the Offer to Purchase, are Agents declining to write offers. Prior to entering into an agency relationship (either !1"#"$ % & ' " "

the implied or expressed) the consumer is a customer and is not due certain levels of skill. Upon becoming a Client obligations are imposed. These obligations compel Agents to write all Offers that are lawful, at the order of client. This is where obedience comes in. 54.1-2132. Licensees engaged by buyers A. A licensee engaged by a buyer shall: 2. Promote the interests of the buyer by: b. Assisting in the drafting and negotiating of offers and counteroffers, amendments, and addenda to the real estate contract pursuant to § 54.1-2101.1 and in establishing strategies for accomplishing the buyer’s objectives; Note that the emphasis is on the “Buyer’s objectives” not the agent’s objective, therefore trying to obtain a higher commission by offering a higher price, or “saving face” with the opposing Agent are against the Code. The Agent is hired to carry out the Client’s wishes and attempt to obtain the best property at the lowest price possible. Still not convinced? Ok, what does the REALTOR® Code of Ethics say about this? Standard of Practice 1-8 REALTORS® , acting as agents or brokers of buyers/tenants, shall submit to buyers/tenants all offers and counter-offers until acceptance but have no obligation to continue to show properties to their clients after an offer has been accepted unless otherwise agreed in writing. REALTORS®, acting as agents or brokers of buyers/tenants, shall recommend that buyers/tenants obtain the advice of legal counsel if there is a question as to whether a pre-existing contract has been terminated. (Adopted 1/93, Amended 1/99) If the Seller wishes their Agent to screen Offers and only forward those which meet a certain criteria, Agents should get that directive in writing and PROFESSIONALLY explain to the Selling Agent that the Client has rejected this type of Offer. Any Offer in this market is a good way to start the conversation that may lead to a closed transaction. If for no other reason than to enlighten self interest, present all Offers and treat ALL Agents and Clients with respect and professionalism. It’s simply what the client hired the Agent to do. A Selling Agent who doesn’t write “lowball offers” is compelled to explain that policy to the consumer before he or she enters into the agency agreement, otherwise the Agent is committed to the representation. !2"#"$ % & ' " "

The Short Sale process presents some unique issues for some Agents. The chief issue is multiple Offers. With the low price of certain Short Sale properties, it’s not a surprise that occasionally more than one Offer arrives. The Listing Agent must present all these Offers to the Seller. The Seller then dictates which Offer they desire to accept. The Seller may accept multiple Offers, knowing that the Lender will accept only the highest and best. The recommended way to proceed with multiple Offers is to ratify the contract that appears to be the highest and best, and ratify subsequent offers as “Back Up” offers, allowing the Buyer Agents to know what the true status of their offer to purchase. The Lender’s approval contingency does not preclude a Listing Agent from submitting additional offers to the Lender for them to choose the offer that generates the highest yield. " " " " " " " " " " " " " " " " " " +3"#"$ % & ' " "

C6))E%,@4) There are a number of forms that are available to REALTORS® to help them best represent their clients. The next several forms are a combination of the MRIS forms, maintained by NVAR and available from Zipforms and AutoContract and VAR forms found at www.VAREALTOR.com. " " " " " " " " " " " " " " +!"#"$ % & ' " "

FBB"&2$G)HI)*%1,/"4) “Who are the Players and what is Ratification” Sources: Real Estate Law, Fourth Edition Dearborn Publishers; Modern Real Estate Practice 17th Edition; Fairfaxlaw.blogspot.com, NAR 2009 Code of Ethics, MRIS.com, LEG1.state.va.us, (Virginia Legislation Online) en.wikipedia.org Desiree Hatcher, “Foreclosure Alternatives: A Case for Preserving Homeownership,” Profitwise News and Views (a publication of the Federal Reserve Bank of Chicago) (February 2006), p. 2 (citing a GMAC-RFC estimate) (http://www.chicagofed.org/community_ development/files/02_2006_foreclosure_alt.pdf). See also Congressional Budget Office (CBO), “Policy Options for the Housing and Financial Markets,” (April 2008), p. 17. 3 Karen M. Pence, “Foreclosing on Opportunity: State Laws and Mortgage Credit,” Board of Governors of the Federal Reserve System (May 13, 2003), p. 1 (http://www.federalreserve.gov/Pubs/feds/2003/200316/200316pap.pdf).. See also CBO, p. 17; Community Affairs Department, Office of the Comptroller of the Currency (OCC), “Foreclosure Prevention: Improving Contact with Borrowers,” Community Developments (June 2007), p. 3 (http://www.occ.treas.gov/cdd/Foreclosure_Prevention_Insights.pdf). NAR Short Sale Flow Chart: http://www.realtor.org/mempolweb.nsf/pages/shortsales " !"#"$ % & ' " "

REALTORS® are   obligated to present all REALTORS® are offers, contracts and obligated to being addendums to their clients, honest to everyone in objectively and as quickly the transaction! as possible – regardless of commission negotiations. REALTORS® are The Seller’s pursuit of a   obligated to disclose Short Sale is legally their company’s policy confidential, but must be regarding Short Sales to disclosed as a their clients prior to contingency in the Offer entering into an agency to Purchase relationship. negotiations. REALTORS® shall All agreements related REALTORS® need to be   disclose the existence of accepted offers,  to the real estate transaction are to be in proficient and capable in the Short Sale process. including offers with writing and in clear and Those who aren’t must find assistance from those unresolved understandable who are, or disclose this to contingencies. language. A copy is to their clients. be furnished to all. REALTORS® must REALTORS® may not   present a true picture in use the terms of the When REALTORS® work with their advertising and Offer to Purchase to buyers and sellers in a Short Sale marketing. All recipients negotiate or alter the they face a number of Challenges. of all communications offer of compensation. The list above are the most cited must know they are potential violations in Ethics talking to a REALTOR®. Complaints.   

