January 27th, 2012 at 6:47 pm
As we have said before, the world of short sales in an ever evolving one, with people coming up with changes as quickly as properties are sold. One of the things we have seen in many recent short sales is the listing agent asking the buyer to open escrow and make her deposit at the time of contract acceptance, not bank approval. Apparently, short sale agents are tired of buyers submitting acceptable contracts and then bailing on the deal before the bank responds is received. Of course, from the seller’s perspective, a cancelled deal wastes a lot of time and effort. As a result, the listing agent asks the buyer to make a deposit up front, hoping that by doing so, he will tie the buyer to the property in a more concrete way.
Unfortunately, this practice has created a formerly unseen problem for our short sale buyers. As you know, many short sale sellers are totally disengaged from the transaction. They are not going to receive any money at close of escrow and, frankly, don’t really cares what happens in the deal. As a result, when the buyer properly cancels the deal, the seller is nowhere to be found and/or will not sign the cancellation instructions. Of course, in that circumstance, most escrow companies will not return the buyer’s deposit.
So how do we protect our buyers in this case? The answer, most commonly, lies in the escrow company’s General Provisions. In those provisions, some escrow companies provide methods by which the deal can be cancelled without mutual instructions. For example, in Pickford Escrow’s General Provisions, the parties agree that, if one of them tries to cancel, Pickford is to send a cancellation notice to the other party. If Pickford gets no response from that party, they are specifically authorized to perform the original request and cancel the escrow. In other words, in such a situation, your client’s money would be returned to her.
So please remember, the choice of escrow is not a throw away. Escrow companies are different in many ways and you need to understand those differences before you agree to one company or another. Your buyer’s ability to cancel when the seller has disappeared may be very important to them, and you should know what their rights are before picking escrow. So review the General Provisions, or choose a company whose provisions provide you with the protection you need. In any case, think about the choice and don’t give up on it for a small concession on the other side. After all, escrow holds the money and the company doing so should be very important to both you and your client.
Of course, let us know if you have any questions.
January 11th, 2012 at 6:46 pm
As you know, it is very common these days for agents to work with a partner or as part of a team. In many of those cases, while multiple licensees are actually working on the transaction, the documents only have the name of the lead or main agent. As a result, while the client may thing that Jane Doe is doing all the work on their deal, in truth John Doe is also very involved. When that happens, unfortunately, the client is often unhappy, especially if something goes wrong. They believe they hired a specific person, and want her handling the transaction unless you explain otherwise. In order to help you avoid this problem, CAR released a new form in November, the Additional Broker or Agent Acknowledgment (Form ABAA). This document provides you with paragraphs to make the four following disclosures: 1) To advise the seller that there are multiple brokers representing her (paragraph 1); 2) To advise the buyer that there are multiple brokers representing him (paragraph 2); 3) To advise the seller that there are multiple licensees affiliated with the same broker working with her (paragraph 3); and 4) To advise the buyer that there are multiple licensees affiliated with the same broker working with him (paragraph 4). Obviously, since we are the client’s fiduciary, they are entitled to know these facts.
In truth, our ultimate concern is that your client is aware of who is servicing their listing or transaction. While this form is a good way to make that disclosure, it is not required. If you know that more than one person or broker will be servicing a listing, you can have both names put in the Listing Agreement. Similarly, you can make multiple agency disclosures to a buyer identifying all the licensees and brokers working on their behalf. How you make the disclosure doesn’t really matter, as long as the disclosure is made. That being said, CAR created this form to make it easier for you. As a result, please be sure that in the appropriate circumstances your client knows everyone who is working on their behalf. You can use the ABAA or another form. Just use something.
s always, please feel free to contact us with any questions you may have.
December 20th, 2011 at 12:08 am
As many of you have heard me say in the past, CAR provides many good tools for its membership, including many of the forms we use in our transactions. One of my favorites, and one which we do not see used as consistently as we would like, is the Request for Repair (Form RR). This document is good for a number of reasons. First, it provides a simple, written record of what problems the buyer knew about and what repairs she asked for and, furthermore, what the seller agreed to repair. The RR is only one page, and gives you both the buyer’s requests and the seller’s response. That makes it very convenient for everyone to use and makes their agreement very clear. On the other hand, when the RR is not used, I cannot tell you how many times the parties end up fighting over just what their agreement was. The buyer thinks the seller agreed to fix a certain thing and the seller says no. Typically, in these instances the repair agreement was either verbal of done by e-mail and was therefore not as clear as necessary.
Next, if the parties desire, the RR provides them with a place to negotiate a credit rather than repairs. We are seeing this more often, where the seller would rather not actually perform repairs. As a result, the RR gives the parties a place to memorialize the agreed upon credit.
