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New law makes some real estate liens illegal

On Behalf of | May 17, 2023 | Real Estate |

Some real estate brokers in Georgia require sellers to sign a contract agreeing to pay a penalty if the seller does not use that broker to sell the home during the contract period. These contracts, which can last as long as 40 years, prevent sellers from utilizing the services of a real estate broker and then selling the home some other way to avoid paying the commission.

A new Georgia law will prevent real estate companies from utilizing liens to enforce these contracts.

What the law does

Currently, a real estate company that has a contract with a seller who does not use that company to list their home when it sells can place a lien on the seller’s property. This lien forces the seller to pay the real estate company the agreed penalty, usually a percentage of the home’s sale value, to the real estate company.

The new law, which takes effect in 2024, will not make these contracts illegal but will prevent real estate companies from using liens to enforce them.

Reason for the law

Investigators found that some real estate companies were using listing contracts in a predatory fashion. They believed these companies were using the contracts to lock sellers into long-term agreements solely in the hopes of collecting these penalties, rather than because of a genuine intent to provide a service to the homeowner.

Because these contracts will remain legal, homeowners need to consider the potential implications before entering into one. Even without the liens, real estate companies may pursue other means of collecting the penalty.

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