October 18th, 2011 at 12:01 am
As you know, the world of short sales changes on an almost daily basis. Today there are rules and requirements that did not exist at the beginning of this economic cycle. For example, many of the early practices by sellers resulted in rules against seller rent backs and the creation of the Arms Length Transaction Affidavit. Recently, however, we have seen a change in that Affidavit that you need to be aware of. Specifically, many banks have added an indemnity clause to the Affidavit, providing that anyone signing it will be responsible to indemnify the lender for monies waived by them in the case of a “negligent or intentional misrepresentation.” In the Wells Fargo Affidavit, for example, the new clause provides for indemnity in the case of a loss “resulting from any negligent or intentional misrepresentation made in the affidavit including, but not limited, to repayment of the amount of the reduced payoff of the Mortgage.” Of course, this clause merely emphasizes the need to be clear and honest when signing the Affidavit and to be sure we are going along with questionable activity just to get a deal closed.
For example, the Wells Fargo affidavit includes a clause swearing that no one has knowledge of a higher offer for the property at the time the short sale is approved. Of course, that clause means we can’t take part in a short sale where we know the property is being flipped for a higher price. Additionally, the Affidavit provides that no one is aware of any party receiving money except as set forth on the HUD-1. Of course, that clause means we cannot take part in a deal where there is money being paid to the second lienholder outside of escrow. I could go on with more examples, but the point is clear. Banks are very serious about their rules and want to make sure that if anyone knowingly breaks them, the bank gets compensated. So please be careful. Short sales are rife with wrongdoing and we need to be sure we are not a part of that activity. If we don’t act appropriately, by this new language the wrongdoing could lead to both the loss of a license and the obligation to indemnify the bank. And, of course, none of us wants to be part of such a result.
As always, please let us know if you have any questions
October 8th, 2011 at 12:00 am
I have run across two things this week that I want to remind you about:
1. First, I have received multiple calls about contracts where, when the parties agreed to change the purchase price on a buyer’s offer, a “new” page 1 was prepared rather than a counter offer. Please, NEVER do this. Once a contract document is signed, it should not be changed except by a counter offer or addendum. You should never allow your client to make changes to a document “above the signatures.” This practice allows for multiple problems. First, you have more than one first page of the Purchase Agreement floating around, thereby allowing for a dispute as to which is the effective one. That can’t happen with a properly numbered counter offer. Also, making changes after the document is signed could lead to claims by one of the parties that they did not authorize the change. Again, these potential problems are easily avoided with a counter offer. So, never change a document after it is signed.
2. Next, on a couple of instances, I have been copied on an e-mail sent by our agent to a client regarding a dispute in the subject transaction. The problem with this process is that I am only involved AFTER the e-mail is sent and therefore cannot give advice about what the e-mail should say. You need to remember that when a conflict exists in your escrow, everything you do, including what you say in your e-mail, can have legal consequences for both you and your client. That is why we are available to help you at all times and why we ask you to call us at the first hint of trouble. Call us first, and we will tell you what the e-mail should say. That way, both you and your client will be protected. Thanks and, as always, let us know if you have any questions.
October 7th, 2011 at 11:58 pm
“I’M SELLING MY MOTHER’S HOUSE”: NOT SO FAST
As you know, we take calls from agents and managers on a daily basis.? Those calls address multiple issues, from disclosure to contract problems.? In addition to the issue which caused the manager to call, however, it is not unusual that our conversation reveals additional problems that we need to be aware of.? For example, we often receive calls that turn up a title issue that the agent was unaware of.? Specifically, as the agent is giving us the background of the transaction, and working his way to the question on his mind, he will often tell us that he is dealing with the seller’s son or daughter because the seller is “elderly” or has passed away.? Based on those facts, and the verbal statements of the child, our agent is proceeding to market the property without asking any questions about title.? In fact, we often discover that the child is the one who signed the listing agreement even though title is still in the name of the parent.? Of course, proceeding in this way can lead to significant problems.
Specifically, just because my parent owns a property does not mean I can sell it, even if my parent is elderly or has passed away. Rather, there needs to be written, legal authority for the child to act on behalf of her parent.? If the parent is elderly, the most obvious way to get that authority is through a Power of Attorney (“POA”).? If the child delivers one to you, and Cal Title tells you it is enforceable, then you are fine to proceed.? The child signs in the parent’s name, as “attorney in fact,” and can sell the property. Of course, our deals are seldom that easy.? Rather, we often see the case where there is no POA and the parent is no longer coherent.? In that case, the child would have to go to court and have the parent declared incompetent.? If that happens, the child could give you a Court Order creating a conservatorship and confirming that they are entitled to act for their parent.? Without such a document, however, they have no legal authority.
