No Dual Agency On FHA Short Sales

No Dual Agency on FHA Short Sales

That is right. While many real estate agents were sleeping, a new rule is about to go into effect on October 1, 2013 and NAR (National Association of Realtors) is fighting, last minute, to prevent the implementation. I am always amazed at these last minute “Chinese Fire Drills.”

In a Mortgagee Letter, dated July 9, 2013, (Mortgagee Letter 2013-23) HUD put all FHA approved servicers on notice of upcoming changes. One of those key changes under the section entitled, “PFS Participation Requirements” HUD states “To meet the PFS Addendum requirements, brokers and their agents may only represent the buyer or the seller, but not both parties;” That means, No Dual Agency on FHA Short Sales.

No Dual Agency

This has many agents up in arms. In several articles NAR makes the argument that this puts undue burden on large brokerages who see 30% or more of their transactions Dual Agency. NAR argues that this HUD rule conflicts with State Law allowing it. However, Federal Law does preempt state law when the debt in question being paid off in the short sale is a Federal Debt. The blogosphere has lit up over it and this author’s unscientific method of sampling leads me to believe that the sentiment is very mixed and not quite leaning universally on NAR’s side. There were very good arguments made that sales prices, on those transactions where Dual Agency existed,  were significantly lower than ones without Dual Agency. Further, some agents alleged that they had buyers at higher prices just to find out that it closed thousands less AND the same agent was on both sides of the transaction.

Over the last 5 years and over 2800 short sale transactions later, our law practice has concluded that Dual Agency does result in a lower price on that short sale than those that do not have Dual Agency. Put aside the problem with the servicer attempting to cram down the agents commission anyway. Even Fannie and Freddie have gone so far as to require that the property be listed for a minimum of 5 days including a weekend prior to accepting an offer to deter any fraud on those transactions. But, is it fraud? Even in Arizona and California Dual Agency is allowed as long as it is properly disclosed. Further, the servicer is going to do a separate valuation and, as we all have seen over the last year, if determined, the servicer will counter with a higher price.

It seems that the bottom line for HUD is not that they don’t trust the real estate agent, as much as they cannot trust the service to manage the arms-length character of the transaction.

About Kevin Hardin

Kevin W. Hardin is a 22 year veteran of the Mortgage and Real Estate industries. He holds a Juris Doctor (JD) degree from Concord Law School and a CMB (Certified Mortgage Banker) from the Mortgage Bankers Association. He is a Senior Loan Officer at HomeStreet Bank. He works with Borrowers, Attorneys, Title Companies, Real Estate Agents and Mortgage Companies on mortgage law issues.


  1. I got into short sales a few years back and have closed 32 and am in the middle of the 33rd. In most cases I was the seller’s agent (all but 2). I only dual agencied a couple of them myself but in both cases the short sale lender refused to pay the commission I had negotiated with the seller even though they have no rights to even talk about that as they are not a party to the employment agreement. If they don’t like the payout then counter the offer but don’t take it out on the agents.

    I also love when I have an offer on the table and the lender says “we’d never sell it for that little” and foreclose only to sell it for much less. Had that happen at leases 10 times.

    My next favorite thing is when they tell me their bank policy supersedes state and national law.

    Then I enjoy how the lender sells the note the day they close escrow but tell us how much money they “lost” due to having to foreclose. What money did they lose?

    I even had a short sale “negotiator” tell me it wasn’t fair to the bank that the seller was allowed to have money and do a short sale so they foreclosed and made their loss worse.

    This whole nonsense has me incensed at our government and it confounds me how they keep punishing the industry as a whole for things that less than 1% of us are doing. (Appraisal management companies, no dual agency, the entirety if the Dodd Frank act…etc)

    • Adam,

      Well said. We have witnessed all as well. Bottom line, so long as the seller is looking for release of lien and liability, the lender is the engine in this train and can do whatever they want to a great degree, especially here in AZ where our legislation has declined to put the level of protections that states like CA have put in place to put the lender into handcuffs on some of these bad acts.


  1. […] That is right. While many real estate agents were sleeping, a new rule is about to go into effect on October 1, 2013 and NAR (National Association of Realtors) is fighting, last minute, to prevent the implementation. I am always amazed at these last …read more […]

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