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.
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!