COMPLIANCE ECNAILPMOC DO’S AND DON’TS TO AVOID COMPLIANCE FINES SHORT SALES Compensation: • Do enter Compensation as a percentage of the gross or net sales amount or enter a dollar amount. • Do make an unconditional offer of cooperation and compensation. • Don’t enter a compensation amount or indicate in the remarks that compensation depends or is contingent upon third party approval. • Don’t indicate that the third party will determine compensation for cooperating brokers based on negotiated terms of the contract. Status: • Do update listing status to Contingent upon acceptance/ratification of an offer. • Do update the status of a listing pending third party approval to Contingent Contract. • Don’t keep a property in ACTIVE status after accepting/ratifying an offer because the seller or any third party requests that the status remain active. LISTINGS • Do enter all property information accurately. • Do make all status changes and other updates within 48 hours, weekends and holidays excluded. • Do update Contingency Expiration Dates or Settlement dates when the dates change or have passed. • Do use the Tax ID Autofill feature when entering listings. • Don’t try to manipulate Days on Market, using tax and address information. • Don’t enter two or more active listings for the same property unless the property is both for rent and for sale. REMARKS Internet (Public): • Do include information about the property only. • Don’t include any of the following information: commissions, showing contacts, agent or broker names, phone or fax numbers, web site or email addresses, virtual tours, alarm codes, lockbox codes or other security measures. • Don’t include any links, active or animated content, or other comments containing HTML or programming code General (Agent) /Farm: • Do enter information intended for cooperating brokers, such as special showing instructions, contacts or phone numbers, special contract information, special compensation information, properly excluded prospects, virtual tours, broker or agent web sites and email addresses. Foreclosure or Auction listings may reference a third party web site (such as HUD, VA) where contracts must be registered. • Don’t include any Lockbox codes or other security system information without Seller’s permission. A copy of the Rules and Regulations as well as other information on MRIS Compliance policies may be found at: www.mris.com/compliance

START HERE 1 KNOW THE PROPERTY. Be brutally honest in your analysis of its value and marketability. hort 2 KNOW THE EFFECT OF A SHORT SALE ON THE SELLER. 9-%%"&'$1$"6$"3)1,-:$+$88")3"&'$";$74-$+4<=">3"8)?"*-%%"&'$1$"6$" TIPS a tax consequence? 3 TALK TO THE SELLER—AND LENDER— EARLY ON ABOUT SELLER’S LOAN STATUS. You need to know: What’s the seller’s payment status? What’s the seller’s A REALTOR’S® quick loan balance (all loans)? Was the seller honest in his loan application? reference to thinking, How long will approval take? What are the lender’s requirements? advising, and closing. By Lem Marshall, VAR Special Counsel Putting 1–3 above together allows you to… KNOW YOUR BUYERS, ADVISE ESTABLISH YOUR MARKET MARKETING AND PREPARE THEM FOR STRATEGY. WHAT’S COMING. Your strategy will Bring them to the table knowledgeable, be determined by prepared, and pre‐approved. answering these !"" $%%"&'$("')*"%)+,"-&"(-,'&"&./$"&)" # questions: How get approval: what did the lender close is foreclosure? tell the listing agent? How much time !"" 1$2.1$"&'$("&)"(./$"%).+" 0 do you have? How application with the payoff lender— aggressive should it will want to know whether the you be on price? borrower can really get the loan. KNOW YOUR MLS RULES LIST How will aggressive marketing—and a low AND CLIENT DUTIES. !"" 1$2.1$"&'$("3)1"&'$"4)(2$&-&-)+5 0 price—affect seller? Are you sure you know the MLS rules? !"" 1$2.1$"&'$("&)"1$.2"&'$"6$+$7&8")3" 0 Here’s a quick test. Must you disclose being prepared…and patient. it’s a short sale? Is there a way to inform participating brokers that they must share in any lender‐mandated fee reduction? What client consents must you have? Is your listing agreement enough?

KNOW THE LAW REGARDING CONTRACT PREPARE AN ATTRACTIVE LAW CONTRACT. HERE’S HOW: RATIFIED CONTRACTS. !"" $%$&$'(")(**(+",-%,())$-%). # Contracts signed by buyer lower net price is better. and seller and sent to lender 9-+"3::+-;3*"3+("+3/$<(61"45/" !"" $%$&$'(",-%/$%0(%,$()1" # contingent. Earnest money must and front load them be deposited. But subsequent (no post‐approval inspections). superior offers may be accepted !"" ("+(3*$)/$,"34-5/"6(36*$%(" 2 and submitted (caveat – will this contingencies. start approval process over?). !"" (")5+("/7(")(**(+8)"-4*$03/$-%)" 2 are contingent. KNOW THE LENDER’S MOTIVATIONS, FEE AND STAND UP FOR YOUR FEE. Lenders don’t want foreclosures – they murder the balance sheet. Fannie and Freddie won’t require you to reduce your fee (if you’re not above 6%). Other noteholders won’t either, if =-5">5)/")/3%6"<+&"-%"=-5+"9((? BE PATIENT, BE FLEXIBLE, OFFER AND BE OPEN‐MINDED. The short sale is an excellent alternative to the foreclosure. Make the lender an offer he can’t refuse (good price now, no cash drain, no adding to reserves, immediate help to the balance sheet). FINISH LINE USE THE SHORT SALE, BUT KNOW HOW TO DO IT COMPETENTLY. For a more detailed overview of short sales and loss mitigation, common transaction questions and answers, and consumer resources visit www.VARealtor.com/ShortSales. Copyright Virginia Association of Realtors® 2009

