April 6th, 2011 at 11:19 pm
We have received a number of calls recently about scams related to lease listings. Apparently, it is not uncommon for our agents to advertise their leases in both the MLS and on Craigslist. The Craigslist entry often results in a phone call from an alleged tenant, stating that he wants to rent the property and oftentimes purchase the furniture or other personal property in the home. Unfortunately, when the check for the tenant’s deposit, etc., arrives it is often a fraud. In one particular instance, the “tenant” claimed he wanted to buy furniture and sent us a check for $12,500. We called the bank to confirm and learned that while the routing number was real, the account number was not. The Federal Express package we received apparently came from Berkeley, California, despite the fact that the tenant told us he was coming from Wisconsin. It is our understanding that these people are trying to accomplish a few things: 1) Some of these criminals want to move into the property and live for free; and 2) Others hope to get control of the property, rent it out and collect rent while paying nothing to our landlord. Regardless, without extra due diligence on our part, our landlord has given possession of her property to a “tenant” but received nothing in return. As a result, please make sure to be extra careful in lease transactions. Be skeptical of your proposed tenant, and make sure to recommend that your landlord double check everything they are told by the tenant. Most importantly, make sure the landlord takes nothing at face value. After all, a little extra investigation up front can save you months of hassle and expense on the back end. As always, feel free to contact us with any questions you may have.
March 30th, 2011 at 11:19 pm
As you know, paragraph 2 of the RPA now relates to the agency disclosures we are required to give to our clients. These disclosures used to be in the back of the contract, but have recently been moved up to page 1. The reason for that move, according to our people at CAR, is that the disclosures were often ignored or filled out incorrectly when they were on page 8. Given how important agency disclosures are in lawsuits against brokers, CAR thought they might be handled better if they are put up front.
With that in mind, what should you know about paragraph 2? First, section B of that clause makes the same substantive disclosures as CAR Form DA, the Disclosure Regarding the Representation of More Than One Buyer or Seller. As a result, and given the fact that this disclosure is also in the Listing Agreement, we no longer need Form DA for our files.
Most Importantly, section C of this paragraph contains the actual disclosures regarding which broker represents which principal. Remember, this is the only place that this disclosure is made. It is not part of the Agency Disclosure form and, with regard to agency, is really the only important disclosure we make. As importantly, this section is one of the first looked at by plaintiff’s lawyers. As you know, our duties to our client are defined, in large part, by who we represent. Therefore, if this section is filled our incorrectly, it may give the wrong impression to the parties and create extra duties on our part. It may also, as a result, give arguments to a plaintiff’s lawyer that they should not have. For example, if we only represent the buyer, but the RPA says otherwise, or is not clear, the seller’s lawyer can argue that we also represented her client and therefore owed the seller a fiduciary duty. Obviously, that type of mistake would have significant liability consequences. So please recognize the reason that CAR moved this paragraph up front. They did it because the paragraph and its disclosures are real important to your clients and their lawyers. And, with that in mind, please take the time to fill it out carefully and correctly. There is no telling how much future time and money you will ultimately be saving yourself. As always, please let us know if you have any questions.
March 29th, 2011 at 11:21 pm
I received a couple of questions while I was out on vacation. Here they are, along with our responses:
Q: (Gina De Leo) My clients made an offer on a condo, April 17. At that time, the MLS stated the HOA dues are $363. We received a counter offer back stating – “Buyer is aware HOA dues have been increased and are now approx. $450 per month.” My buyers feel they are being duped. Is there anything they can do regarding the difference in HOA amounts?
A: Gina, first this question is really a buyer legal matter, which I cannot technically answer. You should, of course, refer your client to their attorney to determine their legal rights. That being said, while technically a “misrepresentation” was made, I think that the correction of the amount in the counter offer, and therefore before your clients were bound to buy the property, means they never really relied on that representation and therefore they would have a weak claim against the seller. In truth, I think your buyer should decide if they are willing to pay the increased HOA and move forward based on that decision. It doesn’t make sense to buy the condo under the assumption that they are somehow going to be reimbursed by the seller. Getting that reimbursement would be a long, difficult and very unpleasant process.
Q: (Dave Finburgh) I have a client who initially asked me to represent him in a ‘short sale’. Today, this same client informed me that his ‘credit cleaner’ has highly recommended that he not put the property on the market and attempt a ‘short sale–’ instead, he has given my client a company who will acquire his property from him at the full value of the outstanding note and will then turn around and re-negotiate the terms and value of the note, either by filing a lawsuit against the lender for loan issues or by some other unknown negotiation.
