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.
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.
