July 6th, 2012 at 7:05 pm
As you know, our legal department spends a lot of time communicating with our agents, providing training and information on this blog, in office meetings and in e-mails. At times when we talk to agents, it is hard not to get the feeling that some of you think we are overly cautious, or too grave and alarmist in our warnings. In truth, we work hard to avoid those things, and always do our best to understand your issues and consider our legal advice in light of the realities of your business. However, despite those attempts, it is necessary to warn you against certain conduct or prohibit you from doing certain things because to act otherwise would put you in legal jeopardy. Today I wanted to share a story illustrating what I mean.
Last week I received a News Release from the Department of Real Estate entitled “Real Estate Agent Pleads Guilty to Conspiracy to Commit Real Estate Fraud in Connection with Short Sale Transaction.” In the Release, the DRE tells of a licensee who handled two short sales where the bank stated that the commission could not exceed 7%. Despite that limitation, the licensee required the buyers to pay a “short sale negotiation fee” that was not disclosed to the lender. That fee, when combined with the commission actually paid, exceeded 7%. As a result, in his guilty plea, the licensee admitted that he “fraudulently collected two short sale fees to which he was not lawfully entitled…” As part of his sentence, the agent surrendered his real estate license, served 90 days in jail, paid restitution of approximately $25,000 and was placed on 3 years probation.
Of course, as you all know, we have been saying for years that nothing can happen in a short sale that is not disclosed to and approved by the lender and doesn’t appear on the HUD. We have also consistently told you that since short sale negotiation is licensed activity, any “short sale fee” is really a commission and must be handled as such, with a commission agreement, an agency disclosure, etc. In other words, we have told you that the conduct which resulted in this criminal prosecution should never occur. And, of course, we tell you those things to keep you away from the DRE and District Attorney and make sure you can keep your license and keep selling real estate. Please remember that and that, at all times, we have your best interests at heart.
As always, please contact us with any questions you may have
June 29th, 2012 at 7:05 pm
I spent yesterday in a commission claim mediation that reminded me of one of the great truths that I consistently share with you: YOUR CLIENTS WILL LIE if it is their best interests to do so. In this case, we had a listing agreement that ran from October, 2010 through December 31, 2011. In March, 2011, our clients told us that they were trying to refinance the property and asked us to give them a “cancellation” of the listing to provide to their lender. The sellers assured us that the cancellation was merely for the refi and that they would put the property back on the market as soon as the loan closed. (As an aside, we should not do this and help our client lie to their lender.) In an attempt to help our client, we agreed and gave them the cancellation. Of course, after failing to get a new loan, the client never put the house back on the market and instead sold the property themselves during the term of our “cancelled” listing.
At mediation yesterday, the sellers claimed that the cancellation had nothing to do with a loan and was instead a real cancellation. They claimed they never promised to put the house back on the market with us and that they always intended the cancellation to be final and forever. Our agents were angry and surprised and could not believe, despite our constant warnings, that the client would lie like this.
That being said, in the course of the mediation, and because the sellers lied, the question became what we did after March to show that we believed the listing was still valid and that we had been promised that the house would still be sold. Of course, our agents described many conversations with the sellers, and the excuses they gave us to keep from marketing the property. When the sellers denied that these conversations ever took place, the mediator asked us for the obvious thing: writings to show what we did. Where were the e-mails, he said, that showed that we acted consistently with our story? Where were the e-mails or writings asking to market the property after the refi was done? Where was the proof that we contacted the seller like an agent with a listing would do? In response, our agents found only two e-mails from March through December. They claimed to have had many phone conversations in that period, but only had two writings. When the seller lied and denied these conversations, unfortunately, we were left in a liar’s contest with the seller, had a weaker legal position than we would have otherwise had and probably got less money than we would have otherwise received.
So, what is the lesson of this story? In truth, there are two lessons. First, as we tell you all the time, when you get the feeling that you may have a problem with a client or transaction, begin to put things in writing. E-mail has actually made this very easy for us. After talking to your client about the issue you are concerned with, confirm it in an e-mail. It is a very non-threatening way to create a written record. You don’t need a signature or have to confront the client in person. You just send a casual e-mail. And, of course, if a problem arises in the future, and your client lies, you have the writing to establish the truth. Remember, in a liar’s contest, the party with a writing from the time of the deal will always win. So please, protect yourself and your commissions by putting things in writing.
Next, with regard to this specific story, we would first like you to avoid assisting a client when they ask for this type of cancellation. However, if you have no choice, and your manager has told you to cooperate, use the Cancellation of Listing Form (COL) and check paragraph no. 1. That way, if the seller then sells the house during our listing period, we are expressly owed a commission. As always, let us know if you have any questions.
June 22nd, 2012 at 7:03 pm
In April of this year, the Federal Housing Finance Agency (FHFA) set out new guidelines to Fannie Mae and Freddie Mac in order to streamline short sales in the hopes of helping borrowers and communities hard hit by the housing market decline. These guidelines take effect in June.
The FHFA has directed Fannie Mae and Freddie Mac to develop enhanced and aligned strategies for facilitating short sales, deeds-in-lieu and deeds-for-lease in order to help more homeowners avoid foreclosure. The changes coming in June set out new timelines for actions by mortgage servicers with regard to short sales.
