February/March 2012

33Must-Know stats about Modern

real estate CustoMers

of buyers

37 %

were under t

he

age

of 31;

The average Seller

w

as a

Baby Boomer

of buyers

21 %

were sin

gle

females

use internet

35 %

as first

step fo

r

home sh

opping

US adults

1 in 10

owns a ta

blet computer

bought

46 %

a larger h

ome

p 11 2011 Hotline Review

p 16 Legislative Day

p 8

The Maryland Association of REAlToRs® www.mdrealtor.org The Voice for Real Estate® in Maryland

Consumer Website:WWW.MARYlANDHoMEoWNERsHIP.CoM

VolUME XlVI Number 2 FEBRUARY / MARCH 2012

Power Coldwell Banker

To learn more about how Coldwell Banker agents share promoting their business utilizing our

Advanced Technology Tools, visit Careerscb.com. 1-866-559-2272

Feel the

Join a leader and Discover the Difference

Feel the Power of our Global Reach exclusive to Coldwell Banker Associates:

Over 400+ Web Partners In 128 COuntrIes

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©2011 Coldwell Banker Real Estate LLC. Coldwell Banker® is a registered trademark licensed to Coldwell Banker Real Estate LLC. An Equal Opportunity Company. Equal Housing Opportunity. Owned and Operated by NRT LLC.

550+

3M A R Y L A N D R E A L T O R ® February/March 2012

I urge you to watch for our “calls to action” as the session proceeds. Be

prepared and stand ready to help. As our legislators look for ways to find

more revenue, all Maryland REALTORS® must speak up. We are the only

ones who can speak for our industry and for the property owners we serve.

From the Hot LineIn this issue we offer our annual recap of the most popular “From the

Hotline” articles, updated and edited to provide timely information on a

variety of subjects critical to you as a practitioner. The Legal Hotline is

one of our most valuable membership benefits. Members are eligible for

four free calls annually (unlimited for brokers and managers) to the Legal

Hotline. Our expert attorneys provide you with advice and information

to help you in your everyday practice. Visit www.mdrealtor.org to ask

your question online, or call the hotline 800-888-1272.

Cover storyGuest Columnist Matt Ferrara provides a thought provoking article on 33

“must know” stats about modern real estate customers. Did you know

that customer trust factor increases with social presence? Or that 66%

of sellers only interviewed one agent? See his full article on page 8.

By now you will have received at least one call for action from us about

Governor O’Malley’s proposal to reduce deductions, including mortgage

interest and property taxes, for many Maryland homeowners.

I hope you have responded to urge our elected officials NOT to reduce this

critical support for Maryland’s homeowners. Real estate accounts for

one-fifth of Maryland’s economy; without a recovery in housing, there

will be no overall economic recovery.

We cannot allow this to happen. It is critical that you contact your state

senator, delegate and the Governor and urge them all to drop this proposal.

We cannot afford to stay silent when our industry, and the economic

strength of our state, are threatened. Mortgage interest and property taxes

account for almost 70% of total deductions by Maryland taxpayers.

Reducing the value of those deductions will reduce the value of

homeownership just when housing is trying to hold on to a fragile

recovery. Please make your voice heard. For information on how

to contact your legislators, and facts about the proposal, go to

www.mdrealtor.org. There are other issues affecting our industry that the

legislature will consider as well, as Bill Castelli outlined in his preview

article last month.

President’s PerspectivePatricia Terrill

Mortgage Interest Deduction in Jeopardy

Power Coldwell Banker

To learn more about how Coldwell Banker agents share promoting their business utilizing our

Advanced Technology Tools, visit Careerscb.com. 1-866-559-2272

Feel the

Join a leader and Discover the Difference

Feel the Power of our Global Reach exclusive to Coldwell Banker Associates:

Over 400+ Web Partners In 128 COuntrIes

On all 7 COntInents, reCeIve Our lIstIngs DaIlY.

©2011 Coldwell Banker Real Estate LLC. Coldwell Banker® is a registered trademark licensed to Coldwell Banker Real Estate LLC. An Equal Opportunity Company. Equal Housing Opportunity. Owned and Operated by NRT LLC.

550+

Maryland’sMortgage Interest

Deduction(MID)

11

4 M A R Y L A N D R E A L T O R ® February/March 2012

February / March 2012

table of contents

8F E A T U R E s 8 33 MUsT-kNoW sTATs ABoUT MoDERN REAl EsTATE CUsToMERs

11 2011 HoTlINE REVIEW

16 MAR 2012 lEgIslATIVE DAY

D E P A R T M E N T s

3 PREsIDENT’s PERsPECTIVE

6 MAR 2012 lEADERsHIP TEAM

17 REgUlATIoN NEWs Governor’s Foreclosure Task Force

18 MARYlAND REAl EsTATE CoMMIssIoN NEWs Who is Permitted to “Sit” at an Open House?

19 MRIs UPDATE MRIS Compliance Refresher

20 REsIDENTIAl sAlEs Housing Market Performance Lags Broader

Economic Progress

24 sNIPPETs & INDUsTRY TIPs

26 FRoM THE HoTlINE Lingering Short Sale Questions

2012 Maryland Association of REAlToRs® leadership Team


Carlton J. Boujai Jr.President - ElectEXIT Realty Prosperity group5300 Westview DriveSuite 105Frederick, MD [email protected]

J. Russell BoyceSecretary RE/MAX 10010665 Stanhaven Place White Plains MD [email protected]

Mary C. AntounChief Executive OfficerMaryland Association of REAlToRs® 200 Harry S Truman Parkway, Suite 200Annapolis, MD [email protected]

Cathy A. Werner Immediate Past President RE/MAX American Dream9414 Belair RoadBaltimore, MD 21236-1504410.529.7900Fax [email protected]

Patricia A. TerrillPresidentPrudential Carruthers REAlToRs®

7500 Coastal HighwayOcean City, MD 21842-2937410.524.7000Fax [email protected]

Maryland Association of REALTORS®

200 Harry S Truman Parkway | Suite 200Annapolis, MD 21401-7348

800.638.6425 | www.mdrealtor.org

Executive Leadership TeamPatricia A. Terrill | President

Carlton J. Boujai Jr. | President-ElectJ. Russell Boyce | Secretary

Carole A. Maclure | Treasurer Cathy A. Werner | Immediate Past President

Mary C. Antoun | Chief Executive Officer

EditorDeborah L. Hager | [email protected]

Advisory CommitteeRon Howard | Co-Chair

Lynette Bridges-Catha | Co-ChairYolanda Muckle | Vice Chair

Advertising & Publication DesignArt Comp & Design

Alison Cooper | Senior Designer1921 York Road, Timonium, MD 21093

410.252.4027, x103 | [email protected]

Mission StatementThe Maryland Association of REALTORS® exists to support all segments of its membership and their specialties. The Maryland Association of REALTORS®, through collective efforts with local boards/associations and the National Association of REALTORS®:

■ Develops and delivers programs, services and related products that maintain and elevate the high standards of the real estate business and the professional conduct of its practitioners;

■ Assists members in ethically and professionally serving the public;

■ Promotes and preserves the right to own, transfer and use real property; and

■ Protects the right of members to conduct business within a framework of fair and reasonable laws and government regulations.