If the parent has died, you are faced with a multitude of issues.? Is there a will, and what does it say about the property?? Does it give the executor of the estate the power to sell the property?? Does the estate have to go through probate?? Is there a surviving spouse that may now have control of the property?? In this type of case, you need to have the child you are dealing with speak to the parent’s estate lawyer and determine what needs to be done before the property can be sold.? Estate and Probate law is very complicated and you cannot just proceed because the child tells you to.? Further, make sure to talk to your Cal Title representative to determine if the child’s signature will be insurable.? They will often be able to identify problems for you and help you fix it if necessary.
In short, remember that title to a property is determined by the documents and you cannot assume that a child ever has the right to sell their parent’s property.? Ask them where their authority comes from and ask for a document proving that authority.? Then, show it to Cal Title so they can confirm it is ok to proceed.? Regardless, you can’t assume that a child can sell their parent’s property.? Making that assumption can result in a lot of wasted time and problems with an upset buyer who ultimately can’t receive title to the property.? So do your due diligence up front and avoid these problems.
September 28th, 2011 at 11:51 pm
REVISITING THE RPA:
Paragraph 3B – Increased Deposits
Paragraph 3B of the Purchase Agreement is a relatively simple clause, relating solely to an Increased Deposit. This clause is used most often when, for example, the buyer agrees to make part of their deposit at the time of contract but hold off on some portion until after their due diligence. As a result, it is common to see an Increased Deposit due upon removal of the buyer’s investigation contingency. If there is a problem with Increased Deposits it almost always relates to liquidated damages. Of course, as you know, the liquidated damages clause is only part of the contract if it is initialed by both the buyer and seller. That clause specifically says that at the time of any increased deposit, both buyer and seller also need to execute a separate clause covering that money, specifically CAR Form RID. This form is required so that the parties are undoubtedly clear that each part of their deposit, both the original and the increased amount, are subject to liquidated damages. The RID gives notice of that fact.
Of course, in many years of reviewing transaction files, I am not sure if I have ever seen an executed RID. So, in such a case, how would liquidated damages work on the buyer’s breach? Let’s assume for discussion purposes that they buyer is paying $500,000 for the subject property, meaning the maximum 3% deposit equals $15,000. Let’s also assume that the buyer is concerned about the seller and the property condition, so he agrees to deposit $5,000 at the time of contract and $10,000 upon removal of his inspection contingency. The seller agrees and escrow is opened. After performing his inspections and due diligence, the buyer is satisfied with the property’s condition and removes all of his contingencies. He also makes his Increased Deposit of $10,000, but does not sign and RID. Then, 30 days later, the buyer changes his mind and cancels the transaction. The seller wants his liquidated damages and expects $15,000. In our scenario, how much does he get? Unfortunately for the seller and the listing agent, in this case he only gets the original $5,000. At the time that deposit was made, the buyer initialed paragraph 25 of the RPA so he was on notice of the risk to that money. He did not, however, get that same notice when he deposited the Increased Deposit of $10,000 and therefore has not forfeited that amount.
Remember that when this happens, the seller looks to the listing agent for compensation. She claims that the listing agent had an obligation to make sure the RID was signed at the time of the Increased Deposit and therefore is liable to pay her the $10,000. In truth, she is probably right. It is our obligation as the seller’s fiduciary to make sure the RID was signed. That Increased Deposit is for her protection, and we need to make sure she can take advantage of it. So, the lesson from this simple clause is also very simple: if you represent the seller, and there is an Increased Deposit, make sure there is a signed RID at the time that Increased Deposit is actually paid. If you don’t, you will probably be paying the seller the amount of that Increased Deposit. And, of course, that is never something we want to do.
As always, please let us know if you have any questions.
September 21st, 2011 at 11:49 pm
Q: (Bev White) Can a beneficiary of a family trust, who is a Prudential agent, represent the trust in listing the property or, if not, can they appoint another Prudential agent to list the property?
A: Bev, as you know, our Personal Transaction Policy is designed to help agents avoid the conflict of interest involved in a transaction where are selling their own property. Obviously, in such a deal, the interests of the agent/seller may run contrary to what is required of a real estate licensee. As a result, rather than put you in that position, we have you appoint another Prudential agent to handle the listing, thereby avoiding the conflict. Since a beneficiary of a trust has an interest in the sale of the property, and how much money the seller gets, a property owned by such a trust is covered by our policy. Therefore, you need to hire another agent and act as a principal only.
Q: (Barbara Swanson) I read the article about using photos on your website that belong to other agents. If you are showing MLS listings with photos is that allowed? If I wanted to feature a home that was a “Good Buy” in a certain neighborhood or some other “Featured” home by having a link to the listing would that be allowed? I have seen other websites that link to reports that come from the MLS.
A: Barbara, in order to use pictures from another broker’s listings on your website, you need to have written permission from that broker. In almost every instance that you are referring to, that written permission is an IDX agreement signed by the broker. Based on those IDX agreements, any party to the agreement can have other broker/party’s listings on their website as long as the IDX rules are followed. Those rules require that the actual listing broker be identified by the second click made by a consumer. So, if your website is an IDX website, than you can show other broker’s listings and MLS photos. Without that written permission, however, you cannot do so.
As always, please let us know if you have any questions.