This client is ecstatic that this avenue is available to him and now wishes to pursue this asap. My advise to this client was that I believed that this scenario was too good to be true and that there most likely was a potential for fraud on the bank to be committed. The client refuses to believe me and wanted a ‘legal’ opinion.
In his opinion, the fact that he is Selling his property to this entity at an agreed upon price and that he has no control or knowledge of what the Buyer will ultimately do with the property puts him in the clear! Would appreciate your thoughts on this.
A: Dave, while I can’t give your client a “legal opinion” I am as skeptical as you are. First, it doesn’t sound like there will actually be a “sale” from him to this company. After all, if that occurred, they would have to negotiate with the lender at the time this transaction closed and any discount would make the deal a short sale. As you describe the transaction, however, the payoff to the lender would be later, after the buyer takes title. That, of course, means that your client would probably be in breach of the due on sale clause in his loan documents. Further, because the bank did not get paid off at the time of his transfer to the buyer does not necessarily mean that any discount taken by the bank would not show up on his record. After all, the loan being discounted is his. So, while there are a lot of facts that we don’t know which would make this proposed transaction clearer, I don’t understand how it would all work to save your client’s credit. I would recommend that your client see his lawyer because, as you said, this whole thing seems “too good to be true.”
March 29th, 2011 at 11:16 pm
If you have not already encountered this transactional dilemma, the chances are you will.
More and more lenders are requiring a Review Appraisal just prior to the close of escrow. In some cases, the Review Appraisal comes in under the original appraisal, and the lender subsequently pulls the funding. If all of the contingencies, including the Loan Contingency, have been removed the buyer forfeits his/her earnest money deposit (EMD).
There are two methods to protect the buyer in this scenario. First, and most obvious, check the box under Loan Contingency Removal (contained in RPA paragraph 3 H(3)(ii) ). This is clearly the best safeguard to protecting the EMD as the Loan Contingency remains in effect until the loan is funded. HOWEVER if the seller counters this out (most often they do), by further incorporation and understanding of the mechanics of 3 I (Appraisal Contingencies), you may help to protect your buyer’s EMD.
Under RPA paragraph 3 I, the Agreement is contingent upon a written appraisal. HOWEVER, if you do not check the second box contained in APPRAISAL 3 I, buyer’s removal of the loan contingency is deemed removal of the appraisal contingency. Checking the second box in 3 I gives your buyer 17 days (or __) days after acceptance to remove the Appraisal Contingency. By placing an increased number of days in 3 I to allow time for a Review Appraisal you will help protect the buyer’s EMD.
The worst case scenario for your buyer would be that the seller counters these two options out. If seller does counter these two contingency options, the buyer should be made aware in writing before they remove all contingencies that a Review Appraisal could jeopardize funding which may ultimately result in the forfeiture of the buyer’s EMD. If the buyer elects to move forward after your warning, and subsequently forfeits their EMD, you have done everything you could to protect and warn the buyer, and they will be precluded from holding you responsible for their EMD loss.
If you have any questions please do not hesitate to call.
March 25th, 2011 at 11:14 pm
I received the following call yesterday afternoon:
We represent both parties in a short sale. In the course of preparing the Seller’s short sale package, the Seller informed our agent that they cashed out their IRA last year and bought a “vacation home” back East. Now they fear that if they identify that property, their lender will ask them to sell it in order to further pay off the loan. Apparently, in our transaction, the lender would be taking a discount of approximately $200,000 if no additional money is brought in. Of course, the “vacation home” is worth about $250,000. And the loan in question is not purchase money, so the bank would have recourse to other assets in the case of foreclosure. So, our seller is telling us that they will not identify the “vacation home” because they don’t want to lose it. What, our agent wants to know, should she do?
Of course, this is a very difficult and frustrating circumstance. After all, if our seller had not taken the money from their IRA, the bank would never look to it. Now, as real property, it is at risk. Unfortunately, now that we are aware of the property, we cannot represent a seller who we know is lying to the bank. Therefore, we must do our best to advise the seller to do the right thing: tell the bank about the property. If they refuse, send them to their attorney. After all, in our view, hiding the property from the lender is a fraud. Finally, if the seller will not budge, we need to walk away from the listing and represent the buyer only. In that context, we would need to draft a whole new contract that shows we only represent the buyer and get the Seller to sign a Seller Non-Agency. That way, we are not part of the submission to the bank and therefore not part of the fraud. As always, please let us know if you have any questions.