Finally, and perhaps most importantly, the RR gives the parties, especially the seller, the opportunity to ensure that the repair negotiations are complete and that the buyer is willing to move forward. As you know, section 2A of the RR reads as follows: “If Buyer agrees to (i) remove in writing the contingency(ies) identified on the attached Contingency Removal form…” then Seller will agree to make certain repairs. In other words, if the buyer is willing to commit that the identified repairs are all they are asking for, and will therefore remove the identified contingency, then the seller will make the repairs. Of course, this means that the listing agent must always attach a Contingency Removal form to the RR and must always at least check box 1E for removal of the Buyer’s investigation. That way, the seller would only be bound to make repairs if the buyer gives up their right to cancel over the property’s condition and agrees to move forward with the identified repairs only. If that contingency is not removed, of course, the buyer can still cancel the deal and therefore can request more repairs. So, by using this form, along with the CR, the seller is protected, and only needs to make the agreed upon repairs if the buyer agrees that they will not ask for anything else.
So remember, always us the RR form when negotiating repairs. It makes the parties’ agreement very clear. And, as importantly, if you represent the seller, make sure to attach a Contingency Removal to the RR and check the Buyer’s Investigation box so the buyer loses their leverage and can’t ask for anything else. This way, the agreement that is memorialized on the RR will be the final one regarding repairs and the parties can move forward knowing exactly what is expected of them. As always, please contact us with any questions you may have
December 14th, 2011 at 12:07 am
Paragraph 3 (G) of the RPA, relating to the buyer’s verification of funds, is one of the contract’s most important protections for the seller. Specifically, this clause obligates the buyer to provide written verification of their down payment and closing costs. In other words, the contract requires that the buyer prove that they actually have the cash necessary to close the deal. At the time the present version of the RPA was drafted, this clause was added in response to objections of listing agents. After all, with the broad contingency rights given to buyers, listing agents felt that the document was unfairly favorable to buyers. As a result, this verification requirement was added to allow the seller to get some comfort that their buyer can actually perform.
What does all that mean from our perspective? It means that when you represent the seller, it is imperative that you ensure that verification documents are actually received. In far too many instances no verification documents are ever produced by the buyer and that the seller’s agent did nothing to procure those documents for her client. In my view, failing to follow up on the verification is a breach of your duty to the seller. As a result, when representing the seller, you should always calendar the 7th day to make sure the verification documents are received. If the seller does not receive them on time, you should call the selling agent to request them. If documents are still not received after a few days, you should talk to your seller about serving a Notice to Perform (“NBP”) on the buyer. By doing these things, and allowing the seller to decide whether to serve an NBP, you are doing your job.
The other issue that arises in regard to this paragraph relates to the sufficiency of the buyer’s verification. As you know, paragraph 14 allows the seller to give a NBP if he “reasonably disapproves” of the verification provided. So the question invariably becomes, what does “reasonably disapprove” mean? Unfortunately, I cannot really tell you. After all, “reasonably” is a very subjective term. As a result, if there is a question in this regard, your seller or their attorney needs to decide if the disapproval is reasonable. What we can tell the seller, however, is what our experience shows us. Specifically, sellers often disapprove of verifications written by the loan broker because they have an interest in the deal. They earn money if the buyer closes a loan with them. On the other hand, bank statements, or brokerage statements, are normally accepted. After all, those documents show the buyer’s actual cash and what they have to deposit in escrow. So, if asked what is reasonable, share that information with your seller and let them decide how to proceed.
As always, let us know if you have any questions.
December 7th, 2011 at 12:07 am
As you know, CAR releases new and revised forms for our use twice per year, in April and November. In its latest release, CAR included a revised Addendum that has one important issue you should be aware of. As you know, the Addendum is used if additional terms need to be added to another document. In the document’s introduction, CAR included check boxes for the common documents that an Addendum may relate to. Over the years, those boxes have included the various purchase agreements that CAR has created. In this latest revision, however, they have added two listing type documents: the Residential Listing Agreement and the Buyer Representation Agreement (collectively the “Broker Agreements”). Additionally, in the signature block, they have added a signature line for the Broker. While this is fine and makes sense with regard to the Broker Agreements, it creates problems if the Addendum is being used in connection with a Purchase Agreement. After all, as the broker, we are not a party to the purchase agreement and therefore should not sign it. In fact, if we were to do so, in the context of a dispute, the buyer or seller could argue that we were are a party and try to hold us to the obligations of that agreement. As a result, signing an Addendum to a Purchase Agreement could actually increase our liability in a transaction.
As a result, please be very careful when using the new Addendum form (CAR Form ADM). Only sign that document if it is being used as an Addendum to the Broker Agreements. If it is not, and is instead an Addendum to one of the CAR Purchase Agreements, you should refuse to sign and instead should leave the Broker signature line blank. If you are questioned about this position, please explain to your client that we are not a party to their purchase agreement and that the signature is only to be used if the Addendum modifies the Broker Agreements. Of course, if you have any problem with this policy, please contact your manager or the Legal Department for help.
