March 5th, 2011 at 10:51 pm
Given the recent change in our policy regarding Personal Transactions, we are getting numerous questions regarding what an agent can and cannot do in this regard. In order to avoid any confusion, please be aware that, in general, our policy is as follows:
1. First, an agent cannot represent themselves in the sale of any property in which they, their spouse or their life partner has any interest. In such an instance, the listing must be handled by another agent within the Company.
2. Next, an agent can represent themselves when buying or renting property. Those transactions are outside our Personal Transaction Policy. (For the specifics of the Policy, please refer to the document itself).
Given those guidelines, we have seen a number of transactions recently where the agent/seller complies with the Policy and hires a listing agent for the property, but then brings in their own buyer and represents that buyer in the subject transaction. That, of course, cannot be done. Regardless of who is representing the property, an agent/seller clearly has a conflict of interest with the buyer of his/her property. Think of all the issues that have to be negotiated in the deal (repairs, cost sharing, hold backs). If I am the seller of the property, even if I am represented by another agent, I cannot properly represent the buyer in those negotiations, which are actually with myself. So please remember that under no circumstances may you represent the buyer of your own property. As always, please let us know if you have any questions.
March 5th, 2011 at 10:51 pm
From time to time it is advisable to re-familiarize yourself with some of the important clauses in the RPA. For example, we discovered recently several seasoned agents had been informing clients that if the Liquidated Damages Clause is initialed by both parties, and if the buyer breached the agreement, the seller is entitled to 3% of the purchase price as damages. This is incorrect. The Liquidated Damages Clause specifically states in pertinent part: “If the buyer fails to complete the purchase because of Buyer’s default (removed all contingencies and later cancelled) Seller shall retain, as liquidated damages, the deposit actually paid…amount retained shall be no more than 4% of the purchase price.” (Emphasis added) As you may surmise, misstating this could lead to significant discrepancies and disappointed clients.
March 4th, 2011 at 10:48 pm
Q: CREDIT TO BUYER: (Louri Groves)
What are the legal and tax implications to the buyer if the selling agent rebates his/her commission to the buyer?
(Who pays the taxes on that?)
What is required:
1.) Must be approved by ALL parties involved (seller, lender, brokers/agents)?
2.) Must appear on HUD?
3.) Should be on purchase agreement?
A:
As for the taxes, you/agent will receive 1099 for the entire commission. You need to discuss with your accountant regarding your ability to write the client credit off as an expense and if your client then incurs the tax consequence. The credit must be reflected on the HUD, however there is no requirement that all parties approve of the client’s credit, UNLESS of course the credit is given to a seller in a short sale.
Q: SETBACKS (Juanita Tiu)
A couple planning to buy a short sale in Long beach. When the property was built,the setbacks around the detached garage had to be 3 feet. One neighbor has built a block wall that is in the setback. The other neighbor stores trash cans and parks cars in the setback.The buyers want to be able to protect the setbacks. Have the neighbors got a use easement for the land that is part of the setback? Or can the buyers force the neighbors to stop using the setback?
A:
We would need to know if the “setbacks” are on the subject property. If the use of the setbacks by the neighbors encraoch on the subject property, and the title report is devoid of information identifying easments on the property, then the new owner may have an action against neighbors. However, the buyer should be instructed in the TDS to go to the City to determine the actual use restrictions for the setbacks. Typically setback restrictions apply to structures (like the wall in your case) not vehicles or trashcans. If what your asking is: Do the neighbors have a “prescriptive easment” on the subject property, then the buyer would need to ascertain several facts. The legal test to acquire a prescriptive easement is that the use must be (a) open, not secret, (b) notorious, clearly observable, (c) hostile, without the landowner’s consent and (c) continuous, without interruption for 5 years.
Q: Holmes vs Summer (Diane Nesley and Cathleen Prior)
Is the Short Sale Addendum adequate disclosure? Regarding the recent Holmes v Summer decision from CA Appellate Court: I have a duty, as a listing agent, to disclose to a buyer that the sale is a short sale and the seller may not be able to bring sufficient funds to the table to make up any difference and/or the short sale lender may not approve an offer that would realize less than amounts owed to them. In other words, this transaction may not close.
