DELIVER YOUR AVID EARLY. IT AVOIDS PROBLEMS.

One of the common problems we see in our files is the late delivery of AVIDs. Oftentimes, a deal is a few days from closing, and no AVID has been delivered to the buyer or signed by the agent. This, of course, causes many potential problems that you need to consider and avoid. First, it is very common for an agent to complete his portion of the Transfer Disclosure Statement by writing “[s]ee attached AVID.” By doing that, you are incorporating the AVID into the TDS, and making its delivery the delivery of the TDS itself. As a result, in such a case, the delivery of the AVID carries with it the three day right to rescind. Therefore, in most transactions, delivering the AVID early eliminates the right to rescind and makes your deal more likely to close. By delivering it late, you give the buyer a last minute right to cancel.

Even if the AVID is not expressly incorporated in the TDS, the problem of a “right to rescind” still exists. After all, the law states that any time the TDS is amended, the buyer gets a new three day cancellation right. As a result, if I give the buyer the TDS on day 3, but deliver my AVID on day 35, there is a question regarding whether the buyer has a right to cancel. In those instances, we need to determine whether the late delivered AVID constitutes an amendment to the TDS. While there is no express answer to that question, at a minimum we have created an argument for the buyer. They will claim it is and that they can cancel. More importantly, we have probably created some distrust on the buyer’s part. After all, when a buyer is told about a material fact so late in the deal, they often feel that the seller was hiding things and distrusts the seller’s performance as a whole. In such a case, your buyer is more likely to cancel the deal. Furthermore, if you take the position that no cancellation right is created by the late delivery of an AVID, you are theoretically forcing the buyer to close on a house they don’t want, thereby making it more likely that a lawsuit will result.

Finally, by delivering your AVID late in the transaction, you are running the risk of a late cancellation. Why put in all that work only to have the buyer cancel the deal, when you could have determined whether that would happen by delivering your disclosures earlier? In other words, you protect both yourself and the seller by delivering early and eliminating cancellation rights. If the buyer cancels, you have invested less time and can move on. If they don’t, you know you have a more solid deal. So deliver your AVID early. It is better in every way.

As always, please let us know if you have any questions

MANAGING EXPECTATIONS – THE LOAN

As you all know, our market has changed this year. Throughout the company, we have seen an uptick in activity, but also a very low inventory. This has, in some cases, created a seller’s market, with multiple offers and buyers competing for popular properties. Of course, when that happens, buyers craft their offers to be more attractive to the seller, by shortening escrow, or shortening the contingency period, or even going forward with no contingencies at all. In talking to our escrow people, I hear that they are seeing a lot of 30 day escrows coming in the door. And, while we all love an active, competitive market, we have to ask ourselves what problems it might create and how we need to handle the new problems it presents.

Most obviously, while the real estate market has changed, and buyers and sellers are reacting appropriately, the lenders and their processes have not changed. In other words, regardless of how popular a house may be, the buyer of that property will still have to deal with today’s lending environment to get a loan. Of course, that means providing a ton of documents, answering round after round of questions, hoping the appraisal can be scheduled and comes in high enough and just getting the bank to prepare and forward loan documents to escrow. It also means, in most deals, that the loan process will take time, often more than we expect or more than we provide for in escrow. In truth, while I know it is possible to get loan approval in less than 30 days (and HSL has done it for us in emergencies on numerous occasions), a typical loan takes more than 30 days to process. This, of course, is dependent on the responsiveness of the buyer, and how quickly they provide documentation to the lenders, but on average, 45 days is probably a better benchmark. So, what should you do about this?

First, talk to your client about it before writing an offer with a 30 day escrow. If you represent a buyer, get them to your HSL rep before they find a house and have them processed through underwriting. Further, when writing the offer, manage their expectations. Tell them that loans are hard to get and that even if the deal has a 30 day escrow, the loan may not come through that quickly. On seller’s side, make sure to have this same conversation with your client. They need to know that the 30 days is a goal, but may not be possible in this lending environment. Then stay on top of the buyer, making sure they do everything possible to get approval quickly. You may want them to double app with HSL, so you have someone on your side who knows about the buyer’s financial situation. In either case, don’t be silent. Make sure that, at the beginning of the deal, your client understands that while everyone will do their best to close on time, the loan is unpredictable and may cause delays. That way, no one will be surprised when an extension is needed and no one will be angry with you. By properly managing the clients’ expectations, you are protecting both your deal and your relationship with your client. And that, of course, should be one of your main goals.

As always, please contact us with any questions you may have.

