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Hats Off To NAR

Please welcome our newest writer and 2008 Commenter of the Year at Agent Genius as voted by the writers, Bob Wilson of San Diego. Bob has a spirited voice and is well known for his specialization in short sales, please welcome him in comments.

Hats off

No, that’s not a typo, and it isn’t April’s Fools.

It is the response I had after taking a look at the April issue of Realtor Mag.

To be honest, I can’t remember the last time I read a copy of what surely must be a prize winning periodical. It came in the mail yesterday and landed on my desk – a brief stay of execution from the recurring sentence handed down a few years back – a one way trip to the recycle bin. The typical procedure for handling this category of mail is the same as junk mail postcards. It receives the obligatory 3 second review as it passes from the incoming pile of mail on my left to the recycle bin on my right.

What caught my attention?

It wasn’t the title, “Right Tools. Right Now.” It was the tagline. Specifically, the “274 useful tips and tactics” part. The critic in me had to check it out. Surely with 274 tips, there had to be something for me to appreciate.

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I read about the carpet cleaner turned REO agent, nodded at the suggestion we need a bit more regulation when it comes to short sales, chuckled at the call for Realtor pride, and flipped quickly through the Sales & Marketing, Technology and Home Design sections until I hit page 34, titled “Law & Ethics”. Once again the sub title got me.

Short Sales: 7 Legal Pitfalls

In many areas, short sales are the biggest game in town. But you don’t want to jump into this niche willy-nilly. In addition to educating yourself on the ins and outs of these complex deals, you also need a good picture of the legal risks that exist for you.

With that first paragraph, they now had my undivided attention. Hopefully it got yours as well, because the author hit upon some very crucial points. We’ll take a quick look and hit the high points.

Misrepresenting tax consequences.

“A lot of associates are telling people there are no tax consequences,” says Lance Churchill, a short sales specialist and trainer who operates in Boise, Idaho, and San Diego. “But it’s a limited law and you just need to be accurate about it.”

Lance is correct. It is crucial to be accurate. However, in this article, even NAR didn’t get it 100% right. A $20 Starbucks to the first person who posts the error and the correct answer.

Misrepresenting how secondary debt is

treated.

Practitioners might mistakenly tell sellers that all the house debt is forgiven once the primary lender approves a short sale.

In many states, these second loans are recourse, so sellers can be caught by surprise when the collection agency contacts them a year later seeking payment of the debt.

Can you say lawsuit? Another Starbucks card to the first agent or broker who shows me that your E&O covers this potentially costly mistake.

Acting on inappropriate lender requests for

seller contributions.

It’s not uncommon for lenders to go after money that the sellers have in the bank or in a retirement account before they approve a short sale request. They’ll sometimes seek to put the onus on the real estate practitioner to get sellers to sign over a note for the amount they have in the bank as a condition of sale. But in states where mortgage debt is nonrecourse, lenders have no right to the money, and associates that suggest otherwise to the sellers might be later sued for negligence.

This is a big one. Did you know that many lenders’ short sale negotiators have been trained to get the agent to basically roll on the seller? It begs the question, “Are you aware of the liability when you negotiate someone else’s debt with a creditor?”

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Breaching fiduciary duty.

Investors are increasingly executing what’s known as a “double close and flip,” a type of short-sale transaction that can leave practitioners exposed to irate sellers who say they got a raw deal.

In addition to a seller who may be wondering why his agent couldn’t get him the sales price of the flip, there can be some serious legal issues here.

Providing poor oversight of a loss mitigation

company.

If you use a 3rd party, are you indemnified by the seller if they screw it up?

Lacking the required license to undertake loss

mitigation.

The author dealt primarily with loss mitigation in this article, but several states have or are enacting legislation that impacts how agents can interact with distressed sellers and their creditors. The rules are changing in my state. How about yours?

Facilitating transactions not listed on the

HUD-1 form.

It’s not uncommon for investors to offer incentives to sellers to move a deal forward, but lenders typically frown upon sellers who walk away with money when they’re supposedly taking a loss.