In principle and in practice, the Maryland Association of REALTORS® values and seeks diversity and inclusive participation within the field of real estate and recognizes each member as a unique individual.

Maryland REALTOR® (USPS 0016-017) is published bimonthly by the Maryland Association of REALTORS®, 200 Harry S Truman Parkway, Annapolis, MD 21401-7348. Periodical postage paid at Annapolis and additional mailing offices. Postmaster send address changes to: Maryland REALTOR®, 200 Harry S Truman Parkway, Annapolis, MD 21401-7348.Member subscriptions of $3.81 are paid with annual dues.This publication is designed to provide accurate and authoritative information regarding the subject matter covered. It is offered with the understanding that the publisher is not engaged in rendering professional advice. If legal advice or other expert assistance is required, the services of a competent professional should be sought. Articles that appear in Maryland REALTOR® are an informational service to members. Their contents are the opinions of the authors alone and do not necessarily represent those of the Maryland Association of REALTORS®.Permission to reprint articles appearing in Maryland REALTOR® magazine must be requested in writing. Also include purpose for request.While this magazine makes a reasonable effort to establish the integrity of its advertisers, it does not endorse advertised products or services unless spe-cifically stated. ©2010 Maryland Association of REALTORS®, Inc.

Carole A. MaclureTreasurer greater Capital Area AssociationPioneer Realty Inc.17304 Evangeline Ave.Olney, MD [email protected]

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33 Must-Know stats

about Modern real estate CustoMers

We love to remind our clients of Peter Drucker’s critical insight: Know

the customer so well, that your products and services virtually sell

themselves. So, here are 33 things you need to know about them if you

want to grow your business!

Let’s talk real estate consumers, not houses, for a moment. If you

want your sales, marketing and customer-relationship strategy to be as

effective as possible, make sure you’ve understood just who you’re trying

to connect with this year. In fact, of the top 10 reasons people bought a

home last year, most were “personal” reasons. So stop spending as much

time worrying about housing inventory and make sure you have mastered

the research about the housing consumer. Here are some to get you

started, courtesy of multiple sources, including the National Association

of REALTORS, Pew Research, Nielsen, Morgan-Stanley and a few other

pieces we’ve brought together.

of buyers

37 %

were under t

he

age

of 31;

The average Seller

w

as a

Baby Boomer

of buyers

21 %

were sin

gle

females

use internet

35 %

as first

step fo

r

home sh

opping

US adults

1 in 10

owns a ta

blet computer

bought

46 %

a larger h

ome

By Matthew Ferrara


Buyers: 37% of recent buyers were “first time” buyers – a drop from 50% in 2010

The typical buyer was 45 years old – up from 39 a year ago

37% of buyers were under the age of 31; 32% were over 55

While all buyers use the internet to search for homes, for 35% of them, it was the first step

in the process; 21% started by contacting an agent

21% of buyers were single females; 12% single males

64% of all buyers had no children under 18 at home

Buyers found real estate agents (83%) slightly more useful than the internet (81%)

92% said open houses were very- to somewhat-useful sources of real estate information

Buyers found the home they purchased in the newspaper 5% of the time

58% of buyers wanted to see videos when looking at property online

sellers: The average seller was a Baby Boomer (45-65 years old) The typical real estate consumer moved 18 miles from their previous home in 2011 66% of sellers remained in the same state; 67% in the same county 46% bought a larger home, 31% purchased the same size; 23% downsized 25% of sellers sold their home within two weeks of entering the market 63% of sellers had no children under the age of 18 at home Job relocation and the need for more space were the primary reasons people sold

their home.

Most sellers had been in their current home for 9 years. 61% of sellers were repeat clients or referrals from friends and family 66% of sellers only interviewed one real estate agent Sellers found their agent through the internet 3% of the time; direct mail 2%; newspaper 1%.

Technology: Gen X’ers (35-45) have doubled their use of social media since 2008

1 in 6 minutes spent online is on Facebook

$50,000-75,000 is the typical income range of a Facebook user

Single women use social media more than single men

200 million consumers access social media on their smartphones

After Google, consumers search YouTube the most (2 billion streams daily)

Consumers spend 1 in 3 minutes watching video on their mobile devices

1 in 10 U.S. adults owns a tablet computer

40% of iPad owners earned more than $100,000 last year

44% of Gen Y’ers prefer texting to face-to-face meetings

The typical Gen Y’er sends 3,000 text messages a month

Gen X and Gen Y used web-based email 20% less last year

With this kind of information, it should be possible to customize and refine your sales, marketing, and referral strategy. Decisions like where to advertise, how to communicate and whether it makes sense to spend time in social media become clearer once you realize how consumers themselves behave.

More importantly, perhaps these metrics will provide you with some ideas of information you need to know about your local consumers, which questions to ask and what behaviors to look for as you interact with buyers and sellers this year.

So, use the research to ask yourself: Am I running my business the way the modern consumer would like me to run it? It’s easy to tell, when you study the people you’re hoping will do business with you.

Matthew Ferrara & Company

Real Estate, The Next generation

www.matthewferrara.com

9M A R Y L A N D R E A L T O R ® February/March 2012 99M A R Y L A N D R E A L T O R ® February/March 2012

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Source: Information included in this report is based on data supplied by MRIS and its member Association(s) of REALTORS, who are not responsible for its accuracy. Does not refl ect all activity in the marketplace. January 1, 2010 – December 31, 2010. Information contained in this report is deemed reliable but not guaranteed, should be independently verifi ed, and does not constitute an opinion of MRIS or Long & Foster Real Estate, Inc. ©2011 All Rights Reserved.Exclusive affi liate of Christie’s International Real Estate in select areas.

11172-REC MD Realtor Feb/March.indd 1 1/9/12 3:52 PM

A client needs to settle on a property using a power of attorney. I read that Maryland recently changed its law regarding real estate closings using a power of attorney? What are the changes?

A power of attorney (POA) is a written document that grants authority to an agent to act in the place of a principal. POAs are useful in real estate

transactions when one party is unable or unwilling to personally attend the closing or previously sign deeds, deeds of trust, promissory notes and

related documents required to buy, sell or refinance a home. In those situations, a power of attorney is a useful and prudent means of allowing the transaction to proceed in a timely manner.

