Brokers Have Duty To Disclose Short Sales

The Court of Appeal in Orange County recently held that Real Estate Brokers have a duty to disclose to buyers that a listing is a short sale if the encumbrances exceed the value of the property. In HOLMES v. SUMMER, 188 Cal.App.4th 1510 (2010), the broker had a listing on a home which was over-encumbered. A buyer made an offer and during escrow, spent money investigating the property, and made arrangements to move into it. However, the transaction fell apart because the lenders did not approve the short sale, resulting in the buyer not completing the sale. The buyers sued the Broker who had the listing. The Appellate Court in Orange County held that the Broker had a duty to disclose to the buyer that this was a “short sale”, meaning that the deal could not be done without approval of the lenders.