SHORT SALES: INFORMATION FOR SELLERS In discussing Sellers’ real estate needs with a broker, Sellers have disclosed that the sale of Sellers’ property might require lien holder approval of a short sale, because the purchase price Sellers expect to receive for their property, net of the costs of sale, is or might be less than the amount of all obligations secured by liens on the property. Sellers should consider the following information carefully: (1) Alternatives to a short sale, including loan modification, refinancing, bankruptcy, foreclosure or deed in lieu thereof, might be available to Sellers. (2) A short sale might negatively affect Sellers’ credit rating or score. (3) Unless the underlying obligation is non-recourse to the Sellers (in which case a creditor may satisfy an obligation only from the property/collateral and not from personal recourse to Sellers), the lien holder(s) are not obligated to release Sellers from any deficiency resulting from a short sale, and might require Sellers to agree to repay such deficiency or some part thereof. In some cases, even if the lien holder releases Sellers from such deficiency, Sellers might have income tax consequences from receipt of such “forgiveness of debt” income. Sellers’ real estate broker is not a legal or tax advisor. Sellers should obtain such legal and financial counsel as Sellers feel is appropriate in connection with the potential consequences of the sale. Sellers are encouraged to retain legal counsel to connection with this transaction. (4) Lien holders and lenders are not obligated to approve a short sale, are not always obligated to release Sellers from further liability if a short sale is approved, and may impose additional requirements on the consideration of a short sale. Sellers’ broker will have little or no control over any such approval or over the time required to obtain necessary approvals. (5) Short sale transactions frequently take much longer to consummate (sometimes many weeks or months) than other transactions. Consequently, Sellers understand that it is essential for Sellers to cooperate with their broker fully and to respond promptly to all requests to furnish information and to take other actions required of Sellers. (6) Seller’s broker is under no obligation to reduce the brokerage fee set forth in the listing agreement in order to obtain the approval of any lien holder to a short sale. (7) A short sale does not change the seller’s obligations under Virginia law to provide to purchasers a condominium resale certificate or property owners’ association information packet. Sellers are encouraged to comply with these legal requirements, as failure to do so will generally afford purchasers a contract termination right. (8) Competent representation – by real estate, tax and legal professionals – is important to the successful completion of a short sale. SELLERS ____________/________________________ (SEAL) Date Owner ____________/________________________ (SEAL) Date Owner COPYRIGHT©2009 by the Virginia Association of REALTORS®. All rights reserved. This form may be used only by members in good standing of the Virginia Association of REALTORS®. The reproduction of this form, in whole or in part, or the use of the name “Virginia Association of REALTORS®,” in connection with any other form, is prohibited without prior written consent of the Virginia Association of REALTORS®. VAR FORM 660-H 09/09 Page 1 of 1

SHORT SALES: INFORMATION FOR PURCHASERS In discussing Purchasers’ real estate needs with a broker, Purchasers have expressed the possibility in being involved in a short sale transaction, that is, a transaction that might require lien holder approval because the purchase price sellers expect to receive for their property, net of the costs of sale, is or might be less than the amount of all obligations secured by liens on the property, and sellers do not liquid assets sufficient to pay any deficiency at settlement. Purchasers should consider the following information carefully: (1) Your contract will be with the sellers of the property and not with their lender(s), but approval by sellers’ lender(s) and other lien holders not being paid in full at settlement will be required. The approval period can be lengthy, and can sometimes require 120 days or more to obtain. You must be willing and able to await these approvals. If you cannot await these approvals, or if you have strict and relatively short time horizons for closing on or taking possession of a home, a short sale might not be the transaction for you. Even if you are able to wait, there is no guarantee of approval. Sellers’ lien holders (or their mortgage insurance company) might reject the terms of your contract or might request that the terms be re-negotiated. (2) You can make your offer more attractive, and increase your chances of success, by performing needed inspections before entering into a contract with sellers and putting the cost of needed repairs in the price, or doing such inspections as soon after ratification as possible and making price adjustments early in the process. Sellers and sellers’ lien holders will likely not fund any repairs to the property. It is also highly recommended that you obtain financing approval before commencing the short sale process and that you inform your lender of your plans. You might save some expense by delaying inspections and loan applications until after short sale approval is obtained, but such delay will likely diminish your chance of approval. You should discuss your strategy carefully with your broker to decide on a plan that makes most sense for you. (3) You should be prepared to make loan underwriting application with sellers’ lien holder’s specified lender. This application is to assure the lien holder of your ability to obtain and close on your chosen financing – something that is important to the lien holder in the context of the short sale. This application will not interfere with your own financing arrangements; the lien holder’s specified lender may not legally insist that you obtain your financing through such lender. (4) Once lender approval is obtained, settlement will often occur very quickly. It is common for sellers’ lien holders to require settlement within 30 days, and often within as little as 7 to 14 days. (5) There is no guarantee that the short sale process will interrupt foreclosure proceedings against sellers and the property. Foreclosure before settlement will terminate your contract with sellers. (6) Sellers might continue to market the property while awaiting lien holder approval of your contract. Because your contract will be contingent on lien holder approval, your contract might be at risk of better offers on the property. As is true in virtually all real estate negotiations, your chances of winning approval will be in direct proportion to the desirability of your contract offer. Clean contracts at a reasonable price with approved financing at the ready will generally be advantageous. (7) You are encouraged to obtain a title search of the property as soon as possible after obtaining a ratified contract. This will alert you not only to ordinary issues of title that might need to be reviewed and addressed (such as covenants, easements, and other adverse rights) but also to liens that will need to be released by the seller. This information will allow you to monitor more effectively your seller’s progress in obtaining necessary lien-holder consents. VAR FORM 600-G 09/09 Page 1 of 2