Effective October 1, 2010, individuals in Maryland using a POA to complete a real estate transaction must use the new Maryland Statutory Form Limited Power of Attorney, or a form that substantially conforms to the statutory form. Prior to this change, an individual could use any specific power of attorney form that was acceptable to a title insurance underwriter. The new law makes it more difficult to delegate a power of attorney, which makes it a less attractive last-minute alternative to attending a real estate closing.

Maryland has adopted two statutory forms of power of attorney: a personal financial power of attorney and a limited power of attorney. For real estate purposes, the limited power of attorney will suffice. In fact, the first specific subject on the form is real property; initialing the appropriate authorities is sufficient to facilitate the transaction.

The form must be signed by the principal (i.e., the person granting the authority), notarized and signed by two or more adult witnesses, one of whom may be the notary. The law expressly imposes a duty on the agent to act loyally, avoid conflicts of interest and keep a record of all receipts, disbursements and transactions made on behalf of the principal, unless otherwise provided for in the power of attorney.

Additionally, the statute includes an agent’s certification that title underwriters may require agents to sign, have notarized and record along with the original power of attorney prior to recording any documents they signed as

agent. This requires the agent to certify that to his or her knowledge, the principal is alive and that the principal has not revoked the power of attorney or the agent’s authority to act.

A POA that does not conform to the statutory form will still be valid if it is properly executed. But if the statutory form is used, a title company may not require an additional or different form of power of attorney. A person refusing to accept an acknowledged statutory POA form is subject to a court order mandating its acceptance and will be liable for attorney’s fees and costs.

Thus, non-statutory forms may continue to be accepted or rejected (as they are under current practices), but a document that substantially conforms to one of the two statutory forms may not be rejected on the basis of the content of the form alone.

Power of attorney documents have become more complex. They create enforceable, legal obligations for both the principal and the agent. Although the POA may no longer be regarded as a last-minute alternative to attending a closing, with careful attention to detail and advance planning, it will continue to be a useful tool for home buyers and sellers. More detailed information can be found at: http://www.msba.org/departments/commpubl/publications/bar_bult/2010/october/et_2010.asp

2011 Hotline Review

By Charles A. Kasky, Esquire


Economic Forecast Continued from page 13

Independent contractor status in these circumstances is a special category of “non-employee,” and is purely a tax-related rule. It has no impact on the legal requirements concerning supervision. Do not confuse independent contractor status in the real estate industry with a business consultant, for example. Consultants are independent contractors because they meet other standards. Real estate licensees are independent contractors because the law says they are, and Maryland law also says that they are subject to the supervision of brokers, branch office managers and team leaders.

With the growing number of properties being offered for rent and an increasing need for flexibility, the Legal Hotline has recently received many calls concerning the landlord/tenant relationship. If you have not listed rental property or represented tenants, or if you have not previously engaged in property management, take care to become familiar with the unique laws, requirements and expectations inherent in this aspect of the business.

What is the rate of interest a landlord must pay a tenant on a security deposit the landlord is holding? What happens if the rate required to be paid is greater than what the bank pays the landlord on the funds?

Under Section 8-203(e) of the Real Property Article of the Annotated Code of Maryland (RP), on a security deposit held under a residential lease, a landlord must pay interest at the rate of 3% per year, simple

interest, accrued every six months. The owner must pay 3% even if the bank in which the funds are held is paying a lesser amount of interest

on that account. The statute states that none of its provisions can be waived. Under the law, a landlord shall maintain all security deposits in federally insured financial institutions that do business in Maryland. The accounts must be maintained in branches of the institutions that are located in Maryland and the accounts shall be devoted exclusively to security deposits and bear interest. The aggregate amount of the accounts must be sufficient in amount to equal all security deposits for which the landlord is liable. Alternatively, the landlord may hold security deposits in insured certificates of deposit.

Recent legislative proposals have recommended a variable rate to be applied to security deposits in order to address the situation where the landlord is earning either more or less than the statutory rate of interest. These plans have not gained wide support in part because of the complexity inherent in the collection of the appropriate interest rate data and in making multiple calculations over a number of years.

Is it legal for a landlord and tenant to negotiate the payment or rent in advance? Is this contrary to the prohibition against requiring no more than two months’ rent as a security deposit?

Under RP §8-203(a), a security deposit is “any payment of money, including payment of the last month’s rent in advance of the time it is due,

given to a landlord by a tenant in order to protect the landlord against nonpayment of rent, damage due to breach of lease, or damage to the

leased premises, common areas, major appliances, and furnishings.”

RP §8-203(b) states that a “landlord may not impose a security deposit in excess of the equivalent of two months’ rent per dwelling unit, regardless of the number of tenants.” Therefore, under no circumstances may a landlord collect more than two months’ rent as a security deposit.

I am the broker of a small company. I know that I am required to take a class on Supervision, but I thought that my ability to direct the activities of licensees affiliated with my company was limited because they are independent contractors. Please clarify the relationship between a real estate licensee and a supervising broker or branch office manager.

I’ve encountered this and related questions as I travel throughout Maryland teaching the new classes in Agency and Supervision. The attorneys who staff

the MAR Legal Hotline have answered similar questions.

Many licensees cling to the mistaken belief that because they are independent contractors, brokers and managers cannot supervise them by, for example, requiring their attendance at sales meetings. This is incorrect. Although licensed real estate salespersons and associate brokers are classified as independent contactors, brokers and branch office managers are required by law to provide reasonable and adequate supervision over the activities of licensees affiliated with that firm or office. This apparent contradiction can be explained.

Generally, the question of who is an employee and who is an independent contractor is important and often complex. Moreover, the financial consequences in making this determination are significant for both workers and employers. For workers, these consequences include entitlements to minimum wage and overtime pay, unemployment benefits, workers’ compensation benefits, Social Security employer contributions, federal and state tax withholdings, protections against illegal employment discrimination, etc. At stake for employers are the financial and legal obligations in complying with these federal and state requirements.

Real estate licensees enjoy a special IRS classification as Statutory Independent Contractors under a 1992 federal law. The law applies for federal tax purposes. In other words, a “statutory non-employee” is a real estate agent who, but for this law, could be an employee for tax purposes. Such a person is treated as an independent contractor for tax purposes even when, applying the normal rules, he or she might have been an employee. The tax treatment of such a person is the same as for any other independent contractor.

Prior to that, the common-law tests of control of work were used, as well as other tests applied by the IRS. These tests also took into account how the agent was paid for his or her efforts. The uneven application of the rules by the IRS to the real estate industry resulted in Congress passing the law creating the status of statutory independent contractor. The single biggest reason for the confusion is the fact that, even though agents are independent contractors, brokers and managers are, by law, required to supervise their activities.

