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.
March 22nd, 2011 at 11:11 pm
It is not unusual, especially in the context of leases, for one of the parties to a transaction to be unrepresented by a broker. When that situation arises, the single agent involved believes that since she only represents the seller/landlord, it does not matter what help she gives to the buyer/tenant because she has no duties to that party. While there is some truth to that belief, it is not that simple. After all, when a buyer or tenant is unrepresented, it is not uncommon for the listing agent to end up doing more work than normal. That is natural, of course, because it is in the listing agent’s interest to assist in moving the transaction along and getting it closed. As a result, the listing agent may help get documents signed by the buyer/tenant, or may answer their questions about those documents or some part of the transaction. In a deal with two agents, of course, those things would normally be done by the selling agent. As a result, by helping in this way, the question arises whether we are “representing” the buyer/tenant or accepting certain obligations that we would otherwise not have. Of course, in my most “lawyerly” way, my answer would be maybe. Depending on how far over the line an agent goes, it is possible that, by their actions, they would be deemed to have accepted the representation of the buyer/tenant. After all, the listing agent is now keeping the entire commission, including the portion that normally goes to the buyer/tenant’s agent. Therefore, if you are ever faced with this situation, remember the following:
1. Always get a “Buyer Non-Agency” Form (CAR Form BNA) signed. With that document, we can always argue that we advised the client we did not represent them and that all of our actions were taken on behalf of the seller/landlord.
2. Be very careful what you do for the buyer/tenant. While providing a document or two along the way may be ok, always accompany those documents with a recommendation that the buyer/tenant talk to their attorney for legal advice. Furthermore, do not give the buyer/tenant advice. Provide the documents only, and stay away for explanations or recommendations. Those things are typically done by the client’s representative. As always, please let us know if you have any questions.
March 18th, 2011 at 11:10 pm
If a claim arises out of one of your transactions, you should know that the TDS, AVID and the SPQ become the most scrutinized documents in the transaction file. We are seeing some deficiencies in these disclosures that, as your legal counsel, we find troubling. We rely on your disclosures in the defense of the claim and when these disclosures are devoid of relevant information, your exposure and the value of the claim increases significantly.
For example, we have come across AVIDs that are virtually blank. As you know, whether you are a listing, selling or dual agent, the law requires that you must conduct a “DILLIGENT VISUAL INSPECTION OF ACCESSIBLE AREAS” even for properties that are TDS exempt. New Construction is not an exception. There is ALWAYS something to note.
Placing a check mark, the word “fine” or your initials next to each line on the AVID will not suffice. Describe what you see in your visual inspection and do not use adjectives such as: hairline, insignificant, superficial, minor etc…when describing defects.
The AVID should be prepared simultaneous with the TDS and provided to the buyer when the TDS is provided. Alluding to the AVID in the TDS and not delivering it with the TDS is negligent. PLEASE print or handwrite legibly. If we can’t read the AVID/TDS the buyer probably struggled with it as well. If you represent the buyer and the TDS/AVID are confusing or not legible, demand an explanation or clarification in writing from the listing agent.
This is a document reflecting YOUR visual inspection. Do not rely exclusively on the TDS and/or the Physical Inspection Report as sources of information to complete your AVID. Expect and request a completed AVID from the other broker/agent in the transaction.
Agents that take disclosures seriously and take the time and effort to adequately complete disclosures keep themselves AND their clients out of trouble and out of court!
March 17th, 2011 at 11:09 pm
As you know, digital signatures are becoming more and more common in our transactions. The use of these technologies, however, have raised a number of questions that we need to be mindful of. First is the security of your digital account. Specifically, you and your client need to make sure that you don’t do anything which gives unauthorized access to your account. For example, we have seen instances where an e-mail was sent to a seller with a link to their account, telling them to click on the link to sign documents. The link is created by the system after the client signs in, so no password is needed when the link is used. If that e-mail is then forwarded, the link is still active and the recipient of the e-mail can now click on the link, access the seller’s account and sign documents on their behalf. Obviously, we need to avoid this situation. As a result, please do not forward e-mails of this nature. Be very mindful to protect access to your digital account.
Next, what happens if you, as the listing agent, have a digital account but the selling agent does not. Can you or your TC forward documents from your account directly to the buyer to make the transaction move more quickly? Unfortunately, the answer is no. Obviously, forwarding documents to a client should also involve some advice and discussion regarding the document itself, what is means and why it is being signed. As a result, the other side may believe we should be giving them advice regarding the specific document. In other words, by sending documents to the other side, we may be creating an agency with that client that we don’t want to have. Of course, that agency brings liability. Additionally, dealing directly with the other side may create conflicts of interest and disclosure obligations with regard to our client. In short, by using our digital account for the other side’s documents, we are blurring the line on agency and creating problems for ourselves. So, as inconvenient as it may be, make the other agent forward documents to his/her client. If that agent does not have a digital account, they will need to print out the documents and deliver them to the client. Unfortunately, that is the only way to properly represent our client and avoid additional liability.
As always, feel free to contact us with any questions you may have.