Operating under the concept of “Doing what it takes” to get the deal done can seem noble, but it may also be fraud.

What would you like addressed?

Once again I am loudly proclaiming my appreciation to NAR for including these 7 points in their list of 274. Over the next several weeks we’ll add to these 7 points. We’ll tap into the brain trusts around the Country and explore the complicated niche of distressed properties and sellers. Anything in particular you want to see addressed?

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Written By

A real estate vet, 2009 marked the beginning of Bob's 20th year in the real estate biz, with the last 10 years spent online. Bob practices in San Diego, California and is well known for his expertise in online real estate marketing, SEO and lead generation strategies.

37 Comments

37 Comments

  1. BawldGuy

    March 27, 2009 at 11:46 am

    Hey Bob! Good to see you here and sharing your expertise. You’re a catch for AG, no doubt about it.

  2. Chris Griffith

    March 27, 2009 at 11:49 am

    Welcome to AG.

  3. Matthew Hardy

    March 27, 2009 at 1:41 pm

    Useful stuff – and good to see appreciation shown even through an honest bias.

    I guess this means documentation takes on another level of “vital”.

  4. Bob

    March 27, 2009 at 1:55 pm

    A few have emailed that their copy hits the round file upon arrival as well, so here is the link to the online version: https://www.realtor.org/rmolaw_and_ethics/articles/2009/0904_shortsales_legalpitfalls

  5. Todd Carpenter

    March 27, 2009 at 1:56 pm

    Subscribing to see who wins the Sbux card and why.

  6. Pamela Kabati

    March 27, 2009 at 2:45 pm

    Hi Bob! Welcome to Agent Genius. And thanks for the tip of the hat for REALTOR Magazine’s April issue — which is our annual issue filled with lists of tips and ideas to help readers in their business. I’m the magazine’s editorial director, and I’ve passed your good words on to the magazine’s staff.

    On the topic of short sales, we’ve got a great compilation of content from the magazine and web site that you can find at https://www.realtor.org/archives/shortsales200805

    And if you’d like to explore some of the good stuff in previous list issues, you can find them in the magazine’s archive at http://www.realtor.org/realtormag.

    Thanks, again, Bob! I look forward to reading mroe of your posts on AG.

  7. Jonathan Dalton

    March 27, 2009 at 3:09 pm

    Damn, man, my keyboard wasn’t even cold yet.

  8. Missy Caulk

    March 27, 2009 at 3:21 pm

    Hi Bob, welcome to Agent Genius. I look forward to your answers to the seven questions.

    I just closed a short sale today with a 2nd lien. It almost fell apart yesterday because of a letter from the 2nd lien holder stating that they were not giving up their right to go after my sellers for more of a settlement in the future.

    It took me stating that we were not going to close if my seller was going to be tied to future debt and the ball was in their court to remove that condition. They were getting a 1/4 settlement from the first lien holder, me and my sellers.

    Finally we got the letter late yesterday and the title company closed the loan. Believe me I will keep every document and email.

    As far as tax consequences the big lender I was dealing with did state in their letter to us that they would be issuing a 1099 for the difference in the short amount. So my sellers agreed and signed that.

    Not only that but prior to agreeing to attempting do the short sale I had them speak to a local real estate attorney to be advised of their rights under Mi law.

    I hate short sales but found it is necessary to embrace them in the Michigan economy. I’m still learning as everyone is different.

  9. Bob

    March 27, 2009 at 4:23 pm

    @Bawldguy & Chris – thanks

    @Matthew – I’m appreciative, yet still disappointed. I can SM and tech tips anywhere, but would really like to see NAR be more proactive in educating Realtors on stuff that isnt found as easily.

    @Todd – If you get someone at NAR or R.org to point out the error and correct it, your card will be in the mail.

    @Pamela – Thanks for the list. Already started reading. BTW, I was surprised at how many have told me that the mag hits the can immediately. You folks ever thought about going a bit more green and giving us the option to only receive an online version?

