May 24th, 2011 at 11:27 pm
Q: (Joni Craig) I found a short sale listing on the MLS that would be a perfect owner-occupied home for one of my buyers. However, the confidential remarks state “[i]nvestor offers only. Seller would like to stay and rent for $800.” When I called the listing agent, she said there were no exceptions – that selling “only to an investor” was part of her listing agreement with the owners. Is this legal? My understanding is that a short sale cannot financially benefit the sellers in any way, but this certain sounds like they stand to benefit greatly if this arrangement works out (specifically by getting to stay in their home at a below-market rental rate.
A: Joni, technically I don’t think wanting to sell your house to an investor is “illegal.” However, as you state, almost all short sale lenders prohibit the seller from getting money at the close of escrow or staying in the house after closing. For that reason, most lenders require that all parties sign an “Arms Length Transaction Affidavit.” This document, signed under oath, typically states that there are no side deals between the parties. So, while the MLS listing you describe is probably ok, the only way to get this deal approved would be to lie to the lender and deny any lease agreement has been made. Of course, such a lie would be fraud and something we need to avoid.
Q: (DiAnne Krumm) My question is does a listing agent have a legal obligation to disclose all offers to a lender in a short sale or does the fiduciary relationship with the owner take precedence over this?
A: DiAnne, you are right when you say that our fiduciary duty in a short sale is, like in all cases, to our client, in this case the seller. We do not have a similar duty to the bank. As a result, it is our duty to present all offers to our seller and let them decide whether to accept it or not. As you imply, however, a short sale is somewhat different than a normal equity sale. After all, it is not the seller’s money that is at risk, it is the lenders. As a result, it is my preference that, provided the Short Sale Addendum is part of the Offer or Counter Offer, all offers be accepted by the seller and delivered to the bank. Then the bank can decide how to proceed. In my opinion, we should advise our sellers that this is the best way to proceed. However, what do we do if the seller says that they want to pick only one offer to send to the bank or stick with one that has already been submitted and reject any new ones? Because our client is the seller and our duty is to them, in this case I think you need to proceed as follows:
1. Advise the seller of the risks of not accepting and forwarding new offers (that their deficiency and tax liability may be higher if the new offer is for more, and that the bank may believe their failure to submit every offer was fraudulent):
2. Advise the seller of the benefits of not accepting and forwarding new offers (that any previously submitted offer will not be put at the end of the line and they may get quicker bank approval, thereby avoiding an increased risk of foreclosure);
3. Advise the seller to speak to their attorney; and
4. Get the seller’s instructions, IN WRITING. If the seller refuses to accept an offer and instructs us not to submit it, and we gave them the proper advice, we would be satisfying our obligations to everyone by following their instructions.
As I said above, I would prefer is we submit everything but, when faced with seller instructions to the contrary, we would be ok if we follow this procedure. Let us know if you have an questions.
May 17th, 2011 at 11:26 pm
In today’s market, where REOs and Short Sales are such a large part of our business, it is very common for us to receive a contract with a long, detailed addenda attached by the REO seller or the investor buyer of a Short Sale property. These documents range in length from one to several (10 or more) pages and cover issues from warranties and title to a release of claims. Of course, because of the importance of these issues, our handling of the Addendum is a very important part of the fiduciary duty we owe to our client. So, what should our agents do when receiving this type of Addendum?
The first thing you have to do is READ the Addendum. We cannot do anything to assist the client without reading the document and knowing what it says. Remember, while this document is a legal one, like the CAR forms we use every day, we need use our experience and expertise to help guide our client. It is absolutely unacceptable to merely pass the Addendum on to the client without doing more. If you have questions about the Addendum, call your mentor or manager. In most cases they will be able to help you. If they can’t clarify the Addendum for you, call the Legal Department. We will do our best to help.
The main goal of this exercise is to understand the Addendum as a real estate licensee would so that we can explain to the client how it changes the transaction and, more particularly, how it makes this deal different from the normal deal. Additionally, as we always do, we want to be able to identify risks and benefits created by the Addendum. That way, we outline those risks and benefits for the client and let them make a decision. Of course, if the Addendum’s legalese is too difficult for you to understand and explain, then you should just refer the client to their attorney. You should do that in every case, but can still discuss the impact of the document if you understand it.
Most importantly, don’t ignore the document. It will materially affect your clients rights and therefore must be reviewed by you just like any CAR document you may use. Do your best, use our resources, and refer the client to a lawyer. By doing that, you are both protecting your client and yourself.
As always, feel free to contact us with any questions you may have.
