March 15th, 2011 at 11:09 pm
As you know, in today’s market, transactions have become harder and harder to close. In an equity sale, your buyer may have more difficulty getting a loan. In a short sale, on the other hand, the demands of the numerous creditors may make getting approval almost impossible. Because of these difficulties, we are seeing more agents question where the line on appropriate behavior falls. They seem to be asking themselves whether they can move the line a little farther in this market, allowing themselves to be more aggressive in trying to close their deal. The answer to that question is “no”. You must remember that the difficulty of a certain deal has nothing to do with the appropriateness of your behavior. Doing the right thing is the same no matter how difficult the client or the transaction. With that in mind, we have found that agents are forgetting one very important point when dealing with today’s market: YOUR DEAL DOES NOT HAVE TO CLOSE. We know times are tough, and while every commission is important, when you refuse to walk away from a potentially illegal or unethical deal, you are basically condoning the questionable conduct of others and involving yourself in their schemes. Do not lose sight of the fact that even when a deal is cancelled, life will go on and there will be another deal. If the only way to close the deal you are presently working on is to potentially defraud the bank, WALK AWAY. No deal is worth the problems that come with inappropriate and potentially illegal activity. So, understanding how painful this can be to accept, always remember that YOUR DEAL DOES NOT HAVE TO CLOSE. Do not compromise your integrity or license so that the deal can close. The risks do not outweigh the benefits.
As always, please feel free to contact us with any questions you might have.
March 11th, 2011 at 10:52 pm
Q: (Eric Eaton) In a short sale, if there are fees outstanding that should have been paid to an HOA, can the HOA pursue the seller? Can delinquent HOA fees paid by the buyer to close escrow later be collected from the seller? Do delinquent HOA fees have to be paid at all in order to close a short sale? Are they truly a lien on the property?
A: Eric, by statute, an HOA is entitled to lien a property if agreed upon dues or fees are not paid. So, yes, an HOA lien is a true lien. That being said, in our experience, most HOAs will not agree to release their lien without getting paid so they typically must be dealt with in order to close a short sale. As a result, the HOA’s “pursuit” of the seller is typically to record the lien and demand payment at sale. Of course, if those fees are paid by the buyer at closing, the seller no longer has any liability. The HOA is not entitled to collect the fees twice just because they were paid by the buyer rather than the seller. Most importantly on this issue, because HOAs are so difficult to deal with, it is very important that you address this issue early in the deal. Don’t wait to see if there is an HOA lien. Investigate it up front so you know what you are dealing with. Giving yourself more time to deal with these issues will make your short sale easier to close.
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.