Before undertaking the short sale process, purchasers should be sure their circumstances and personal needs afford them the time and patience to take advantage of the potential benefits of purchasing a short sale property. Your broker will have very limited control over the approval process, but can assist you in crafting a strategy that makes sense for you and in preparing an offer that reflects and protects your interests. PURCHASERS ____________/________________________ (SEAL) Date Purchaser ____________/________________________ (SEAL) Date Purchaser COPYRIGHT©2009 by the Virginia Association of REALTORS®. All rights reserved. This form may be used only by members in good standing of the Virginia Association of REALTORS®. The reproduction of this form, in whole or in part, or the use of the name “Virginia Association of REALTORS®,” in connection with any other form, is prohibited without prior written consent of the Virginia Association of REALTORS®. VAR FORM 600-G 09/09 Page 2 of 2

VIRGINIA ASSOCIATION OF REALTORS® SHORT SALE ADDENDUM TO EXCLUSIVE AUTHORIZATION TO SELL THIS SHORT SALE ADDENDUM is attached to and made a part of that Exclusive Authorization to Sell (the “Listing”) dated as of the ____ day of ________, 20___, by and between _______________________________________________ _______________________________________________________________________________________(the “Owner”) and ___________________________________________________________________(the “Broker”) for the sale of that certain real property located in the County or City of _________________________, Virginia, described in the Listing as _________________________________________________________________________________________________ _________________________________________________________________________________________________ __________________________________________________________________ (the “Property”), and provides as follows: 1. Short Sale: As used herein, the term short sale refers to a sale of the Property in which: (a) the purchase price, net of the costs of sale, is or might be less than the amount of all obligations secured by liens on the Property, including without limitation mortgage loans, credit lines, judgments, association liens, property taxes and liens, mechanics liens, water and sewer fees and liens, and other liens that must be released in order for Owner to deliver marketable title to a purchaser; (b) Owner does not have sufficient liquid assets to pay any resulting deficiencies; and (c) lien holders who will not be paid in full agree to release their liens upon payment of sums less than the amounts owed on the obligations secured by the liens. 2. Owner Acknowledgment: Owner acknowledges that the sale of the Property will or might be a short sale, and has agreed to make arrangements with Broker and prospective purchasers of the Property so as to accomplish a short sale and obtain the approval of lien holders to such short sale. 3. Owner Authorizations and Agreements: Owner hereby agrees as follows: (a) Owner authorizes Broker to communicate and negotiate directly with all lien holders on Owner’s behalf and to obtain from lien holders information as to Owner’s situation as to all relevant obligations, and agrees to enter into such written authorizations to such dealings as may be required by Broker and lien holders. (b) Owner authorizes Broker, to the extent required by any multiple listing service into which the Property will be placed, to disclose to cooperating brokers that the sale of the Property is or could be a short sale. (c) Owner agrees to provide to Broker all information as to Owner’s obligations, financial condition and affairs as may be required for Broker to formulate the optimal marketing strategy for the Property. Such information may include, without limitation: the balance, payment history and payment status of Owner’s loans; notices regarding late payments, defaults or note acceleration received from lien holders or servicers; and information as to the financial ability of Owner to make payments on obligations until such time as short sale approval and settlement can occur. Owner agrees to provide to Broker promptly information about any material changes in Owner’s financial condition during the term of the listing. (d) Owner agrees to provide to lien holders and/or Broker, and to authorize Broker to provide to lien holders, any information or documentation required to obtain short sale approval. This information might include, among other information, financial statements, bank records, tax returns, hardship letters, employment information including W-2 forms, and other information about Owner’s ability to repay the obligations or Owner’s worthiness to be approved for a short sale. (e) Owner authorizes Broker to provide to prospective buyers and their agents and to the settlement agent all mortgage and lien account payoff information. (f) Owner authorizes Broker to provide to lien holders any comparable sales information, broker price opinion or market analysis of the Property in Broker’s possession. (g) Unless otherwise mutually agreed by Owner and Broker, Broker will continue to market the Property after receipt of one or more ratified contracts, will continue to seek other better offers to purchase the Property, and will present any such offers to Owner promptly. Broker will use such methods as are available to make Owner’s interest in receiving such additional offers clear to participants in the multiple listing services in which the Property is listed. 4. Owner Acknowledgements: Owner acknowledges the following: (a) Owner has elected to pursue a short sale notwithstanding alternatives to a short sale, including loan modification, refinancing, bankruptcy, foreclosure or deed in lieu thereof, might be available to Owner. VAR FORM 400-SS 09/09 Page 1 of 2

