April 2nd, 2012 at 6:53 pm
Over the past few months, there have been questions regarding the revised anti-deficiency statute, specifically who and what it covers. There has been an anti-deficiency statute on the books since the 1930s in the form of California Code of Civil Procedure Section 580. This law provided that no deficiency judgment could be entered against a homeowner on purchase money mortgages. In other words, if the borrower used the money to purchase the residence, the lender was limited to regaining possession of the property and could not go after the borrower for any deficiency. The statute only addressed foreclosure situations and thus, the borrower was not protected in the event of a short sale.
Effective as of July 15, 2011 Section 580(e) was added to the statute which expanded the anti-deficiency rules to include the sale of the property for less than the remaining amount of the indebtedness outstanding at the time of sale upon written consent of the lender, in other words, in the case of a short sale.
This law also made it clear that the lender cannot ask for additional funds to be paid by the borrower to secure the consent to sell nor can the lender require the borrower to sign an agreement to repay the deficiency in exchange for consent to sell. If the lender requests such payment or repayment document, it is considered fraud by the lender and the borrower can seek damages against the lender.
Initially, we saw a lot of lenders trying to condition consent in violation of the statute, but more recently, the lenders appear to be complying with the law.
As always, let us know if you have any questions.
March 7th, 2012 at 6:52 pm
As many of you know, in the course of my job I spend a lot of time reviewing transaction files. In the course of that review, I have recently encountered a number of transactions where the Transfer Disclosure Statement and AVID were not delivered to the buyer until late in the transaction, sometimes after the buyer has removed their contingencies. Of course, there are numerous reasons why this is a problem and should never happen.
First, paragraph 6A(1) of the Purchase Agreement provides that the Seller “shall” deliver the TDS to the Buyer within 7 days. As a result, the failure to do so puts your Seller in breach of contract. Obviously that means you need to get the Seller’s portion of the TDS filled out quickly, and have yours done in the same time frame. We cannot have our failure to complete the TDS or AVID be the cause of our Seller’s breach.
Next, Civil Code section 1102.3 provides the buyer with a 3 day right to rescind the transaction within 3 days after the TDS is delivered in person or within 5 days after it is delivered by mail. Of course, as the listing agent, it is our duty to do everything possible to have that cancellation right eliminated as early in the deal as is possible. By delivering the TDS early, we eliminate that right early. Further, if the TDS is delivered after contingencies are removed, the buyer still has her 3 day right. Obviously, we never want to be the reason the buyer has another way to cancel the deal.
Next, in our experience, buyer’s accept negative disclosures about a property better early in the deal. Most buyer’s have a “honeymoon” period regarding the house immediately after their offer is accepted. I know that when I bought my house, there would have been very few disclosures that would have made my wife want to cancel. Rather, she loved the house and we would have figured out a way to accept any problem. I think the same is true for many buyers, so it is worth getting negative information to them early. Of course, later in the deal, when the glow has worn off and there have been other unpleasant issues between the parties, the buyer’s reaction to the TDS is much harder to predict.
Finally, your time is much too valuable to waste on someone who is going to cancel the deal upon receipt of the TDS. As a result, deliver it early and determine whether the disclosures are going to be a problem. If they are, you can move on to a real buyer. If they are not, you have just eliminated one hurdle to closing your deal. There really is no downside to delivering the disclosures as early as possible.
In short, don’t wait to get the TDS and AVID to the Buyer. There are legal, contractual and practical reasons to deliver these documents early. It will both make your deal more solid and prevent you from wasting more time than is necessary.
As always, please feel free to contact us with any questions you may have
February 29th, 2012 at 6:51 pm
Paragraph 3H of the Purchase Agreement sets forth much of the mechanics of the loan process. It provides a time frame for the buyer’s delivery of a prequalification letter and the removal of the loan contingency. As a result, while there are not many blank lines to fill out in this clause, there are certain things you can do to better represent your client. First, paragraph H(1), regarding the prequal letter, has a box you can check at the end which states, “letter attached.” In other words, you can satisfy the requirements of this clause at the time of your offer by attaching the letter to your RPA. I think that is a great idea for multiple reasons. First, it satisfies the buyer’s obligation and is one less thing they need to worry about. Additionally, however, it makes your offer better and distinguishes you from other buyers. After all, the seller doesn’t have to wait for your proof of qualification. They get it with your offer and can include that fact in their decision regarding which offer to accept.
Next, paragraph H(3) provides three separate options for removal of the loan contingency: (1) that it be removed in 17 days; (2) that it be removed in some other, specified number of days; or (3) that it remain in effect until the loan is funded. Of course, the interests addressed by these three options depend on the specifics of your transaction and the side of the deal you represent. For example, if you are the listing agent, in almost any instance, it is in the seller’s best interest to keep the loan contingency reasonable, but around the 17 days. Obviously, the seller does not want the buyer to have a cancellation right any longer than is necessary. So, when representing the seller, you need to review this clause and make sure the “open till funding” clause is not checked. If it is, be sure to counter it out. With regard to an offer requesting more than 17 days, your advice to the seller will depend on the circumstances. We know that in today’s market, most loans do not get approved in 17 days. So, a request for a 21 or 24 day loan contingency is not unreasonable. On the other hand, if your listing is popular, and there are multiple offers, you can insist on 17 days or less to protect your seller. Regardless, it is our job to advise our seller on the risks and benefits of each potential period and let them decide what they are willing to do.
