WEEKLY Q & A: PART I

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.

DISCLOSE DESPITE CREDIBILITY OF SOURCE

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.

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.