HUD Delays the Ban on Dual Agency for Short Sales on Properties with FHA Loan being sold short. The rule was to go into effect on October 1, 2013, as outlined in mortgagee letter 2013-23 released in July 2013. The rule stated that brokers and their agents may only represent the buyer or the seller, but not both parties. This is commonly called dual agency so the rule thus makes it illegal for an agent that works for the brokerage of the listing agent to represent a buyer in the purchase of a short sale.
The intent of the rule is not to limit real estate agents but was to limit the risk of fraud and to ensure “arms-length” transactions on short sales and deed in lieu of foreclosure. There has been rampant fraud being performed with some agents listing homes for short sale and selling them to other agents below the market price by not taking any other offers to the bank. The same thing has been happening on REO properties that have been sold by agents that sell them to a partner at below market value by not taking any other offers to the bank that is selling the property.