May 3rd, 2011 at 11:25 pm
I received the following call this morning. We had a listing in San Diego County. In the course of that listing, the seller provided us with two roof reports, one five years old and the other two years old. The reports both identified leakage problems with the roof, in the same general area. The seller also told us that all repairs requested by those reports had been made and that the roof had been leak free. The property eventually sold and, during the course of that escrow, a new roof inspection was prepared and the inspector declared the roof leak free and in good shape. Based on this set of facts, our agent did not turn over the two old reports to the buyer. She believed that they were too old and, according to the seller, identified defects that no longer existed. That fact was confirmed by the newest roof inspection. Of course, now, after close of escrow, the roof leaked in the same area as before. The buyer has told us that, if the existing leaks are not resolved to her satisfaction, she will file a complaint against us and the seller. The question posed by this story, very simply, is whether we should have delivered the old reports to the buyer.
Remember, my question is not whether we “must” turn over those reports, but whether we “should” do so. After all, given that the old reports were both more than one year old and the seller said all recommended repairs were performed, we could argue that the reports disclosed no presently existing material facts and therefore had nothing to disclose. Additionally, there was a new inspection performed and a new clearance given during the subject escrow. Those items should accurately describe the then existing condition of the property and should satisfy our duties. But despite that fact, the buyer is unsatisfied. They believe that we didn’t turn over the old reports because we were hiding something. They believe we were engaged in a conspiracy to defraud them with our seller. So, no matter how good our position might be, the failure to turn over reports may result in us getting sued.
So, what “should” we have done. As always, no matter how well we can excuse or defend it, the safe thing to do is turn over all reports, old or new, to the buyer. In our case, we should have given the 2 old reports to the buyer, and told her that the seller says the recommended repairs were done. That way we satisfy everyone. We turn over the reports, but relay the seller’s positive information with regard to repairs. Had we done that, the transaction would not have changed. With those facts in her possession, and the new report, the buyer still would have bought the house. Only one thing would have changed: No lawsuit.
So this is a easy example of a simple rule: No matter how old a report, or how many repairs have been performed, ALWAYS turn over all reports to the buyer. You can also talk about repairs, and make them a positive, but giving the reports always stops a lawsuit, while our defense for why disclosure may not have been necessary could be disputed. It is never worth the fight. So ALWAYS TURN OVER EVERYTHING.
As always, feel free to contact us with any questions you may have.
April 12th, 2011 at 11:20 pm
Just wanted to let you all know that I will be on vacation from April 13 through April 26, so will not be posting on the Blog during that time. I will speak to you when I get back.
April 12th, 2011 at 11:20 pm
As you are all aware, we have been in a market with significant REO activity for a couple of years now. With that experience, we are now able to see the risks and pitfalls that we have to avoid in REO transactions. Specifically, in today’s world it is not uncommon for a borrower who has lost their home to foreclosure to sue the lender over their conduct. The claims typically relate to the foreclosure itself, alleging that notice was incorrect or the sale was somehow deficient. In fact, we have been named in multiple lawsuits against banks with those types of allegations. On the other hand, we have not received any lawsuits arising from the condition of an REO property or the failure to make disclosure in that kind of deal. As a result, we know that it is most important to be very careful during the pre-list phase of an REO deal and, if possible, to stay out of that part of the transaction altogether if possible.
Of course, we know that almost every REO lender expects its listing agent to do a prelist inspection of the house. That inspection is mainly to determine if the property is occupied, if so by who, and whether that person is willing to vacate the property, for cash or otherwise. While we would prefer that the bank do all this work themselves, we know that is not possible so want to remind you of a few things. First, it is alright to view the property from the outside to see if it is occupied. Avoid going inside without the occupant’s permission since that opens you up for a trespass or theft claim. We have had those claims, where the occupant was away at the time of inspection and claims that our agent stole his belongings. As a result, if the property is full of personal belongings, but no one is home, come back a second time before deciding that the home is vacant. Next, if you find the occupant on the property, we understand you need to have contact with them. It is ok to post a Notice on the door or talk to the occupant and find out if they are willing to vacate. However, once they become combative in any way, you need to leave the property and refer them back to the lender. If the borrower or tenant says that they will not leave, or that the foreclosure was in any way improper, do not argue with them. Do not threaten them. Just thank them for their time and leave. Until any issues regarding ownership and possession are resolved, you need to stay out of it and let the bank handle the occupant. You are an agent being hired to sell the property and, while you can go beyond that in simple transactions, you need to avoid conflict. In one of our cases, our agent is alleged to have threatened the borrower if they didn’t vacate the property. Of course, once the borrower put up a fight, the bank backed down and we didn’t even get the listing. But we did get sued. So remember, you can help with prelisting inspections, or negotiate cash for keys, if the process is peaceful. Once the occupant/borrower gets belligerent, it is no longer your problem. It is the bank’s. You back away and wait for the bank to resolve the problem. Then you can do what you do best, sell the property.
As always, please let us know if you have any questions.
