June 15th, 2011 at 11:32 pm
Question by George Salizar
While presenting a potential tenant I’ve found a property available that was in KB 13 and had an NOD (both disclosed by Owner and Agent).The potential tenant asked me what could be the potential downside to this situation if they were to rent the place. The place is a Condo and the building is located in Los Angeles. More specifically, the tenant wanted to know if the property were to be taken back by the lender or sold in auction, does the new owner owes the completion of the lease terms to the tenant? And how about the deposit if the deposit is held in Escrow?
Answer:
Do not place your client/tenant in a condo that is at risk of foreclosure WITHOUT obtaining written disclosures and acknowledgement by the tenant of the perils of renting a distressed property. There are many reasons a tenant should not enter into a lease such as this one, including but not limited to: (1) When the Bank obtains title, the lease is no longer enforceable, although the Bank must give the tenant notice (typically 90 days to vacate) they are not required to honor the lease, (2) The tenant’s deposit is almost always at risk, (3) The tenant may be required through an Assignment of Rent to pay rent directly to the new owner/Bank, and the annoyance of the posting of notices on the property and multiple solicitations from vendors, credit companies etc… Bottom line, the tenant should strongly be discouraged from entering into a lease on a distressed property.
Thank you George.
June 6th, 2011 at 11:30 pm
Q: (Rita Erangey) I wrote an offer on a short sale. Despite repeated attempts to speak with the listing agent, I was only directed to an assistant who told me my offer would be presented on at least two occasions. Finally, in speaking with the so called office manager, I was informed my offer had been sent to the bank along with three others for the bank to review. I asked for a copy of my fully executed contract and was told that I would receive it the next day. One week later and nothing. At this point I do not know the disposition of my offer and have asked my manager to call the listing office on my behalf. Any suggestions?
A: Rita, I feel your pain. This problem is very common in short sales. Unfortunately, there is not much you can do besides get your manager involved and continue to call and e-mail the listing agent. Sometimes, in this context, the “squeaky wheel” does get the best results. Of course, it would be inappropriate to go directly to the bank, since the seller has not given you permission to talk to their lender. So, keep calling and have your manager try. Of all the things I have seen, the manager to manager communication seems to be the most effective. Sorry I can’t give you a better answer.
Q: (Mert Guin) If a buyer defaults on a short sale after removing contingencies, who gets the deposit? Seller, bank or broker?
A: Mert, in this context, the short sale is no different than a regular deal. The bank’s involvement only relates to their acceptance of a certain payoff at close of escrow in return for a reconveyance of their deed of trust. In your case, since the buyer breached, there is no close of escrow or payoff and the seller’s lender is therefore uninvolved. As a result, the deposit goes to the seller like in a normal equity sale.
Q: (Phil Morris) I just got a call from a client who wants to short sale her condo which has been a rental. The tenant just vacated and I am about to take the listing. Seller informed me that she has met with an attorney and are about to file for bankruptcy. How will the seller’s bankruptcy affect our listing and ability to sell the condo?
A: Phil, a bankruptcy totally changes the sale of a property. Even if you have a listing, typically the Bankruptcy Court needs to approve both the listing agreement itself and the entire concept of selling the property. Additionally, any purchase agreement will need to be approved by the Court. As a result, if you are at the beginning of this process, I would stop and have the seller consult with her attorney to decide the best way to proceed. The attorney may want to get Court approval before you do anything. Of course, you should follow the attorney’s instructions when they are received and contact us if you have any questions.
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.