REMEMBER: YOUR CLIENT IS THE BOSS EVEN IF YOU DISAGREE WITH THEIR ACTIONS

As you can imagine, a good percentage of our calls arise from transactions that involve “difficult” people. Whether it is a seller who refuses to repair obvious, inexpensive things, or a buyer who wants the seller to pay for every little, unimportant thing in the house, deals with these people can be very difficult to shepherd through. This becomes especially true when the difficult party is your client who invariably starts to treat you poorly, blame you for everything that goes wrong (including things you had nothing to do with) and ultimately makes even talking to them unpleasant. While your issues with these clients are understandable, the fact that someone is a “jerk” in no way changes your duties or obligations in a transaction. Your client, jerk or not, is still the boss and it continues to be your job to give him the proper advice, take his instructions and help get him what he wants, even if you think it is unreasonable.

For example, it is not all that uncommon for a seller to change their mind at the end of an escrow and do everything they can to make a deal cancel. The seller will start refusing to cooperate with any request of the buyer, will not make any repairs, will not return your phone calls and the like. Of course, in this type of deal, you have already put in 90% of your work and want nothing more than for escrow to close. But, frankly, that doesn’t matter. Your interests are irrelevant and you have to help your client get what he wants, even if it is the opposite of what you want. So, if you seller wants to cancel a deal, you have to tell him if he has the contractual right to do so, let him know what the buyer’s position is, refer him to an attorney but, most importantly, do what he wants (as long as it is not illegal). If he tells you to prepare a cancellation, even if you think he has no right to do so, you still prepare the document after advising him of the risks. The client remains the boss, “jerk’ or otherwise.

Similarly, your buyer may get cold feet after all contingencies have been removed and demand a cancellation. Or there may be a new disclosure, that you don’t think is very important but your client is very concerned with that causes him to want to cancel. In either case, no matter how unreasonable you think the client is, you need to help get the cancellation. Perhaps you need to demand a new TDS from the seller which would create a new cancellation right. If the seller refuses, talk to us and, in the right circumstances, we will have you amend your TDS. Regardless, even though you don’t want a cancellation, and think the client’s concern is overblown, you continue to be his fiduciary and therefore must help him get what he wants. You must act without consideration of your commission and follow the client’s instructions.

So, no matter how difficult your client is, you must always remember that they are the boss. Your job is to advise them of their rights and the risks of each course of action and follow their instructions. While we hope you will normally deal with reasonable people, that will not always be the case. Unfortunately, your client has the right to be a “jerk.” And when he is, as long as he is not asking you to do anything illegal, you are still his fiduciary and must follow his instructions. As unpleasant as this may be, it is what the law requires.

As always, feel free to call us with any questions you may have.

SHORT SALES: TRY TO GET THE ARMS LENGTH AFFIDAVIT UPFRONT.

As we have discussed many times in the past, short sales are both a major part of our marketplace and among the most difficult transactions we face. They include an unhappy seller who is getting no money from the sale of his house, as well as an unhappy lender who is being asked to write off a portion of its loan, sometimes in very large amounts. As a result, these deals have many additional rules and requirements that make them hard to close. Unfortunately, those rules often don’t come to light until late in the deal, meaning you have spent months of your life working on a transaction that often cannot close. It is not uncommon that we get calls in the last week of a short sale transaction, asking how to handle a bank requirement that now makes the structure of our deal unacceptable. For example, maybe the buyer agreed to buy some furniture from the seller and the Arms Length Affidavit says they can’t. Or, perhaps the buyer is the agent’s sister, and the Affidavit also says that is unacceptable. At the last minute, with a trustee’s sale on the calendar, these problems are very hard to solve.

So, what can we do to avoid these last minute issues? Well, since we know that your lenders “no-nos” will be listed in their Arms Length Affidavit, get a copy of it as early as possible. By reading the Affidavit up front, you will know specifically what types of things the bank will not allow. You will know how they feel about “related parties” and how broadly that term is defined. That knowledge will tell you whether you can represent a relative. You will also know what the bank says about “other agreements” so that you can tell your client that they can’t sell personal property to the buyer. In short, the Affidavit will give you a road map of what structures you can and cannot use so those issues can be dealt with up front, and will not kill your deal after you have done all your work.

Now, how can you get the Affidavit up front? Well, most of the institutional, large lenders have a web page that includes a link to their forms. Go to that page, and print out the Affidavit at the same time you are gathering the seller’s short sale package. It will help you put that package together and guide the buyer’s agent to properly structure their offers. If the lender you are dealing with does not have the Affidavit on line, ask for a copy the first time you speak to their representative. Ask until you get the form, as early in the deal as possible. By doing so, you will help avoid problems later on and ensure that your deal can close. And, of course, that is our ultimate goal.

As always, please give us a call with any questions you may have