November 18th, 2011 at 12:04 am
In today’s market, there may be no clause in your contract more important than paragraph 3(C) relating to loans. This is true because that clause, when filled out correctly, helps define when it is appropriate for the buyer to use their loan contingency. Given how difficult and complicated the world of loans is these days, it is obviously critical that your buyer protects themselves in every way possible. So, what do you need to be aware of when filling out this paragraph? First, and most importantly, you need to remember to fill in the blanks, WITH NUMBERS, in every deal. Those numbers will identify a “not to exceed” percentage rate and points, thereby protecting your buyer and establishing what loan they have to take in order to be in compliance with the contract. For example, if paragraph 3(C) provides that the buyer will get a first loan in the amount of $500,000, with an interest rate not to exceed 5%, and the only loan they can get is at 5.25%, then it would appropriate and reasonable for the buyer to exercise their loan contingency and cancel the deal. On the other hand, in the same case if they got a loan at 4.99% but decided they no longer want the house, the use of their loan contingency would probably be a breach of contract. After all, in the contract they said they would take a 5% loan, so turning down one with a lower rate would not be good faith performance. Of course, the same discussion applies to the amount of points your client is willing to pay.
With all this in mind, you also need to realize that leaving these blanks empty deprives your clients of the specific protection we discussed above and, according to some people, deprives them of their right to use the loan contingency at all. After all, the argument goes, you can always get some loan, even if it is at 20% amortized monthly. By not putting numbers in this clause, these people would argue that if you can get any loan you have to take it and close escrow. You only limit what loan you need to take by putting a number in the blank. Without any number, these people claim you must take whatever loan someone is willing to give you.
Similarly, please use numbers, not terms like “prevailing” or “best available rates.” Like we have said many times in the past, contracts need to be as objective as possible. No one can argue what “4%” means, but they can have a different understanding of best available rates. Those terms just ask for a fight. So please use numbers to protect your buyer and eliminate any ambiguity. Thanks and feel free to contact us with any questions you may have.
November 4th, 2011 at 12:04 am
We dealt with a new short sale issue this week that I thought I would share with you. In this deal, we represented both buyer and seller and the seller had retained a Short Sale Negotiator (“SSN”) to handle the transaction. The short sale, with B of A as the first lien holder, was approved and the approval letter provided that the second could receive a “maximum” of $3,000. The approval letter also had the following language: “Any additional fees that were not approved on September 6, 2011 will not be covered by Bank of America, N.A. and become the sole responsibility of the agent, the buyer or the seller to pay at closing.” Based on that language, the SSN told our agent that he needed to credit over $50,000 to the second lien holder at close of escrow. Both the SSN and escrow officer claimed that this language meant that an agreement to pay more to the second was allowed if it was made after September 6 and was not to be “covered” by B of A. As a result, escrow prepared a new commission instruction memorializing the credit and asked us to sign it.
As you can imagine, we do not agree with the SSN’s interpretation of the above clause and refused to sign the escrow instruction. The approval letter specifically says that the “maximum allowed to the Jr. Lien Holder…” was $3,000. Whatever the term, “additional fees” means in the clause quoted above, it does not mean that you can ignore the “maximum” language and pay the junior lien holder whatever you want. If any more money is to be paid to any other lien holder, it has to be approved by the first. The language cited by the SSN and escrow, is not enough. So please do not let anyone pressure you in to accepting this position. It is just the latest way people have come up with to avoid the limitations of the short sale process. As much as we want to close deals, we cannot succumb to this type of temptation. We are closing deals every day, and doing so the right. Let’s continue to do so.
October 27th, 2011 at 12:03 am
As you know, each of the attorneys in our legal department spends a lot of time on the telephone answering questions and helping you get your deals closed. Often, in order to provide you with the best advice possible, we need to review the subject transaction’s file documents. When reviewing a file, however, it is not uncommon for us to find that most, if not all, of the documents have not yet been turned in. This is a problem, and bad idea, for numerous reasons.
First, the DRE requires that documents be turned in as soon as practical after they are executed. That way, your manager or file reviewer can review them as required by law. Next, by allowing us to conduct that review, we can spot red flags and solve problems that we see but you may not even know exist. Your managers are experts on your transactions and have seen and resolved problems you have never dealt with before. By turning in your documents right away, you give them the chance to help you, let your deals close and keep your client happy.