(b) A short sale might negatively affect Owner’s credit rating or score. (c) Unless the underlying obligation is non-recourse to the Owner (in which case a creditor may satisfy an obligation only from the Property/collateral and not from personal recourse to Owner), the lien holder(s) are not obligated to release Owner from any deficiency resulting from a short sale, and might require Owner to agree to repay such deficiency or some part thereof. In some cases, even if the lien holder releases Owner from such deficiency, Owner might have income tax consequences from receipt of such “forgiveness of debt” income. Owner acknowledges that Broker is not a legal or tax advisor, and that Owner should obtain such legal and financial counsel as Owner feels is appropriate in connection with the potential consequences of the sale. Broker encourages Owner to retain legal counsel to connection with this transaction. (d) Lien holders and lenders are not obligated to approve a short sale, are not always obligated to release Owner from further liability if a short sale is approved, and may impose additional requirements on the consideration of a short sale. Broker has no control over any such approval or over the time required to obtain necessary approvals. (e) Unless otherwise agreed by Owner and Broker, Broker will continue to market the Property until a ratified contract is fully approved by all necessary parties. Any subsequent offers will be presented to Owner for Owner’s consideration, and, if appropriate, the consideration of Owner’s lien holder(s). Broker will report the existence of a fully ratified contract to any multiple listing service in which the Property is listed in accordance with the rules of that multiple listing service. (f) Short sale transactions frequently take much longer to consummate (sometimes many weeks or months) than other transactions. Consequently, Owner understands that it is essential for Owner to cooperate with Broker fully and to respond promptly to all requests to furnish information and to take other actions required of Owner. (g) Broker is under no obligation to reduce the brokerage fee set forth in the Listing in order to obtain the approval of any lien holder to a short sale. 5. Release. Owner releases Broker from any and all liability for any loss, claim, obligation or liability resulting from: the inability to obtain a satisfactory contract and/or lien holder approval in the time necessary to avoid foreclosure; the delay on the part of lien holder in considering or approving a short sale transaction; the failure or inability of Owner to qualify for short sale approval; or the failure of the transaction to reach settlement for any reason other than the willful and wrongful act or gross negligence of Broker. 6. Other terms: (Use this space for additional terms not dealt with elsewhere in this Addendum.) ___________________________________________________________________________________________ ___________________________________________________________________________________________ ___________________________________________________________________________________________ ___________________________________________________________________________________________ ___________________________________________________________________________________________ ___________________________________________________________________________________________ ___________________________________________________________________________________________ ___________________________________________________________________________________________ ___________________________________________________________________________________________ ___________________________________________________________________________________________ Witness the following duly authorized signatures and seals: OWNER BROKER ____________/____________________________(SEAL) ___________________________________________ Date Owner ___________________________________________ BY: _______________________________________ ____________/____________________________(SEAL) NAME: ____________________________________ Date Owner DATE: ____________________________________ COPYRIGHT©2009 by the Virginia Association of REALTORS®. All rights reserved. This form may be used only by members in good standing of the Virginia Association of REALTORS®. The reproduction of this form, in whole or in part, or the use of the name “Virginia Association of REALTORS®,” in connection with any other form, is prohibited without prior written consent of the Virginia Association of REALTORS®. VAR FORM 400-SS 09/09 Page 2 of 2