A:
Yes, the Short Sale Addendum is adequate disclosure. Additionally, the MLS should reflect that the purchase requires lender approval. Neither the SSA nor the MLS approval language were used in the Holmes case. As such, that buyer was not aware until seller tried to cancel the RPA. Listing Agent should require any buyer submitting an offer to also submit to the seller the SSA. The SSA has all disclosures necessary.
Q: Rentals and Smoke Detectors. (Julia Bruns)
What are the new laws regarding carbon monixide detectors and smoke detectors for rentals?
A:
Every owner of a “dwelling unit intended for human occupancy” must install an approved carbon monoxide device in each existing dwelling unit having a fossil fuel burning heater or appliance, fireplace, or an attached garage. The applicable time periods are as follows: (1) For all existing single-family dwelling units on or before July 1, 2011. (2) For all other existing dwelling units on or before Jan. 1, 2013. All landlords of dwelling units must install carbon monoxide detectors. The law gives a landlord authority to enter the dwelling unit for the purpose of installing, repairing, testing, and maintaining carbon monoxide devices “pursuant to the authority and requirements of Section 1954 of the Civil Code [entry by landlord].”
The carbon monoxide device must be operable at the time that a tenant takes possession. However, the tenant has the responsibility of notifying the owner or owner’s agent if the tenant becomes aware of an inoperable or deficient carbon monoxide device.
Q: FHA REPAIRS (Tom Ash)
During a current escrow the Buyer’s agent sent a request to switch from a Conventional loan to FHA because it would save the Buyer a ton of money.
The Buyer’s agent had an FHA appraiser visit the property (without our knowledge) and compile a “to do” list of what the property needed to go FHA that included painting the house, some drainage installation, removal of an exterior hillside staircase and about 6 or 7 other less significant items. The Buyer at Buyer’s expense was to do all the work.
After talking to my Seller, In the spirit of cooperation and good will I did compose a list of pre agreement requirements asking for release of money to Seller, an agreement w/ hold harmless clause, confirmation of insurance coverage, release of all contingencies and assurance that Buyer was prepared to do repairs and within reason, close on time. Even so, I really didn’t feel that this was completely protecting my client.
If we entertain these requests, what protects a Seller from someone starting work and then bailing and leaving a mess for the Seller to clean up? Is there a set of minimum requirements Prudential would like to see before these switches are attempted?
A:
First of all the seller does not have to comply with the FHA requirements as that was not contemplated when the RPA was entered into. However, if the seller in the above hypothetical wanted to permit FHA financing, and permit the buyer to perform work prior to COE, the Listing agent should disclose to the seller that Prudential/agent does not recommend buyer’s entry on to property to make repairs prior to the COE as there are risks inherent in permitting such work and the seller needs to be advised in writing of those risks identified above. Having the buyer release the cost of repair to the seller as payment for repairs (not non-refundable deposit) and then having the seller pay for repairs is the safest option for seller. As for an Agreement/Disclaimer to permit said repairs to be made pre COE, in addition to the items identified above, the seller should demand that repairs are to be completed by a licensed and bonded contractor in good standing and approved by the seller before work commences.
March 4th, 2011 at 10:43 pm
Q: (Charlotte Laws) Two people have a house owned jointly as tenants in common 50 -50. The loan, however, is only in the (common law) husband’s name. The jointly-owned house is worth around 1 million dollars. The loan is 500k. The husband dies. The property profits will have to be split between the wife and the husband’s heirs. Will the common law wife have roughly 500k to spend on a new house? Or does she owe half of the 500k loan and therefore only have 250k to spend on a new place? The clients never put anything in writing about what would happen to the property if one were to die.
A: First, and I hate to say this, but you are asking a legal question for your client which we cannot answer. We are your attorneys and not your client’s, and advising the client on this issue would be giving them legal advice. You need to refer the wife to her attorney. That being said, the general rule is that, without authority from Cotenant A, Cotenant B cannot encumber the entire estate and any deed of trust given by Cotenant B only affects his interest in the property. Therefore, upon sale, the loan would be paid off only from the proceeds of the cotenant who gave the deed of trust to the lender. Be aware that this answer does not address any community property issues that might arise from the “common law” marriage you describe. That issue would need to be discussed with the client’s attorney.