Finally, because our agents do so much business, it is not uncommon for us to sell the same property multiple times. Of course, when we do that, we are deemed to have knowledge of everything that we knew from the earlier deal. However, because of the number of transactions we have, it takes about 2 weeks for us to notify you of a prior transaction. Obviously, if you don’t turn in your documents right away, that delay is even greater and you won’t learn what additional disclosures are necessary until it is too late. We know that the last thing you want to do is make new disclosures in the week before closing. So please, don’t make that necessary. Instead, turn in your documents early and let us help get you all the needed disclosures up front. By doing so, we protect both you and your clients from future problems, and ensure that all disclosures are reviewed at the same time. Your clients are obviously more likely to accept them when they are not made at the last minute.
Thanks, and let us know if you have any questions.
October 26th, 2011 at 12:02 am
We have had numerous calls lately about situations where our agents have been signing documents for their clients. It is not normally the purchase agreement, a counter offer or the like. Rather, it is a document typically deemed “less important,” like the contract with the inspection company or the request for repairs. When asked why they signed on their clients behalf, we typically here that the client was not available and it was just “easier” to sign for them. After all, it was just an inspector’s agreement and therefore not such a big deal, right?
In truth, signing any document for your client can be a big deal. For example, what if the inspector misses something in an inspection that you signed for; does the buyer have a claim against him? Given the fact that the buyer has no enforceable contract with the inspector, the answer may be no. After all, you signed the contract, without enforceable authority to do so, and the inspector could therefore claim that he had no contractual obligation to the buyer. Similarly, if you sign a request for repair, the buyer could claim that you asked for only part of what she wanted and therefore demand that you pay for some extra repairs. By having the client sign these documents, you ensure that they know what is
being done, what is being asked for, and cannot come back later and say you made a mistake.
One easy way to avoid this problem is to use Docusign, or a similar product in your transactions. By doing so, you can upload any document to the system and e-mail it to your client for signature. That way, even when the client cannot meet you, they can read and sign all necessary documents, thereby providing you with the protection you need. Further, we have found that using Docusign typically results in the other party returning signed documents to us more quickly and regularly. As a result, in addition to making sure your client signs everything, it provides the added benefit of improving the quality of our files.
So, make sure you don’t sign anything on behalf of your clients. I know you are trying to be helpful, but in truth, such conduct may have negative legal implications for everyone. And, if you want to make the process as easy as possible, use Docusign or some other online signature product. It will make the whole process easier for both you and your client.
As always, let us know if you have any questions.
October 22nd, 2011 at 12:01 am
We are dealing with two situations this week that remind me how important your choice of escrow is. I know that sometimes, in the course of negotiating a contract, it seems easy to give in on the escrow company while fighting for other things. While that is obviously true in some instances, I think we often give up on that issue too easily. Below are two stories that illustrate why.
In one deal, we represent the buyer and the listing agent insisted that we use his in-house escrow company. We agreed to get the deal. The contract with the seller provided for a $5,000 deposit and included the liquidated damages clause. Escrow opened and proceeded peacefully. The buyer made his $5,000 deposit and removed all contingencies except for loan. Two weeks before the scheduled close of escrow, our buyer sold his house and took $270,000 of his proceeds and put them in our escrow as part of his down payment. Of course, one week later the buyer’s loan was denied and our transaction was cancelled. We moved on to another property, and are now in a second escrow. Unfortunately, the seller in our first deal got angry and has refused to sign cancellation instructions or refund our deposit. In fact, not only is he holding the $5,000 deposit, he is also holding the $270,000 down payment. The escrow company, who is affiliated with the listing broker, doesn’t care that the seller is acting improperly. Instead, they are refusing to refund anything without mutual instructions. In other words, they are allowing the seller to hold our money hostage. As a result, our buyer cannot get his money to close deal no. 2. On the other hand, if this had been a Pickford Escrow deal, the buyer’s money would have been refunded. I am Pickford’s General Counsel and, at a minimum, would have instructed them to release the $270,000. Of course, by doing that, we would have satisfied our client and closed on their new home.
In two other deals, we had the listing and at close of escrow, the selling agent refused to give us their tax id number as required by law. As a result, we asked escrow to forward us the entire commission so that we could pay the selling broker when they gave us their id. Escrow refused, and held the entire commission, including our undisputed listing side. Even though no one claimed we were not entitled to our commission, the escrow company allowed the selling broker to hold our money hostage as they tried to get us to pay them without proper tax reporting. Again, this would not have happened with Pickford.
So, please remember how important escrow can be and fight hard for Pickford. Escrow handles the money and we want to be sure that the company doing that in our deals is competent. As always, please let us know if you have any questions.
