In a Mortgagee Letter issued on September 27, 2013, the Department of Housing and Urban Development delayed implementation of a ban on dual agency in FHA short sales. Mortgagee Letter 2013-34 states that implementation of the provision in Mortgagee Letter 2013-23 has been delayed “until further notice.”

Mortgagee Letter was designed to reduce the incidence of fraud in short sales and deeds in lieu of foreclosure, covering matters such as documentation of assets, income and expenses; and validation requirements for appraisals. The Letter also imposed “arms-length” requirements for short sales, including a provision that stated: “No party that is a signatory on the sales contract, including addenda, can serve in more than one capacity….brokers and their agents may only represent the buyer or the seller, but not both parties.” The provision further stated that the broker hired to sell the property may not share a business interest with the mortgagee, and that if a shared interest exists between the appraiser and sales agent, and is known to the mortgagee, it must be noted in the servicing file. This provision was due to go into effect on October 1, 2013.

The National Association of Realtors^® objected to this new requirement, arguing that it would have a disruptive effect in that some brokerages would decide not to represent sellers in FHA short sales if it would restrict their agents from representing buyers of those properties. The NAR also complained that the policy could conflict with some state licensing laws and multiple listing guidelines.

In response, HUD issued Mortgagee Letter 2013-34, delaying the implementation of the provision until further notice. The other requirements set forth in Mortgagee Letter 2013-23 went into effect on October 1, 2013.