If you represent the buyer, on the other hand, the concerns are much different. After all, no matter when a loan contingency is removed, the buyer’s deposit money is, to some extent, at risk. This is true because, until the loan funds and the deal closes, things can happen and the bank can pull its loan commitment. As a result, even if the buyer removes a loan contingency the day before the scheduled close of escrow, their deposit is not totally safe. Something could still go wrong.
With that in mind, how should we advise our buyer’s with regard to their offer? Of course, the answer to that question, as always, depends a lot on the specifics of your deal. For example, if you are in a multiple offer situation, you should not check the “open till funding” box. In that circumstance, you are trying to make the buyer’s offer as attractive as possible to the seller. As a result, you should advise the buyer of the risks involved in a short contingency period, but advise that they stick with a shorter period in order to make the offer more attractive. If you get your offer accepted, you have more control over when the contingency is actually removed and can more likely get the seller’s agreement on an extension.
If, on the other hand, you are the only offer on the property, then the calculation is somewhat different. Of course, from the buyer’s perspective, a contingency until funding is a good thing. As a result, all things being equal, a buyer’s agent should recommend checking the box. In most instances, if the listing agent catches the check mark, they will counter the clause out. If they do you have not lost anything. Further, in some cases the listing agent misses the check mark and your buyer gets their long contingency. So, in those situations checking the box works for your buyer. On the other hand, in some instances, “all things are not equal.” For example, some listing agents seem to be looking for a reason not to accept your offer. Perhaps they hope to have their own buyer. In such a case, you should again explain the risks to your buyer and recommend a shorter period. Similarly, if you are writing a really clean offer that you think has a good chance of being accepted as is, then you may recommend against checking the box since it significantly increases the likelihood of a counter offer. In short, this decision is not a simple one and depends on the circumstances of your deal. In any case, the decision is your buyer’s and it is our job to explain the risks and benefits of each course of action (to check the box or not) and let them decide how to proceed. If you are unsure on how to deal with this issue, contact your manager or the legal department. We will be happy to help.
February 23rd, 2012 at 6:50 pm
names. Specifically, the DRE has stated that an agent cannot use a team name that implies it is a separate entity or brokerage. For example, team names that like “John Doe Real Estate” or “The John Doe Group” are not permitted. Rather, you can use the last names of the team leaders or members, all the while identifying that the agents are with Prudential California Realty (“Smith and Smith,” etc.) In the past, enforcement of these rules has been sporadic, but we have been informed that this is about to change. Specifically, we are told that the DRE is forming a task force to enforce its team name rules. That task force will be driving neighborhoods and looking for signs that violate the rules. Each violation is subject to a $1,000 fine, meaning $1,000 for each sign or marketing piece. As a result, and as you can see, these violations can be very expensive. Further, if you are cited by the DRE, all existing marketing which uses the offending language will need to be discarded. This means signs, flyers, etc. Finally, all the branding you have done for that team name will have gone to waste, since you will not be able to use the name any longer. So please be aware of this new state of affairs, and consider very carefully how you want to respond. Perhaps an affirmative move to change your team name and make it compliant would be the smart thing to do at this point.
As always, please feel free to contact us with any questions you may have.
February 17th, 2012 at 6:49 pm
I received a call this week from a listing agent on a deal where the buyer had contracted to procure an FHA loan. The agent was upset because, weeks into the escrow she received an escrow amendment memorializing two FHA requirements that, in her view, changed the terms of the deal. Of course, her seller didn’t want to sign the amendment and she called me to find out if he had to. Unfortunately for our agent and her seller, the FHA requirements at issue were not unique. Rather, they are uniformly enforced whenever an FHA loan is used. As a result, by checking the FHA box in paragraph 3C(1), the buyer was impliedly telling us that these requirements were part of the deal and the seller was accepting them. So, I think that the amendment was already agreed to and her seller could not eliminate those changes by refusing to sign.
So, what were the terms that caused so much stress.? First, in an FHA deal, the seller must agree that the buyer will not be obligated to close and will not lose their deposit unless the property appraises at purchase price. In other words, regardless of what contingencies exist in the RPA, and whether they have been removed, the buyer does not have to close escrow if the property doesn’t appraise. The FHA gives the buyer a second appraisal contingency that lasts until closing.
Next, the FHA will not insure a loan unless any items or systems identified by them are repaired. Of course, the RPA specifically says that the seller doesn’t have to pay for those repairs. However, if they are not made, then the buyer has a right to get out of the deal. Further, unlike normal repairs, the buyer cannot waive them. The FHA will not insure the loan unless the identified items are fixed.
So, if you represent a seller who gets an FHA offer, make sure to explain these issues to her. By accepting that offer, your seller is accepting the express contingencies of the RPA, as well as these two required by FHA. By explaining them up front, at the time of the offer, you won’t have to worry about a problem later on. That, of course, is always the best way to proceed.
As always, please contact us with any questions you may have