VIRGINIA ASSOCIATION OF REALTORS® SHORT SALE ADDENDUM TO RESIDENTIAL CONTRACT OF PURCHASE THIS SHORT SALE ADDENDUM is attached to and made a part of that Residential Contract of Purchase dated as of the ____ day of ________, 20___, by and between ____________________________________________________________ _______________________________________________________________________________________(the “Seller”) and ___________________________________________________________________(the “Purchaser”) for the sale of that certain real property located in the County or City of _________________________, Virginia, described in the Listing as _________________________________________________________________________________________________ _________________________________________________________________________________________________ __________________________________________________________________ (the “Property”), and provides as follows: 1. Short Sale: Seller does hereby acknowledge to Purchaser that this transaction might or will require lien holder approval as a short sale. As used herein, the term short sale refers to a sale of the Property in which: (a) the purchase price, net of the costs of sale, is or might be less than the amount of all obligations secured by liens on the Property, including without limitation mortgage loans, credit lines, judgments, association liens, property taxes and liens, mechanics liens, water and sewer fees and liens, and other liens that must be released in order for Seller to deliver marketable title to a purchaser; (b) Seller does not have sufficient liquid assets to pay any resulting deficiencies; and (c) lien holders who will not be paid in full agree to release their liens upon payment of sums less than the amounts owed on the obligations secured by the liens. 2. Short Sale Contingency: (a) This Contract and Seller’s obligations hereunder are contingent until midnight _____ days after this Contract is fully ratified by Purchaser and Seller (the “Deadline”) on Seller’s obtaining approval, from those of Seller’s lien holders whose obligations will not be fully paid at settlement, to release such liens in return for the net proceeds of the sale. If Seller has not delivered by the Deadline copies of written lien-holder approvals or, if written approvals are not available, other evidence of such approvals reasonably acceptable to Purchaser, this contingency shall continue automatically until midnight on the third business day after Purchaser notifies Seller in writing that this Contract will terminate unless Seller has provided Purchaser evidence of all required written approvals prior to the expiration of such three-day period. If Seller receives notice from its lien-holder of rejection of this Contract, this Contract shall terminate upon Seller’s delivery of notice of such rejection to Purchaser. Seller will pursue lien-holder approval in good faith, and hereby authorizes Listing Company to notify Purchaser of its progress toward approval. As used in this Section 2, the term business day shall mean a day that is not a weekend or federal banking holiday. 3. Purchaser Acknowledgements and Agreements: Purchaser acknowledges and agrees as follows: (a) Lien holders and lenders are not obligated to approve a short sale, and may impose additional requirements on the consideration of a short sale. Seller has no control over any such approval or over the time required to obtain necessary approvals. (b) Seller and Listing Company are under no obligation to agree to reduce the commission set forth in their listing agreement in order to secure the approval of lien holders. (c) Purchaser might be required by Seller’s lien holder to make underwriting application with its specified lender, and Purchaser agrees to comply timely with such requirement whether or not Purchaser has been approved for financing elsewhere. Purchaser shall be under no obligation to accept financing from such specified lender. (d) Any consent by lien holders may be made on the condition that none of the terms of this Contract be altered in any material way, and therefore any changes to the date of settlement, the price, Seller concessions, commissions, or other material changes will require further consents by lien holders and could result in delays in settlement or withdrawal of approval. (e) Seller might be unable to make repairs to the Property requested by Purchaser as a result of any inspection of the Property by Purchaser. (f) There is no guarantee that the short sale process will interrupt any current or future foreclosure proceedings against Seller and the Property. Foreclosure before settlement will terminate this Contract, in which event the earnest money deposit will be returned to Purchaser. VAR FORM 600-SS 09/09 Page 1 of 2

4. Timeframes for Inspection and Financing. (a) Timeframes for home inspection provided for in this Contract, if any, shall be measured from: ___ Date of Contract ratification, OR ___ Date Seller delivers evidence of written lien-holder approval of this Contract to Purchaser. This provision shall not affect timeframes for any other inspections under the Contract. (b) Timeframes for financing contingency, if any, shall be measured from: ___ Date of Contract ratification, OR ___ Date Seller delivers evidence of written lien-holder approval of this Contract to Purchaser. NOTE: DELAYING INSPECTIONS AND APPLICATION FOR FINANCING MAY DIMINISH THE LIKELIHOOD OF SETTLEMENT BY RAISING LOAN AND INSPECTION ISSUES AFTER LIEN HOLDER APPROVAL. FOR THIS REASON, SUCH DELAY WILL LIKELY DIMINISH THE LIKELIHOOD OF APPROVAL OF THIS CONTRACT BY SELLER’S LIEN HOLDER(S). PURCHASER AND SELLER ARE ENCOURAGED TO CONSIDER WHETHER RESOLVING INSPECTION AND FINANCING ISSUES AS SOON AS POSSIBLE AFTER RATIFICATION WILL BETTER SERVE THEIR INTERESTS. 5. Settlement Date: Notwithstanding any other provision of this Contract, the settlement date shall be the later to occur of the date set forth in Section 8 of the underlying Contract, or _____ days after the date Seller delivers evidence of written lien-holder approval to Purchaser. 6. Ratification. Upon full execution of this Contract and Addendum by Purchaser and Seller, and delivery as required to create a contractual relationship between the parties, this Contract shall be deemed ratified. Notwithstanding such ratification, Seller shall have the right to continue to market the Property, and may accept other offers and submit them to its lien holders for consideration. 7. The parties agree that the earnest money deposit will be deposited in Escrow Agent’s escrow account (check one): ___ within five (5) business banking days after the date this Contract is fully ratified by Purchaser and Seller; OR ___ within ___ days after delivery by Seller to Purchaser of notice of lien-holder approval of this Contract. 8. Other terms: (Use this space for additional terms not dealt with elsewhere in this Addendum.) ___________________________________________________________________________________________ ___________________________________________________________________________________________ ___________________________________________________________________________________________ ___________________________________________________________________________________________ ___________________________________________________________________________________________ ___________________________________________________________________________________________ ___________________________________________________________________________________________ ___________________________________________________________________________________________ ___________________________________________________________________________________________ ___________________________________________________________________________________________ Witness the following duly authorized signatures and seals: __________/______________________________(SEAL) __________/________________________________(SEAL) DATE SELLER DATE PURCHASER __________/_______________________________(SEAL) __________/_________________________________(SEAL) DATE SELLER DATE PURCHASER COPYRIGHT©2009 by the Virginia Association of REALTORS®. All rights reserved. This form may be used only by members in good standing of the Virginia Association of REALTORS®. The reproduction of this form, in whole or in part, or the use of the name “Virginia Association of REALTORS®,” in connection with any other form, is prohibited without prior written consent of the Virginia Association of REALTORS®. VAR FORM 600-SS 09/09 Page 2 of 2