The new requirements require a mortgage servicer to:
1. Acknowledge receipt of a short sale offer within 3 day business days
2. Notify a borrower within five business days if the information packet provided by the borrower is incomplete.
3. Review and respond to requests for short sales within 30 calendar days from receipt of a short sale offer.
4. Provide weekly status updates to the borrower if the short sale offer is still under review after 30 calendar days
5. Make and communicate final decision to the borrower within 60 calendar days of receipt of the offer and complete borrower response package.
It is anticipated that additional enhancements regarding borrower eligibility and evaluation, documentation simplification, property valuation, fraud mitigation, payments to subordinate lien holders, and mortgage insurance will be out by the end of 2012.
As always, feel free to contact us with any questions you may have.
June 12th, 2012 at 7:02 pm
As you know, short sales continue to be a large part of our business. With that in mind, I received a call yesterday that highlighted an issue I hadn’t seen before. In that case, our seller received approval from the bank and immediately delivered the approval letter to the buyer. After making that delivery, the seller then reviewed the lender’s conditions and found that a few of them were unacceptable. As a result, the seller sought to cancel the Agreement, stating that he did not have to accept all of the bank’s conditions. Of course, the question for me was whether that cancellation was effective.
Upon hearing this scenario, my initial reaction was that the deal was cancelled. After all, as the SSA makes clear, the seller “is not obligated to change the terms of their Agreement to satisfy Short Sale Lenders’ consent or term sheet.” (SSA, paragraph 1E.) On the other hand, however, the buyer’s agent then pointed me to paragraph 1C of the SSA and my opinion quickly changed. Paragraph 1C(ii) of the SSA reads as follows: “Seller’s presentation to Buyer of Short Sale Lender’s Consent satisfying 1B removes the contingency in 1A.” (Emphasis added.) In other words, by delivering the bank’s approval letter to the buyer, the seller is removing the contingency in the SSA and therefore their right to cancel the deal based on the SSA. So, in the case above, since the consent had already been delivered to the buyer, the seller could no longer cancel.
What does all this mean for us? It means that, as the seller’s agent, we need to carefully review the lender’s approval letter before sending it to the buyer. The SSA gives the seller 3 days to deliver the consent to the buyer, and we need to use that period to make sure that all the conditions are acceptable to our seller. Only then can we safely deliver the letter to the buyer. So, when an approval is received, immediately set an appointment with your seller so the letter can be reviewed and delivered to the buyer. By getting the approval reviewed and delivered, we not only confirm that lender conditions are acceptable, we also eliminate the buyer’s right to cancel per paragraph 1A and D. So move quickly, but carefully. That way you protect both your seller and yourself.
As always, let us know if you have any questions
June 6th, 2012 at 7:02 pm
As you know, we spend a lot of time providing you with information and training about all aspects of your business. We do that for many reasons, but at its core is our belief that the more you know and the more professional you are, the more successful you will be. We recently had a short sale that was a perfect example of this belief.
As you know, and as we have shared in the past, Fannie Mae limits the lender’s ability to reduce commissions in short sales arising from loans they own. Specifically, since March 1, 2009, Fannie Mae’s guidelines have stated that “closing of preforeclosure sales may not be conditioned upon the reduction of the total commission to be paid to real estate agents to a level below what was negotiated by the listing agent with the borrower, unless the fee exceeds 6 percent of the sales price…” In other words, on a Fannie Mae loan, the lender may not cut the commission below 6% if that is what the listing agreement provides.
With that rule in mind, one of our agents recently represented both sides in a Fannie Mae short sale where the listing agreement had a 6% commission. On May 17, he got an e-mail from the bank’s negotiator which said the deal had been approved and attached the Approval Letter. In both the e-mail and letter, however, the commission was reduced to 4%, “per investor’s requirements.” Note that the investor’s requirements were referenced but nothing was said about Fannie Mae. In response, after thanking the negotiator for their assistance on the deal, our agent wrote as follows: “You state below that the commission is at 4%. Upon further review, the loan is owned by Fannie Mae. It is my understanding on Fannie Mae loans that commissions are not to be below the level of what the listing agent and borrower negotiated.” After attaching the listing agreement showing a 6% commission, our agent asked the negotiator to look into “this oversight and hopefully have it corrected.”
In response, the negotiator first responded that the “commission will remain as approved. As a dual agent, 4% is the max.” The next day, however, we received the following: “I went to my contact at Fannie and they approved the 6% commission. Attached is the updated approval.” In other words, by knowing the rules, and pointing them out to the bank, our agent earned an extra 2% on this deal. Remember, it would have been easy to accept the 4% and move on. After all, most of us believe that commissions are limited when we act as a dual agent on a short sale. However, by being on top of his game and business, our agent knew that the discount was not allowed and fought for his money.
There is one other thing I want to point out about how this issue was handled. Please look again at the quotes from our agent above. At all times, our agent was polite and professional. He always thanked the negotiator for her help. He politely pointed out the mistake and asked that the “oversight” be corrected. There was never any anger or emotion in his e-mails and he never insulted the negotiator. This is another example of something we always tell you: act professionally and you will be more successful than the “jerk.” People like to be treated professionally and will respond more positively when they are. So, know your business, keep yourself up to date on all new developments and use that knowledge when necessary. It will help you get more clients because you will be the best at what you do, and it will help earn you what you deserve, like in the case above.
As always, contact us with any questions you may have