Q: (Corinna Albert) When does a property need to be placed on Back up status or Pending during a short sale? Is it when we receive written approval from the lender or when the sellers accept an offer? Thank you.
A: In the short sale context, upon acceptance of the offer by the seller, you would mark the property as contingent rather than back up or pending, which will notify other agents that a short sale offer has been accepted but will keep the property’s status as active.
Q: (Gwyn Carter Rice) Is there any difference between a “Deed in Lieu Of” and “A Foreclosure”. If so what is the difference?
A: Yes, there is a difference between a “deed in lieu” transaction and a “foreclosure.” A “deed in lieu” means that, rather than go through the foreclosure process, the property’s owner/borrower will instead sign a deed immediately transferring title of the property to the lender. While this process does save the lender the time and costs involved in foreclosure, in the case of a property with multiple liens it does not give them what they really want: clear title. When the owner deeds the property to the first trust deed holder, the property transfers subject to all other liens that exist, including junior ones. It is the foreclosure process itself that extinguishes junior liens and gives the first trust deed holder clear title. So, unless there is only one lien holder on the property, a deed in lieu is not very practical for the lender.
Q: (Janet Hoover) We are representing the seller in a short sale of his property. He has started the proceedings for bankruptcy. Will this affect the short sale and how?
A: If your seller files bankruptcy, then the sale of the property comes to a halt and everything has to be done through the bankruptcy court. The sale would need to be approved by the court, as would your listing agreement. So, if there is a bankruptcy, you should ask your seller to contact his bankruptcy lawyer so you can discuss the sale and get an update on how they are going to proceed with the sale of the property, if at all.
Q: (Pablo Chocano) This is an REO house owned by Freddie Mac. Escrow opened on 2/17/11. Stewart Title & Escrow, says that no escrow instructions will be provided (?) Title Report still shows previous home owners on schedule A & B. (not Freddie Mac). Requested any evidence of Freddie Mac as legitimate owner/seller but not received any. Buyers should be removing contingencies by 3/3/11.
A: I would not remove any contingencies until you can confirm that title is in Freddie Mac and they can perform the contract they have signed.
Q:(Christie Horn) I see new rules have come out – additional disclosures that we must make when we are negotiating the Short Sale on behalf of our clients directly with the lender. Does this make hiring a Short Sale Negotiator more advisable now, or do you not see this as a problem — just complete the mandatory disclosure and CAR will have a form for it on Win-Forms?
A: You are referring to the new MARS (Mortgage Assistance Relief Services) rules promulgated by the Federal Trade Commission. Those rules require some additional disclosures in certain short sale transactions. We are in the process of evaluating the rules and will have instructions for you and the Company very shortly. Additionally, CAR is creating documents that would satisfy the disclosure requirements of the rule and, when they are completed, we will circulate them to you.
March 3rd, 2011 at 10:39 pm
We have just been named in a lawsuit wherein plaintiff/buyer is alleging listing agent “intentionally concealed” a fact significantly affecting the value of the property.
Facts: Just prior to marketing the property an adjoining property owner informed listing agent that she believed the subject property was encroaching on her property. Agent discussed neighbor’s remarks with seller, and seller informed listing agent neighbor was harassing him and that she had no claim for encroachment. Seller and agent, believing neighbor lacked credability, elected not to disclose neighbor’s verbal assertions regarding encroachment. Escrow closes and neighbor sues buyer for injunctive relief/removal of hardscape. Buyer discovers neighbor had informed seller AND listing agent about the encroachment months prior to the close of escrow and failed to disclose the dispute to buyer. Buyer thereafter cross-claims bringing in listing agent and seller. Seller cross-claims against his listing agent claiming he was not advised to disclose the alleged encroachment.
Although there are some defenses here, and even if the neighbor’s action lacks merit, buyer and seller are forced to incur expenses to defend themselves. Being named and involved in an action for intentional concealment is not a positive experience. The moral of this example is: Disclose all facts known despite the credibility of the source or veracity of that information.
Had the agent placed one line in the TDS such as: “Agent informed possible encroachment issue with neighbor in SE corner of property, buyer to satisfy self as to same” seller and agent would likely not have been brought into this action.