In the real estate industry, you are an independent contractor if: • Youarealicensedrealestatesalesperson; • Yourincomeisrelatedtosalesandnothoursworked;and • Youandthebrokerhavesignedawrittenindependent

contractor agreement.

A written independent contractor agreement between the real estate agent and the broker would state the fact that the agent is to be treated as an independent contractor for federal tax purposes. However, this has no impact on the legal duty of supervision placed on brokers and managers.

In Maryland, special laws created a similar category of independent contractor for the real estate industry, which allows real estate firms to hire independent contractors and exempts them from payment of unemployment and workers’ compensation insurance premiums. State tax treatment follows federal law.


However, in our opinion, if a tenant and landlord agree that the tenant will pay rent before it’s due, the landlord may accept it as a courtesy. We strongly advise the owner to have an agreement drafted to make it clear that any rent paid in advance is not a security deposit under Maryland law. The agreement should state that the landlord agreed to accept the advanced payment as a courtesy to the tenant and that the owner in no way required the tenant to pay the specified amount. The tenant should sign the agreement and a copy should be placed in the owner’s files.

Whenever a legal document such as this is required for the conduct of business, we highly recommend you seek the advice of an attorney competent in these matters.

Real Estate Companies and agents should take steps to protect the personal information from unauthorized access. Safeguarding sensitive data in your files and on your computers is just plain good business. If that information falls into the wrong hands it can lead to fraud or identity theft.

A sound data security plan is built on five key principles: • Take stock. Know what personal information you have in your files and on

your computers. • Scale down. Keep only what you need for your business. • Lock it. Protect the information in your care. • Pitch it. Properly dispose of what you no longer need. • Plan ahead. Create a plan to respond to security incidents.

The Federal Trade Commission (FTC) has promoted these five key principles for protecting personal information, as set forth in its publication, “Protecting Personal Information; A Guide for Business.” The Guide can be found at: http://www.ftc.gov/infosecurity/

Maryland has a law covering “personal information” and under its definition, real estate agents and companies are almost certain to have such information. The Personal Information Protection Act (PIPA) was enacted to ensure that Maryland consumers’ personal identifying information is reasonably protected, and if it is compromised, they are notified so that they can take steps to protect themselves.

“Personal Information” is defined as an individual’s first and last name in combination with a Social Security Number, Driver’s License Number, Financial Account Number or Individual Taxpayer Identification Number. A “security breach” is defined as the unauthorized acquisition of computerized data that compromises the security, confidentiality or integrity of personal information. If a business experiences a security breach and personal information was taken that may pose a threat to consumers if misused, that business must notify the affected consumers.

A business may delay notification if requested by a law enforcement agency or to determine the scope of the breach, identify all the affected individuals or restore the integrity of the system. Notice to affected consumers must be given in writing and sent to the most recent address, or by telephone to the most recent phone number. Notice may be sent via e-mail if an individual has already consented to receive electronic notice or the business primarily conducts its business via the Internet. The law also provides for substitute notice, allowing a business to provide notice of a security breach by e-mail, posting on its website and notice to statewide media if the cost of notice would exceed $100,000 or the number of consumers to be notified exceeds 175,000 individuals.

The notice sent to consumers must include the following: • Descriptionoftheinformationcompromised. • Contactinformationforthebusiness,includingatoll-freenumberifthe

business has one. • Toll-freenumbersandaddressesforeachofthethreecreditreporting

agencies. • Toll-freenumbers,addressesandWebsitesfortheFederalTrade

Commission (FTC) and the Office of the Attorney General (OAG). • Astatementthattheindividualcanobtaininformationfromthesesources

about steps to avoid identity theft.

Prior to sending notification to consumers, PIPA states that a business must notify the OAG with: a brief description of the nature of the security breach; the number of Maryland residents being notified; what information has been compromised; and any steps the business is taking to restore the integrity of the system.

Finally, beginning in 2009, when a business is destroying records that contain personal information, it must take reasonable steps to protect against unauthorized access to or use of the personal information. A business that owns or licenses personal information must implement and maintain reasonable security procedures and practices appropriate to nature of the personal information and nature and size of business. If a business uses a non-affiliated third party to perform services and discloses personal information to the third party, the contract must require the third party to implement and maintain reasonable security procedures.

There are a number of steps real estate companies can take to prevent and prepare for data security breaches, including: • Identifyingthepersonalinformationthatiscurrentlymaintained • Usingadequatedatastorage,security,encryption,anddestructionmethods • Restrictingemployeeaccesstopersonalinformation • Adequatelydestroyingpersonalinformationthatisnolongerneeded • Developingaprivacypolicy • Establishingasecuritybreachresponseplan • Establishingasecuritybreachresponseteamconsistingofadministrative,

IT, legal and communications personnel.

Finally, every brokerage company should have a document retention policy that ties together the elements discussed in this article. Once the sources and types of information are identified, companies can evaluate the time frames for retention of that information and plan to periodically dispose of documents you are no longer required to maintain. Remember that disposal of documents must be in accordance with the standards mentioned above.

All of the principles discussed here are fully explained in great detail in a new publication by NAR, “Data Security and Privacy Toolkit,” which was unveiled at the 2010 NAR Annual Convention in New Orleans. The Toolkit will assist you in developing your company’s policies and procedures. We have provided you with the particulars of Maryland law concerning security breach notification and data disposal laws. The next step should be development of a document retention policy and creation of a data security program, a model for which is included in the Toolkit. YoucanfindtheToolkitat:http://www.realtor.org/letterlw.nsf/pages/1010datasecurityprivacytoolkit?OpenDocument&Login


I have recently heard of condominium sales falling through because the buyer applied for FHA financing and the condo was not “certified.” Now there seems to be a mad scramble regarding something called “recertification.” Can you explain this?

In December 2010, a number of articles in the press noted that Federal Housing Administration (FHA) condominium project certifications were

going to expire, which left many in the industry wondering what the impact would be on the communities that did not meet the December 7, 2010 deadline. But when the date rolled around, FHA decided to extend the

various recertification deadlines on a rolling basis through the end of 2010, most of 2011 and even into 2012.

Those who understood what was going on breathed a sigh of relief. There were 26,000 condominium developments that would have had to have been recertified by Dec. 7, 2010 and were going to lose their approval if that did not get done. Most didn’t even know about the recertification process. This is important information for condominium managers and HOA (homeowners association) boards because it could affect individual condo sales in the future.

In February 2010, FHA instituted a process under which every condominium development must have project approval by HUD. Additionally, before 2010, FHA approval was functionally permanent. FHA learned, however, that projects approved years ago were probably not up-to-date in regard to compliance and needed to be recertified.

