August 25th, 2011 at 11:43 pm
Whenever the legal department gets a call or letter complaining about one of our agents, the first thing we do is ask for the subject transaction file. There are multiple reasons for that. First, the documents don’t lie. No matter what the client claims we did wrong, the documents say what they say and do not change over time. People’s memories, on the other hand, do fade over time and are affected by their interests, specifically the client’s desire that we pay them money. Further, our documents often immediately do away with a client’s claim. For example, in one instance we got a lawyer letter alleging that a prior inspection report was never given to the buyer. When we reviewed the file, , we found a Receipt for Documents signed by the buyer stating they got the report. That one document defeated the buyer’s claim. So, as you can see, documents are very important to us.
Unfortunately, it is also true that often times when we ask for documents we find that they have not been turned in. It is apparently a very common practice for agents to only turn their documents in at the end of a deal, when it is time to get paid. As a result, the office, while aware that the transaction is open, has seen and reviewed nothing. This practice creates many problems. First, it is a violation of DRE regulations and puts your license at risk. The DRE explicitly requires that all “transactions requiring a real estate license..” and “documents which may have a material effect upon the rights or obligations of a party to the transaction..” must be subject to review, oversight, inspection and management. Obviously, almost every paper we handle in a transaction materially affects our clients’ rights and obligations. Unfortunately, if they are not turned in on time, they cannot be reviewed and the DRE regulations are being violated.
Next, and as important, if documents are not turned in, we cannot review them and help you avoid the problems they may create. Please remember that both your manager and file reviewer have significant experience and will be able to spot potential problems created by your transaction documents. Of course, problems are much easier to correct early in a transaction, before something has gone wrong. However, by not turning documents in, you are not giving the reviewer the opportunity to help you avoid a problem. Frankly, it just makes no sense. As I think you all understand, when a problem arises and you get the legal department involved quickly, it helps us keep the problem small and achieve a quick resolution. The same is true for document review. If your reviewer spots a problem the day after a document is executed, it can be fixed more easily. That is not true if they first see the document one day before closing.
As a result, please remember to turn in all documents to your office as soon as possible after their execution. That is our company policy. More importantly, however, it will help protect you from DRE problems and conflicts with your clients. Thanks.
August 16th, 2011 at 11:42 pm
Over the past 6 months, I have received numerous angry phone calls from outside buyers and their agents that all arise from similar circumstances. In each case, the buyer made an offer for a property listed by Prudential. In each case, the parties negotiated regarding that offer and, at some point, the buyer or their agent was told that the seller “was going to accept the offer.” Of course, that promise was made before the listing agent ever received a signed acceptance from the seller and before they were told to deliver that acceptance to the buyer. As you can imagine, in each case the seller changed his/her mind after the promise was made and the buyer now had to be told that they were not getting the property. Of course, when the buyer received this message, they were not very happy. By making the promise in the first place, we created expectations that were not met. And, as a result, we created an unhappy consumer.
Understand that, from a legal perspective, this is not a big deal. The buyer never got a signed acceptance so they clearly have no binding contract. That, however, does not change the fact that, by having to renege on an unnecessary promise, we are creating a very unhappy consumer and significant public relations headaches for ourselves. The selling agent often believes that we really have another buyer who we are representing and suspicion and mistrust grows among everyone. The buyer usually really wants the house, and without their false expectations, may have been willing to pay more, or do whatever the seller wants in order to buy it. In either case, the promise accomplishes nothing and runs the risk of creating big problems. If anything, you can tell the buyer that you are “hopeful” but have to wait until you get the seller’s signature. That way, you are being legally accurate and don’t create any false expectations. As we have told you many times, creating real expectations in all aspects of your business will help keep everyone, including your clients and the public at large, happy.
Thanks, and as always, feel free to contact us with any questions you may have.
