SHORT SALE LISTINGS – ALLOWABLE SELLING COMMISSION REDUCTION

Agents handling short sales (almost all agents today) are all too familiar with lenders “cutting” commissions and the perils inherent in informing the cooperating broker/agent of said reduction. Suffice it to say, we have had many inquiries and Board Arbitrations regarding these issues. What language should our short sale listing agents place in the confidential remarks section when referring to cooperating broker compensation?
As you well know, the MLS rules pertaining to selling compensation are BINDING. As such short sale listing agents must employ the language mandated by the Model MLS Rules, Amended April 2010 and prepared by CAR, in particular 7.15.2:
7.15.2 Lender Approval Listings. Compensation offered through the MLS to
cooperating brokers on listings which require lender approval (commonly referred to as
“short sale” listings) is for the amount published therein unless the listing broker indicates
on the MLS the following: (a) the fact that the sale and gross commission are subject to
lender approval; and (b) the amount or method by which the compensation offered
through the MLS will be reduced if the lender reduces the gross commission.
(Emphasis added)
For example: many short sale listing agents, take the listing for 6%, electing to offer 2.5% cooperating compensation. The agent then keeps 3.5% to compensate themself for negotiating with the lender(s). One way to place this scenario on the MLS would be: “Cooperating compensation is 2.5% subject to lender approval. Any reduction off the gross compensation to be split 50/50 between listing and selling agent.” If the lender in this scenario reduced gross commission to 5% the listing and selling agent would each take a .5% reduction on their commission resulting in 2% to selling agent and 3% to listing agent. Of course there are agents that prefer to offer 2.5% without noting the possibility of reduction, banking on getting at least a 5% listing commission approval from the lender.
* Be mindful that any changes in the compensation offered must be reflected in the MLS immediately. Failing to place a formula pursuant to the above MLS RULE 7.15.2 or changing compensation after a selling agent has informed you they have written an offer will invariably launch you into a Board dispute that you most likely will not be able to successfully defend.

RESPA REFRESHER

I have found over the years that it is a good idea to remind ourselves about issues that always seem to come up in our business.? ? One of those issues is RESPA, the federal statute governing real estate settlement services, including real estate brokers.? ? The most common RESPA issues are as follows:

1. In general, unless there is an exception, RESPA does not allow us to give someone a “thing of value” in return for the referral of a client.? ? The most common exception to that rule is in the case of licensees, where referral fees are allowed.? ? In other words, unless the person receiving a referral fee is licensed, that fee is illegal.? ? It does not matter if the referring party is an attorney.? ? Unless they have a real estate license, attorneys can only charge and be paid attorney’s fees.? ? They cannot be paid referrals.? ? So, for the most part, referral fees can only be paid to other real estate licensees, and, of course, only through real estate brokers.
2. Next, remember, RESPA does not apply to cash deals.? ? It only applies to deals with a loan.
3. Next, in order for there to be a referral, there must be three parties involved: you, the client and the referring party.? ? The law says that a person cannot refer their own business.? ? As a result, you can give credits, etc. to principals in your transaction.? ? That would not be seen as a referral
4. Finally, remember that RESPA only applies to real estate settlement services.? ? Therefore, if you, for example, know an architect, and he wants to compensate you for referring him business, RESPA does not prohibit that payment.? ? Architects do not perform a settlement service and therefore are not covered by RESPA.? Despite that fact, remember that as a company we prohibit such referral fees since, by accepting them, you are buying liability should the vendor not perform well.? After all, in such cases your client would claim that the referral was made because you were getting money, and not because the vendor was competent and did good work.

As always, feel free to let us know if you have any questions.

A NEW SHORT SALE SCAM

I got a call last week about a new short sale scam that was, at least, new and interesting.? ? In this transaction, shortly before listing the property for sale, the seller transferred the property into a family trust.? ? Then, after it was put on the market, an investor offered to buy the property.? ? Understanding that short sale lenders prohibit flip transactions these days, the parties came up with a new, “creative” structure.? ? Rather than buy the property in the first, short sale transaction, the buyer instead agreed to purchase the beneficial interest in the trust.? ? That way, when the bank approved the short sale and was paid off, the property would not transfer.? Instead the investor/buyer would become the beneficiary of the existing owner of the property, the trust.? ? Then, when the property was sold to the ultimate buyer who the investor had already located, title would transfer for the first time, therefore theoretically not violating the “no flip rule.”

Of course, it is very easy to see what is really going on here.? ? This is really a flip transaction, just structured in a way so as to get around the bank’s prohibition of such deals.? ? Of course, no one is telling the bank what is really going on and, as a result, we refused to be involved.? ? As we have said many times, the short sale “professionals” are very clever in their scams and keep coming up with new ones so they can stay one step ahead of the banks.? ? Regardless, it is our job to stay vigilant and stay away from fraudulent transactions such as this.? ? As always, let us know if you have any questions.

NON JUDICIAL FORECLOSURE TIMELINE

With the market the way it is, short sales and foreclosures have become part of every day business.? ? Agents are often asked by their clients about the foreclosure process and while agents should always refer their clients to seek the advice of an attorney, you might want to know the basic time line in a non judicial foreclosure which is a trustee sale with no filing with the Court.

? After a default occurs, a? notice of default? is recorded in the county in which the property is located. This does not necessarily occur after one or more payments are not met but for logistical reasons may occur after a loan is in substantial default — sometimes six months or more past due. The foreclosure process does not move forward for a minimum of 60 days following the filing of the notice of default. This is known as the redemption period.

? A notice of sale containing the name and address of trustee, certain disclosures (including that the property is about to be lost to foreclosure sale), the name of the? beneficiary, and other information must be recorded in the county in which the property is located at least 14 days before any foreclosure sale. This is known as the publication period.

? The borrower must receive a twenty (20) day notice before any foreclosure sale. Additionally, the notice of the foreclosure must: (a) mailed to the defaulting borrower (and other creditors whose liens affect the property) and; (b) be posted at the property being foreclosed upon and in a public place in the county where any sale would occur. The defaulting borrower may prevent the foreclosure sale by paying all arrearages up to five (5) days before the sale. The trustee’s foreclosure sale then occurs no earlier than? twenty one (21) days after the first publication.

? Foreclosure sales must take place on a business day between the hours of 9AM and 5PM and must occur at the location referenced on the? notice of sale. The trustee will? auction the property to the highest bidder, including the lender. The borrower is permitted to postpone the sale for one (1) day.

? Following the sale, the property is transferred to winning bidder. By default this will be the lender if no bid higher than the lender’s opening bid is received.