Effectively, HUD declared that projects it had approved 10 or 15 years ago were no longer compliant, so for those projects approved before 2008 must go through a recertification process. Initially, the certifications for all these projects would expire as of Dec. 7, 2010.

However, there were so many projects seeking recertification that it created a crush on FHA’s resources. As a result, FHA extended the deadline based on when the projects originally received approval. The earliest projects, circa 1972, had to be recertified by Dec. 31, 2010. The remaining projects (using five-year increments) had longer deadlines.

Here’s the catch. Formerly, once the project was approved it was permanent. FHA has since said it wants to keep a closer tab on these associations. FHA wants to look at developments initially and again every two years through the recertification process. It is an ongoing obligation that the development must be willing to commit to. There are some developments where it would cost too much money to be approved just because of the due diligence that would have to be performed in order to be compliant.

For example, condo developments are now required to have a reserve in the budget for maintenance and repairs equal to 10 percent of the budget. New or established projects with more than 20 units are required to carry fidelity bonds/insurance for all officers, directors and employees of the association and all other persons handling funds.

FHA-insured loans were not a huge factor in the condo market until relatively recently. Associations were not used to thinking about the FHA as the only game in town. A condo that is not FHA-certified may be less attractive in terms of individual owners trying to sell a unit. If two condo developments are next door to each other, one FHA-approved and the other not, the latter is at a severe disadvantage as far as marketing and, by extension, value.

A REALTOR® representing the buyer or seller of a condo will want to inquire, as early in the transaction as possible, whether the development is compliant.

DISCLOSuRE OF MATERIAL FACTS: A CAuTIONARy TALE

A Kentucky court recently considered whether a brokerage had a duty to disclose a known material fact about the property’s flooding history. In 2005, Buyers hired the Brokerage (“Firm”) to help them locate a home. The home was originally built in 1988 and had a history of flooding. The original owners had experienced three floods that damaged the property. They listed the home for sale with the Firm in 1995 and disclosed the flooding. The property was sold again in 1999 and 2001, with both of those transactions involving salespeople from the Brokerage, who gave flooding disclosures. Two different owners purchased the property in 2003 and 2004, and both experienced flooding on the property.

In 2004, the current owners (“Sellers”) listed the property for sale with a salesperson associated with the Firm. The Sellers completed a property condition disclosure stating that the property had water damage from a failed sump pump, but failed to mention the prior flooding on the property. After the first listing agreement expired, the Sellers retained another salesperson associated with the Firm (“Agent”), who had not represented any of the previous sellers. Again, the Sellers did not disclose the prior flooding on the property, but attributed the water damage to a faulty sump pump.

The Buyers purchased the property, moved in and soon learned that the property had an extensive flooding history which they alleged was not disclosed to them. The Buyers brought a lawsuit against the Agent, the Broker and the Sellers. The Sellers settled with the Buyers, and the trial court dismissed the allegations against the Firm and Agent. The Buyers also filed a complaint with the state’s real estate commission against the Firm’s principal broker and the Agent, but the commission dismissed the complaint.

The Kentucky Court of Appeals reversed the trial court and sent the case back to the lower court for further proceedings. The court considered two fraud allegations: fraudulent misrepresentation and fraudulent omission. The key issue for both causes of action was whether the flooding on the property was a material fact known by the Agent and/or the Firm that they had a duty to disclose.

Kentucky courts have generally applied the doctrine of caveat emptor in real estate transactions, where there is no liability if there is no direct misrepresentation by the seller and the buyer has a chance to inspect the property prior to purchase, but there is an exception to that doctrine for fraud.

The court ruled that Kentucky licensees have a duty to disclose known material facts to buyers which are not disclosed by the sellers, and sent the case back to the lower court. The Firm argued that there was no duty to make disclosures to someone who was not a brokerage client, but the court found that the state’s license law contained no such limitation. The court also stated that licensees are not liable for a seller’s fraud, but have a duty to disclose material facts if they know the seller is not accurately disclosing all material facts. Thus, the court sent the case back to the trial court for further proceedings to determine whether the Firm or Agent had actual knowledge of the property’s history of flooding.

The implications for Maryland licensees are significant. Under Maryland law, a real estate licensee must disclose to any party a material fact the licensee knows or should know. A material fact is anything that affects the value of a property or that a buyer would consider important when making a decision regarding the property. The duty applies whether the consumer is a client or non-client. It also applies whether or not the seller discloses the fact, but it’s obviously most important when the seller fails to disclose the fact to the buyer. It is quite clear that under Maryland law a licensee could be held responsible for a failure to disclose this condition.


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REALTORS® Attend

2012 MAR Legislative Day Maryland Comptroller Peter Franchot addresses MAR members in Annapolis.

The Maryland Association of REALTORS® hosted its annual Legislative Day reception at the Lowes Annapolis Hotel on January 25, 2012. The reception provides an excellent opportunity for Senators, Delegates, and REALTORS® to meet and discuss issues of concern during the 2012 Legislative Session.

s Over 300 RealtORs® and General assembly Members attended the 2012 legislative Day Reception

s aaCaR CeO tom Quattlebaum, senator ed Reilly, Delegate Mary ann love, aaCaR President tom levin, and Bob Johnston s senator Catherine Pugh, Jeanne turnock,

Carolyn Cook, senator Joan Carter Conway, Bob Kimball, and Bill Yerman representing the Greater Baltimore Board enjoy the reception

t Joseph Pruden, secretary of the Department of Housing Ray skinner, Delegate Michael summers and susan Pruden discuss housing issues

s Prince George’s Delegates Tawanna Gaines, Barbara Frush and Geraldine Valentino-smith discuss MID with Joanne Darling

s Jason Brand, Fran long, Delegate Jay Jacobs, Merry tobin, Dick sells President of the Bay area association of RealtORs®

s senate President Mike Miller and the MaR leadership team (l to r: MaR President-elect Carlton Boujai, MaR Immediate Past President Cathy Werner, senator Mike Miller, MaR treasurer Carole Maclure, MaR President Pat terrills Delegate Mark Fisher, Kevin turner,

Bud Humbert, Delegate Johnny Wood, Gene Davies, Jann Clark, and tom earnest from southern Maryland

t Rose thomas, RPaC Chair Buzz Mackintosh, Barbara Maloney, Gloria Castle, senator Ron Young, tamar Osterman, MaR President-elect Carlton Boujai, Delegate afzali staffer, Marla Johnson, and Delegate Michael Hough gather from Frederick County.

17M A R Y L A N D R E A L T O R ® February/March 2012 17

This past September, Governor O’Malley established the Maryland Foreclosure Task Force. Members were asked to recommend initiatives that will strengthen neighborhoods and help homeowners struggling with the persistent obstacles presented by the ongoing difficulties in the housing market.

