I, like many of you, was surprised to learn that the Virginia Real Estate Board (VREB) recently amended the Virginia Residential Disclosure Statement to comply with House Bill 837. HB 837. This disclosure requires a new 7th notice be given to all prospective purchasers advising them that the seller makes no representations with regard to whether the property is located in a “dam break inundation zone.”

The new form was adopted by the VREB on July 10, 2008, and was posted to the VREB website that evening which means Listing agents should get the new disclosure signed by their sellers and use it for all contracts ratified Friday, July 11, 2008, forward.

Buyers who received the old form before July 11 do not need to receive a new form.

Remember: As with the changes effective January 1 of this year, It doesn’t matter when you took the listing. If you are giving a form to a prospective buyer on or after July 11, it must be the new disclosure form. If your seller or agent gave the old form on July 11 -15, you might want to give the current form to the buyers to avoid creating a potential loop-hole for a non-performing buyer to discover later in the process.

You can download the document below or Here is a link to the form: Virginia Residential Disclosure Form

Here is a link to thew new disclosure law.

Virginia Residential Property Disclosure Form - Free Legal Forms

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.