INFORMATION FOR PURCHASERS CONCERNING SHORT SALES The term “short sale” is used to describe a sale where the debt owing against a property combined with the costs associated with the sale exceed the property’s market value. In such cases, the Seller’s lender(s) (“creditor(s)”) may or may not agree to accept less than the amount owed in order to allow the property to be sold. Below are some scenarios that may occur when the sale of a property is subject to creditor approval. By signing below, I acknowledge that my agent has provided the following information to me. 1. The property may be foreclosed upon prior to settlement, which would prevent the Seller from selling the Property. 2. With a short-sale, creditor(s) approval may take several weeks or months. The sales contract is subject to the approval of all creditor(s) who must agree to release their lien(s) on the property in order for the sale to close. 3. Any changes to the sales contract that affect the creditor’s net proceeds may need re- approval. 4. Obtaining creditor(s) approval of a short sale involves documentation similar to the documentation lenders require from Purchaser to obtain a loan. In general, Sellers must generally establish that they are incapable of paying the loans by: A. Submitting W-2 forms from employers, bank statements, tax returns, and B. Providing a “hardship letter” stating the reasons the creditor(s) should agree to a short sale. 5. If the mortgage is insured, the mortgage insurance company may have additional requirements for approval. 6. Creditor(s) approval may require the Seller to sign a promissory note for the difference between the amount owed and the net proceeds of the sale. If the Seller does not agree to sign this note, settlement will not occur. 7. A full title examination is required to identify all creditor(s) and the amount each is owed. Sellers who cannot afford their mortgages may also have judgment liens, utility liens and homeowner’s association or condominium liens that affect the creditor’s net proceeds. 8. Purchasers may consider delaying the appraisal or home inspection until the title examination and/or the creditor’s approval is complete. NVAR – K1347 rev. 02/09 1 of 2 Initial: __/__/__

9. Because delays are likely, many Purchasers choose not to lock in their mortgage interest rates until creditor(s) approval is received. If purchasers choose to lock in their interest rate, it can be costly to get that rate lock extended. On the other hand, if Purchasers do not lock in an interest rate, it may be higher when creditor(s) approval is received. 10. After creditor(s) approval has been received, it may be difficult or impossible to get money for repairs. Many short sales are offered in “As-Is” condition. / / Date Purchaser’s Signature Date Purchaser’s Signature © 2009 Northern Virginia Association of REALTORS, Inc. This is a suggested form of the Northern Virginia Association of REALTORS®, Inc. (“NVAR”). This form has been exclusively printed for the use of REALTOR® and Non-Resident members of NVAR, who may copy or otherwise reproduce this form in identical form with the addition of their company logo. Any other use of this form by REALTOR® and Non-Resident members of NVAR, or any use of this form whatsoever by non-members of NVAR is prohibited without the prior written consent of NVAR. Notwithstanding the above, no REALTOR® or Non- Resident member of NVAR, or any other person, may copy or otherwise reproduce this form for purposes of resale. NVAR – K1347 rev. 02/09 2 of 2

SHORT SALE ADDENDUM TO EXCLUSIVE RIGHT TO SELL LISTING AGREEMENT This Short Sale Addendum is made on , to an Exclusive Right to Sell Listing Agreement dated , by and between (“Seller”) and (“Broker”) for the Property: 1. SHORT-SALE DEFINED: The term “short sale” is used to describe a sale where the debt owing against a property combined with the costs associated with the sale exceed the property’s market value. In a loan default situation (pre-foreclosure) creditor(s) may be willing to agree to allow the property to be sold for less than the loan amount and/or accept less than (or “short”) the amount owed, and may or may not accept the net proceeds of sale as payment in full of the debt. Seller acknowledges there may be disadvantages to a short sale. Seller is advised to explore other options with creditor(s) other than a short sale, such as loan modification, revised payment plan, refinance or entry into a creditor(s) mitigation plan, if available. 2. CREDIT AND CREDITOR CONSIDERATIONS. A short sale may adversely affect Seller’s credit score. Further, even if creditor(s) agrees to a short sale, creditor(s) may not agree to forgive the debt entirely, and may require Seller to pay the difference as a personal obligation. If the loan is insured by the FHA or guaranteed by the VA, these entities may also require payment of the difference. Seller is strongly advised to consult independent legal counsel regarding the advisability of entering into a short sale agreement to be certain of the terms of any short sale before making a decision, and to obtain any debt forgiveness in writing. 3. TAX CONSIDERATIONS: A short sale in which a portion of the debt is forgiven is considered a relief of debt and may be treated as income for income tax purposes. A creditor who forgives a debt must submit a 1099 form to the IRS indicating the amount of the debt that has been forgiven. Seller is advised to obtain professional tax advice immediately regarding the tax implications and the advisability of entering into a short sale agreement. 4. DETERMINING THE AMOUNT OWED. Seller agrees to cooperate with Broker, settlement agent and creditor(s) to determine the amount of debt owed on the property, including but not limited to, purchase money loans, home equity loans, homeowner’s association fees, property taxes, tax liens, judgment liens, water or sewer liens, mechanics liens, and any other lien(s) which would prevent Seller from conveying marketable, insurable title to Purchaser. NVAR – K1350 – Rev. 04/08 Page 1 of 2 Please Initial: Seller _______/______Broker ______/______