The Task Force was divided into three workgroups: Neighborhood Stabilization; Loss Mitigation; and Foreclosure Impacts and Trends. The Task Force was directed to produce a report prior to the beginning of the 2012 Session of the Maryland General Assembly so that any recommendations could be considered by the legislature at the earliest opportunity.

The Task Force participants included representatives from REALTORS®, developers, lenders and housing counselors, as well as state and local government officials. After three months of meetings, the Task Force delivered its report to Governor O’Malley on January 11, 2012, with six recommendations.

Virtually all of the participants in the Task Force observed that early intervention with troubled borrowers results in a better outcome for the homeowner, lender and neighborhood. Therefore, the first Task Force recommendation is legislation to encourage lenders and borrowers to engage in an optional early mediation, as an alternative to the existing requirement that lenders engage in mediation prior to filing a Notice of Intent to Foreclose. Under current law, the mediation occurs so late in the foreclosure process that the borrower is too far behind on loan payments to retain the home. The Task Force also suggests that regulations be adopted that provide for the types of retention and liquidation options that should be considered at the mediation.

Governor’s Foreclosure Task Force

The second recommendation, particularly relevant to REALTORS®, is that the Commissioner of Financial Regulation and the Real Estate Commission collaborate to develop standard language in real estate documents to provide a safe harbor for real estate agents who might otherwise be required to obtain a credit services license when assisting a seller in obtaining short sale approval from the lender. Under current law, a Maryland real estate licensee is restricted in the types of communications he or she may have with a lender who must give third party approval for a short sale. The Task Force recommends greater latitude for real estate licensees, as long as they do not negotiate an unsecured promise to pay any portion of the mortgage deficiency.

The remaining Task Force recommendations include suggested revisions to the notices addressed to tenants residing in property subject to foreclosure; creation of an expedited foreclosure process for vacant and deteriorated properties; creation of a foreclosure property registry, and establishment of a neighborhood conservation tax credit to encourage purchase of foreclosed and REO properties. Most of these proposals will require legislation or revisions to current regulations.

Governor O’Malley has not yet indicated whether he supports any of the legislative proposals.

The Maryland Association of REALTORS® will work to implement these Foreclosure Task Force recommendations, and we will promptly advise our members of specific legislation that moves forward during the 2012 Maryland General Assembly. Please feel free to contact me at [email protected] if you have any questions or comments.

Mark Feinroth, Esquire, Director of legal and Regulatory Affairs

Maryland Association of REAlToRs®

Regulation NewsMark Feinroth, Esquire


Maryland Real Estate Commission NewsKatherine Connelly

At the December 2011 meeting of the Real Estate Commission, the

Commissioners considered a business practice of some licensees that has

been occurring across the State. To supplement their incomes, agents,

who are not affiliated with the listing broker, are offering to the listing

agent to “sit” at their open houses and represent the seller at open houses

in exchange for a fee. The Commission discussed whether this practice is

permitted under the Maryland Real Estate Brokers Act. The Commission

concluded that the law does not allow the practice.

All licensees should understand that when a consumer is selling residential

real estate, a brokerage relationship begins when the client enters into a

written brokerage agreement with the broker. Maryland Business

Occupations and Professions Article §17-534 (a). The brokerage agreement

is between the licensed broker and the client, not the associate broker or

salesperson. §17-528 (d).

A licensed real estate broker is permitted to provide real estate brokerage

services by employing licensed associate brokers or real estate salespersons.

However, a broker may not provide brokerage services through any

individual “unless that individual is licensed with that broker as an

associate real estate broker or real estate salesperson to provide real estate

brokerage services on behalf of the real estate broker.” §17-320 (a). The

broker named on the associate broker or salesperson license is the only

person on whose behalf the associate broker or salesperson may provide

real estate brokerage services. §17-310 (b) (2).

Taken together, these provisions of the Maryland Real Estate Brokers Act

make it abundantly clear that a licensed broker must have a written

agreement to represent a seller at an open house, and only a licensed

associate broker or salesperson affiliated with that broker may do so, at the

direction of the broker.

The Commissioners concluded that a licensee who sits at an open house but

is not affiliated with the listing broker is, under most circumstances,

providing real estate brokerage services as an unlicensed individual, because

both a salesperson and associate broker license must be affiliated with the

broker who has a written agreement with the seller. Otherwise the

salesperson or associate broker is providing service outside the scope of his

or her license, and would likely be subject to Commission disciplinary

action. Similarly, an agent or broker who pays for an unaffiliated licensee

to sit at an open house might also be subject to disciplinary proceedings, as

§17-604 prohibits payment of compensation in any form by someone other

than the broker with whom the agent is affiliated.

As always, if you have questions regarding these issues, please feel free to

contact me at [email protected].

katherine Connelly is the Executive Director of the Maryland Real Estate Commission

For more information, visit http://www.dllr.state.md.us/license/mrec

Who is Permitted to “Sit” at an Open House?


Have you ever received a Compliance notification that you were surprised

by? Don’t wait until you receive a warning to learn how you can prevent

future notifications. Paying attention to these Compliance reminders

when entering a listing can help you sell your property faster and avoid

unnecessary fines!

1. Delinquent Settlement Date:Don’t be late, update that Settlement Date! If your listing has settled,

change the status to SOLD. If settlement has been postponed, revise the

estimated close date. If the property is not going to close, revise the status

to ACTIVE or to WITHDRAWN.

2. No Photo:Pictures not only help you sell your listing faster, they also help you avoid

a compliance notification! You must add a photo of the exterior of the

property within 48 hours of adding a listing to Keystone. The photo from

the previous listing does not carry over to your new listing. You may not

use a photo from another agent’s listing. If the seller does not want a

photo or you need additional time to shoot a photo, select the “No Photo

per Seller” option.

3. No Tax ID Number: The tax number must be entered exactly as it appears on the MRIS Public

Records. To avoid errors, use the Tax auto-fill feature in Keystone. Do

not use the street type (Ave., Blvd., etc.) or the Advertised Subdivision in

the Tax Auto-Fill search.

4. Delinquent Temp Off Status:If your listing is in Temp Off status, change the status back to ACTIVE within

21 days or contact the Compliance Department for an extension if needed.

5. Inappropriate Remark Information:Lose the numbers. Do not enter phone numbers, contact information,

broker or agent branding, showing instructions or references to

compensation in the internet remarks. This information may be entered

into the general (agent) remarks.

6. Delinquent Contingency Expiration Date: You’re late for a very important date! Please remember to update your

contingency expiration dates if the last contingency expiration date

(contingency due date) is in the past. Once the contingencies have been

met, change the status to CONTRACT.

7. Inappropriate Direction Information:Buyers can get to your listing if you provide complete directions on

listings. References to “Use GPS” or other online mapping programs are

prohibited unless the reference is accompanied by directions.