August 9th, 2011 at 11:41 pm
One of the most common misunderstandings I hear in our business relates to the required warranty given by a builder to the buyer of new construction. On many occasions, including in lawsuits filed against us, we hear that our agents promise a buyer that any problems with the home will be fixed by the builder because they are required to give a 10 year warranty on the home. Unfortunately, that statement is not true, and is instead a misunderstanding of the law in this area. In truth, the law works as follows: First, the California Civil Code provides for a mandatory ONE YEAR warranty on fit and finish items. That law includes a dispute resolution process which gives the builder the opportunity to make repairs before the buyer can file a lawsuit. It is set forth in Civil Code sections 895 through 945.5, which can be found on the CAR website. This warranty and dispute resolution process is incorporated into the CAR new construction agreements. The 10 year period, on the other hand, is not a warranty, but is instead a statute of limitations. It was passed to ensure that a builder would not be subject to claims for construction defects forever. As a result, Civil Code section 941 states that no action may be brought against a builder “more than 10 years after substantial completion of the improvement but no later than the date of recordation of a valid notice of completion.” So, the 10 statute is actually a protection for the builder, cutting off claims against it. It is not a protection for the buyer, and is clearly not a warranty. Therefore, please make sure you never represent to a buyer that they get a 10 year warranty for new construction. They either get the statutory 1 year warranty, or a more extensive warranty that would have to be set forth in their contract with the builder/seller.
As always, please let us know if you have any questions.
August 6th, 2011 at 11:40 pm
As you will recall, a few weeks ago we wrote about SB 458 (the statute eliminating deficiency rights in many deals) and described how this new law impacted short sales. Since that time, we have already seen one questionable practice which we wanted to address.
Specifically, and as you are undoubtedly aware, there are many short sales that were in the process of approval at the time SB 458 passed, but which have not yet actually closed. In many of those cases, the bank’s approval was conditioned upon the seller bringing in money to close the deal or signing a promissory note in the bank’s favor. Of course, in deals covered by SB 458, such additional contributions are not allowed. So, how should those deals be handled now? We are hearing from escrow that many agents are telling them to ignore the extra money or note requirement, and just close the deal without it. Our escrow officers are specifically being told that, since the law prohibits the collection of these monies, no discussion with the bank is necessary. Rather, we can just close and the bank will not be allowed to pursue the seller for any more money.
While this position may ultimately be right, please be aware that this is not how we should proceed. Rather, the bank should be contacted and a new approval letter and HUD should be received. We cannot ignore the lender and assume they will do the right thing. And, we cannot assume the bank knows the law and risk having a lawsuit, even a bad one, filed against our client. So contact the negotiator on your short sales and make sure they understand how SB 458 changes things for them. When you get a new approval and HUD with no extra money or note on it, you can proceed to close your escrow without any risk to your seller. Of course, that is always our goal.
As always, feel free to contact us with any questions you may have.
July 29th, 2011 at 11:39 pm
As you know, paragraph 3 of the RPA, titled “Finance Terms,” is one of the longest and most important in the entire contract. As a result, we will cover it over multiple posts, each one discussing some portion of the clause. Today, we will start with subsection A, “Initial Deposit.”
Of course, the main issue with the Initial Deposit relates to how it is being delivered to escrow. In previous versions of the RPA, the boilerplate stated that the deposit, in whatever amount was indicated, “has been given” to the buyer’s agent. As you will recall, that past tense language created issues for us since oftentimes we did not actually have a check at the time the offer was made. On more than one occasion, after a default by the buyer, the seller looked to us for the deposit money since the contract said we had received it when in fact we had not. In such a case, we often had to pay money to the seller since the language in the contract clearly constituted a misrepresentation.
As a result, the latest version of the RPA made a great change to the boilerplate. Now, in section 3(A)(1) of the contract, the default provision says that the “Buyer shall deliver deposit directly to Escrow Holder…” and then gives numerous choices for how that money will be delivered. In section 3(A)(2), we can check a box and represent that the check has been given to the buyer’s agent, like the old contract discussed above. Of course, if at all possible, we should always use the default provision and never accept a check. There are multiple reasons for this. First, as we discussed above, if you check the box in section (A)(2) and don’t actually receive the check, you could be responsible to the seller in the case of a default. Next, if we do take a check, we have to log it in correctly and make sure that the Trust Log, as a whole, is handled pursuant to DRE regulations. Again, as we have told you many times, when the DRE audits an office, the first thing they look at is the Trust Log and the first thing they try to pin on us is a mishandling of trust log funds. Obviously, if we never touch the check, we never have to log it in and therefore have nothing to worry about. As a result, do your best to never take a deposit check.
Finally, remember one other thing about this paragraph. If your contract defaults to the boilerplate, you need to follow up with escrow and make sure that they have actually received the deposit, especially if you represent the seller. We have had numerous instances where the contract calls for the deposit to go directly to escrow but it is never received. In the case of a default, the seller wants to know why his/her agent never checked to make sure the money was there and often looks to us for compensation. So don’t forgot about the deposit just because we don’t touch it. Follow up with escrow and make sure the buyer actually performs.
As always, please contact us with any questions you may have.