5. OBTAINING CREDITOR APPROVAL. Obtaining creditor(s) approval of a short sale involves documentation similar to that required for the original loan application. Seller must generally establish that Seller is financially incapable of paying the loan(s). Seller agrees to promptly submit to creditor(s) all requested documentation, including W-2 forms from employers, bank statements, tax returns, “hardship letter” (stating the reason the creditor(s) should consider granting a short sale) and other requested financial documents outlining assets, income and debt. Seller acknowledges that it may take weeks or months to obtain creditor(s) approval of a short sale. Review and acceptance of any sales contract is required for final creditor(s) approval. Seller agrees to grant creditor(s) permission to communicate directly with Broker. Date Seller Date Broker/Sales Manager Date Seller Date Sales associate (Designated Listing Agent) Sales associates Contact Information Phone: (H) (W) (Cell) Email: Fax: © 2008 Northern Virginia Association of REALTORS®, Inc. This is a suggested form of the Northern Virginia Association of REALTORS®, Inc. (“NVAR”). This form has been exclusively printed for the use of REALTOR® and Non-Resident members of NVAR, who may copy or otherwise reproduce this form in identical form with the addition of their company logo. Any other use of this form by REALTOR® and Non-Resident members of NVAR, or any use of this form whatsoever by non-members of NVAR is prohibited without the prior written consent of NVAR. Notwithstanding the above, no REALTOR® or Non-Resident member of NVAR, or any other person, may copy or otherwise reproduce this form for purposes of resale. NVAR – K1350 – Rev. 04/08 Page 2 of 2

SHORT SALE CONTINGENCY ADDENDUM TO REGIONAL SALES CONTRACT This Addendum is made on , to a Sales Contract (“Contract”) dated between (“Purchaser”) and (“Seller”) for the purchase and sale of the Property: . 1. This Contract constitutes a “short sale” of the Property. 2. SHORT-SALE DEFINED: The term “short sale” is used to describe a sale where the debt owing against a property combined with the costs associated with the sale exceed the property’s market value. 3. SELLER REQUIRES: A. the creditor(s)’ approval to sell the Property under the terms of this Contract; and B. the creditor(s)’ agreement to accept Seller’s net proceeds in full satisfaction of Seller’s obligation and liability under the Deed(s) of Trust and to provide Seller with a release of lien in recordable form at the time of Settlement. 4. Seller agrees to cooperate with Broker, Settlement Agent and creditor(s) to determine the amount of debt secured by or owed on the Property, including, but not limited to, deeds of trust, home equity loans, homeowner or condominium association fees, property taxes and any other liens affecting the title to the Property. 5. Seller must provide Purchaser with written evidence of the creditor(s)’ approval as required under Paragraph 3 of this addendum by (“Short Sale Deadline”). Such written evidence, if received by Seller, shall be delivered to Purchaser in a timely manner. A. If Seller has not delivered written evidence of the creditor(s)’ approval by the Short Sale Deadline, Purchaser may deliver notice to Seller of Purchaser’s intent to void the Contract. Seller shall have three (3) business days from receipt such Notice to deliver written evidence of creditor(s)’ approval to the Purchaser, or this Contract will be void. B. At anytime, if Seller receives a written rejection of the short sale from their creditor(s) and delivers a copy of the written rejection to Purchaser, this Contract will be void. Buyer and Seller acknowledge that Settlement is subject to creditor(s)’ approval of the net proceeds, which may not be finalized until settlement. 6. “Seller’s net proceeds” means that the Sales Price is less the Seller’s Expenses under Paragraph 21 of the Contract and Seller’s obligation to pay any brokerage fees under Paragraph 22 of the Contract. NVAR – K1351 – Rev. 02/08 1 of 2 Please Initial: Seller _______/______ Purchaser ______/______

7. If Seller cannot obtain third party creditor(s)’ approval, Seller will immediately deliver written notice to Purchaser along with an executed Release of Contract directing that the Deposit be returned to Purchaser. 8. Timeframes for Inspections, Appraisal, and Financing Contingencies A. Timeframes for all inspections referenced in this Contract, if applicable, shall be measured from:  Date of Contract ratification OR  Date Seller delivers written evidence of creditor(s)’ approval to Purchaser B. Timeframe for Appraisal Contingency, if applicable, shall be measured from:  Date of Contract ratification OR  Date Seller delivers written evidence of creditor(s)’ approval to Purchaser C. Timeframe for Financing Contingency, if applicable, shall be measured from:  Date of Contract ratification OR  Date Seller delivers written evidence of creditor(s)’ approval to Purchaser 9. SETTLEMENT DATE: If specified, the settlement timeframe below will supersede the Settlement Date contained in the Contract. Settlement will be Days after the date Seller delivers written evidence of creditor(s)’ approval to Purchaser. SELLER: PURCHASER: / / Date Signature Date Signature / / Date Signature Date Signature © 2008 Northern Virginia Association of REALTORS®, Inc.  This is a suggested form of the Northern Virginia Association of REALTORS®, Inc. (“NVAR”). This form has been  exclusively printed for the use of REALTOR® and Non-Resident members of NVAR, who may copy or otherwise reproduce this form in identical form with the addition of their company logo. Any other use of this form by REALTOR® and Non-  Resident members of NVAR, or any use of this form whatsoever by non-members of NVAR is prohibited without the prior written consent of NVAR. Notwithstanding the above, no REALTOR® or Non-Resident member of NVAR, or any other person, may copy or otherwise reproduce this form for purposes of resale.  NVAR – K1351 – Rev. 02/08 2 of 2

Regional Short Sale Field Guide Final 2009 12 7

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Regional Short Sale Field Guide Final 2009 12 7 Document Transcript

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