Stay informed of potential issues in 1/2 the time by checking your inbox

for email compliance notifications from [email protected]! The

sooner you receive a notification, the faster you can correct the listing

information and avoid fines.

Help us keep your data clean and accurate. Visit the MRISBlog.com for

regular Compliance tips and reminders! In addition, the MRIS Rules and

Regulations, Listing Compliance Reports, and more are always available

at mris.com/Compliance.

For more information, go to www.mris.com

Metropolitan Regional Information Systems, Inc.

MRIS Compliance Refresher: 7 ½ Common Compliance Notices and How to Prevent Them


Residential SalesAnirban Basu

The national economy ended 2011 on a strong

note. Unfortunately, the Maryland housing market

did not.

A consensus of economic estimates suggests that U.S.

gross domestic product expanded about 3 percent

on an annualized basis during last year’s fourth

quarter. Job growth also accelerated, with the

economy producing 200,000 net new jobs in

December, the best performance since September

and before that since April of 2011. Job growth in

Maryland also stabilized, with unemployment

falling below 7 percent statewide and dipping below

5 percent in Howard and Montgomery counties.

Moreover, the most recent Maryland Survey of Business Activity

conducted by the Federal Reserve Bank of Richmond indicates that

business activity in Maryland increased moderately in December. The

general business activity index registered a reading of 7, a meaningful

increase from -3 the previous month and the first positive reading since

September of 2011.

But Maryland’s stronger economic performance at the end of the year did

not translate into progress within the state’s housing market. According

to data supplied by MRIS and the Coastal Association of REALTORS®,

December unit sales were down 7.9 percent in Maryland on a year-over-

year basis, with just four counties experiencing sales increases: Kent

(36.4%), Baltimore (4.0%), Anne Arundel (3.2%) and Prince George’s

(1.0%) counties. In November, unit sales were down 1.3 percent statewide.

The remaining 20 jurisdictions registering year-over-year declines in

December unit sales include Calvert (-33.7%), Worcester (-27.1%),

Caroline (-26.3%), Talbot (-25.5%), St. Mary’s (-23.5%), Somerset (-22.2%),

Housing Market Performance Lags Broader Economic Progress

Year over Year Statistics Reflect another Tough Year


Residential SalesAnirban Basu

Harford (-18.4%), Dorchester (-15.4), Baltimore City (-14.9%), Frederick (-14.4%),

Washington (12.8%), Montgomery (-10.5%), Cecil (10.0%), Howard (-8.5%), Allegany

(-5.6%), Queen Anne’s (-5.4%), Charles (-4.6%), Wicomico (-2.8%) and Carroll (-2.2%).

In Garrett County, unit sales rose nearly 32 percent in November, but then plunged 41.1

percent in December on a year-over-year basis.

Sales prices also continue to fall statewide. Average price fell 7.9 percent between

December 2010 and December 2011, with 16 jurisdictions registering year-over-year

declines. The largest decline was in Wicomico County (-27.1%), where sales price

average fell from $177,244 to approximately $129,163 during the same period. In

Queen Anne’s County average sales price dipped from $376,797 in December 2010 to

$302,552 one year later, a decline of 19.7%. In Worcester County, average price was

down by 16.2 percent.

Though the inventory of unsold homes continues to fall in much of the state, the

downward trajectory of sales prices indicates that there remains too much supply chasing

too little demand. Demand for housing is constrained by myriad factors, including

disciplined lending, people waiting for the “bottom,” stubbornly high unemployment

and slow personal income growth.

Eight jurisdictions that registered increases in average sales price over the past year:

Somerset (+50.4%), Dorchester (+36.8%), Talbot (+18.8%), Washington (17.1%), Allegany

(+10.2%), Caroline (+6.6%), Baltimore City (+2.5%) and Baltimore County (+1.2%).

Many of these jurisdictions are small and susceptible to shifts in the data based on the

performance of just a handful of properties. Both Baltimore City and Baltimore County

appear to be on the mend, with distressed sales having less impact on both markets. This

is particularly true in Baltimore County, where distressed sales are not having nearly as

much impact on price dynamics relative to previous months, and where inventory has

dipped to just 6.2 months.

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Housing Market Performance Lags Broader Economic Progress


Residential sales Continued from page 23

elsewhere. As virtually everyone knows, Europe continues to be a hotbed

of financial crises. The U.S. presidential election will be another source

of angst for many market participants.

But the economy could also surprise to the upside. Consumers are

becoming more confident as are employers. Credit conditions appear to

be easing and housing affordability has seldom been greater. In other

words, 2012 will be a very interesting year.

Anirban Basu, sage Policy group, Inc.

Looking Ahead

The first-time buyer appears to be re-engaging the marketplace. With

job growth accelerating recently, especially in Central Maryland, the

economy is producing more prospective purchasers. Mortgage rates

remain incredibly supportive, but lending standards remain deeply

problematic for many would-be buyers, especially for those with

complicated finances that do not neatly fit into Freddie Mac and

Fannie Mae lending guidelines.

One year ago, the active inventory of unsold homes totaled 36,636. As

of December, that number had declined to 29,111, a decline exceeding

20 percent. In other words, the marketplace continues to edge toward

equilibrium. In December 2010, there were only two jurisdictions

with active inventories of six months or less. One year later, there are

five. The list now includes Charles (6.0 months), Howard (5.6 months),

Frederick (5.5 months), Montgomery (3.5 months), and Prince George’s

County (4.7 months). These lower levels of inventory set the stage for

better sales price dynamics in 2012 and may finally translate into a

more normal level of urgency among potential purchasers.

For the marketplace to continue to progress, several things must occur

and several others must not. Mortgage rates must remain benign and

the U.S. economy must continue to expand. Most economists

anticipate economic growth in 2012, but due to many factors, growth

is expected to remain lackluster. Economists remain cautious in their

forecasts in large measure due to a sea of potential “black swan”

events, meaning significant negative events that can alter the

economy’s trajectory for the worse. These range from surging oil

prices related to Iran to upheaval in Russia, North Korea, Pakistan and

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November 2011 vs. 2010

UnITS AvErAgE PrICE

2011 2010 Change 2011 2010 Change

40 29 37.9% $88,071 $121,794 -27.7%

360 369 -2.4% 349,479 321,898 8.6%

352 366 -3.8% 136,043 125,132 8.7%

441 412 7.0% 230,697 256,068 -9.9%

64 74 -13.5% 338,354 298,425 13.4%

22 21 4.8% 134,612 162,346 -17.1%

103 98 5.1% 273,229 289,933 -5.8%

43 52 -17.3% 199,070 225,791 -11.8%

105 117 -10.3% 252,422 247,690 1.9%

20 17 17.6% 98,990 176,078 -43.8%

177 168 5.4% 253,612 260,011 -2.5%

29 22 31.8% 399,020 293,264 36.1%

166 183 -9.3% 252,968 242,530 4.3%

204 194 5.2% 373,231 383,937 -2.8%

14 15 -6.7% 226,640 149,062 52.0%

673 744 -9.5% 443,417 466,097 -4.9%

626 574 9.1% 183,235 195,232 -6.1%

38 41 -7.3% 358,916 399,220 -10.1%

13 14 -7.1% 181,505 98,749 83.8%

70 82 -14.6% 288,771 296,416 -2.6%

22 26 -15.4% 397,903 424,457 -6.3%

72 71 1.4% 159,261 162,368 -1.9%

43 43 0.0% 149,100 148,678 0.3%

101 117 -13.7% 310,326 281,568 10.2%

3,798 3,849 -1.3% $277,472 $287,156 -3.4%

Figures reflect resales and new properties. Residential resales

are reported by MRIs® and local boards Mls systems.

COUnTy

Allegany

Anne Arundel

Baltimore City

Baltimore County

Calvert

Caroline

Carroll

Cecil

Charles

Dorchester

Frederick

Garrett

Harford

Howard

Kent

Montgomery

Prince George’s

Queen Anne’s

Somerset

St. Mary’s

Talbot

Washington

Wicomico

Worcester

TOTAl

December 2011 vs. 2010

UnITS AvErAgE PrICE

2011 2010 Change 2011 2010 Change

34 36 -5.6% $88,983 $80,769 10.2%

384 372 3.2% 345,566 350,847 -1.5%

372 437 -14.9% 137,664 134,347 2.5%

521 501 4.0% 243,870 240,907 1.2%

55 83 -33.7% 307,690 315,407 -2.4%

14 19 -26.3% 176,107 165,237 6.6%

87 89 -2.2% 251,780 286,530 -12.1%

63 70 -10.0% 199,408 227,861 -12.5%

124 130 -4.6% 233,552 259,464 -10.0%

22 26 -15.4% 257,654 188,331 36.8%

172 201 -14.4% 230,271 253,109 -9.0%

18 34 -47.1% 279,033 327,687 -14.8%

169 207 -18.4% 254,341 281,040 -9.5%

193 211 -8.5% 396,016 410,918 -3.6%

15 11 36.4% 328,323 349,718 -6.1%

713 797 -10.5% 426,499 461,393 -7.6%

710 703 1.0% 185,903 193,911 -4.1%

35 37 -5.4% 302,552 376,797 -19.7%

14 18 -22.2% 123,757 82,272 50.4%

65 85 -23.5% 269,590 280,257 -3.8%

32 43 -25.6% 612,854 515,786 18.8%

75 86 -12.8% 168,473 143,929 17.1%

69 71 -2.8% 129,163 177,244 -27.1%

105 144 -27.1% 275,590 328,930 -16.2%

4,061 4,411 -7.9% $272,709 $288,090 -5.3%

Figures reflect resales and new properties. Residential resales

are reported by MRIs® and local boards Mls systems.

COUnTy

Allegany

Anne Arundel

Baltimore City

Baltimore County

Calvert

Caroline

Carroll

Cecil

Charles

Dorchester

Frederick

Garrett

Harford

Howard

Kent

Montgomery

Prince George’s

Queen Anne’s

Somerset

St. Mary’s

Talbot

Washington

Wicomico

Worcester

TOTAl

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For class schedules and program details, visit www.mdrealtor.org. Click the Education tab and scroll to REALTOR® Institute (GRI), GRI Overview.

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From the HotlineCharles A. Kasky, Esquire

Q. In a short sale, after buyer and seller enter into a contract, may I leave it active on the MLS and note that the seller is taking “back-up offers”? What should I do with offers I receive after the property is under contract?

A. No. Under MLS rules, once the property is under contract, that status must be reflected. Because the contract is contingent, the proper status is “under contract/contingent.” Do not include that the contract is subject to a kick-out provision unless the parties have actually signed a kick-out addendum.

Once the property is under contract and the contract is being reviewed by the lender, you may receive additional offers. The seller (or listing agent with authorization to communicate with the lender) should contact the lender for instructions. Some lenders may ask to see subsequent offers, others may not. Once that instruction has been communicated to you, simply follow it. Remember that throughout this process the seller is your client, not the lender, and you are required to follow all lawful instructions of the client.

Under the law of contract, there is no such thing as a “back up offer.” Subsequent offers should not be accepted once the buyer and seller have entered into a contract, unless they are accepted as “backup” contracts, through use of your company’s approved addendum. Sellers interested in creating backup contracts should be directed to consult an attorney because the contract provision or addendum that creates the backup contract must be carefully drafted.

For our purposes, we define a “backup” contract to be a transaction that doesn’t take place unless another transaction, usually called the “primary contract,” falls through. The “backup” buyer is obligated to proceed with the sale if the seller notifies the buyer that the backup contract has become the primary contract.

Charles A. kasky, Esquire, Vice President of legal Affairs

Maryland Association of REAlToRs®

1-800-888-1272 • Monday and Wednesday • 10am – Noon and 2pm – 4 pm www.mdrealtor.org • Complete an Online Form available in the Legal Hotline tab

FREE lEgAlHoTlINE

Lingering Short Sale Questions

Several issues concerning contracts for short sale properties continue to trouble callers to the MAR Legal Hotline. We are answering two of them in this month’s column. Please refer to the Legal Hotline page of the Maryland Association of REALTORS® website for more questions and answers on distressed property sales.

Q. The Buyer submitted an offer that included the Short Sale Addendum, which provides that the contract is contingent on receipt of third party (lender) approval. Sellers accepted the offer, and the parties are awaiting third party approval. Is this an enforceable contract, or can the buyers withdraw the offer prior to receipt of third party approval?

A. We believe the preferred method of dealing with the short sale transaction is to treat the third party approval as any other contingency. In other words, the seller accepts the offer, creating an enforceable contract. Performance under the contract is contingent upon third party approval. Legally this is no different from any other contingency, such as financing or home inspection contingency. In this case, performance on part of the buyer and seller is conditioned upon receiving approval from the lender.

Whether a buyer can rescind the contract depends on the terms of the contract itself. However, if the buyer has simply submitted an offer for consideration, the buyer can withdraw the offer any time before it is accepted or a counter-offer is received.

Once the parties have entered into a contract, any changes the parties negotiate to the contract should be forwarded to the lender for review. Sometimes the lender requests changes to the contract. If this happens, the parties must negotiate the amendments. Failure to agree on amendments to an existing contract leaves the contract in force according to its original terms.

From the HotlineCharles A. Kasky, Esquire

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February/March 2012