    @JD – Dude, I’m fairly certain they retired your number and hung it on the wall.

    @Missy – Great job. As you noted, they are all different in one way or another.

  10. Melina Tomson

    March 27, 2009 at 6:05 pm

    I have been contacted for some short sale listings and require that they talk with a CPA first to confirm their tax requirements.

  11. Russell Shaw

    March 28, 2009 at 1:11 am

    Bob has been making contributions to AG for some time (in the comments section). He was already a genius. Now he is an official Agent Genius. Welcome, sir. (love the sunglasses)

  12. Jim Gatos

    March 28, 2009 at 6:56 am

    Except for experience, which I have, is there a course or study program you recommend for short sales? I took the one from Floyd Wickman – Will Weaver and I found it well worth the small cost, plus I picked up a couple of pointers I was not aware of before.

    What would you think?
    Thanks
    Jim

  13. Curtis Van Carter

    March 28, 2009 at 10:23 am

    Hi
    I too am one who quickly glances through the NAR mag and then off to the recycle bin. I have to thank you for your post, it made me at least read this month’s copy. In truth, half read half scan.
    I was curious about your $20 Starbucks offer and spent a little time looking into this. I believe the mislead is in the line “it doesn’t apply to debt on a cash-out refinancing”. I believe the correct statement is:
    “Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred to refinance a home?
    Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified.”
    Thus, you can have do a cash-out re-fi and still take mortgage relief but up to a limit. If I am correct, please give the $20 to your local favorite charity.

  14. Bob

    March 28, 2009 at 11:06 am

    @Melina – That is smart. I see many agents advertise that they’ll explain all the options available to the seller. My opinion is that the seller needs to know all the potential consequences of each possible option.

    @Russell – Thank you.

  15. Bob

    March 28, 2009 at 11:40 am

    @Jim – Good question. The challenge with short sale courses, ebooks, etc, is that they are very general in nature. That said, the webinar NAR did with Scott Thompson is pretty good. Scott gives an excellent overview and continually emphasizes the importance of the seller having legal and tax expertise as part of the process. One thing I appreciated in Scott’s webinar was his emphasis on agents being familiar with the state statutes for your specific state, particularly with regard to recourse vs non recourse loans.

    The biggest problem with most courses is that it tends to be very general info.

    Take the term “short sale”. It means that a lien holder agrees to release the lien on a property to facilitate a sale, even though the payoff is “short” of the full amount needed to payoff the note.

    However, on Scott Thompson’s site, it is described as this:

    A Short Sale is the sale of a home when sales proceeds do not fully pay off the existing loan(s) and lender(s) accepts a discounted payoff to fully satisfy the loan.

    No doubt that will be corrected quickly, as fully satisfying the loan would suggest no deficiency, which we know isn’t always the case.

    The other suggestion I have is to find out how and if your state is regulating short sales. In California, a new law goes into effect on July 1, 2009 that will make it illegal to negotiate with the lender on behalf of a seller once a Notice of Default is filed on the property. The reason being that the law would preclude a seller from granting a power of attorney to anyone that doesnt have either a $100,000 surety bond, or is an attorney that is in the business of representing clients. Most 3rd party companies, including attorney fronted companies, would be unable to help at this point. Without the bond, the seller would now need an attorney to negotiate, or do it themselves.

  16. Matt Stigliano

    March 28, 2009 at 1:34 pm

    Bob – Welcome to AgentGenius. Although its not much of a welcome since you’ve been here most of the time anyway providing quality content, just without the graphics.

    Lance is correct. It is crucial to be accurate. However, in this article, even NAR didn’t get it 100% right. A $20 Starbucks to the first person who posts the error and the correct answer.

    This one has me a bit stumped. My only guess would be that the quote seems off. Why would Lance say its “a limited law” referring to the tax consequences. Fact is its not very limited. The IRS sees canceled mortgage debt as income and will tax it at the appropriate level. There are a few exceptions to that, but other than that, its a pretty hard and fast tax law.

    Of course, NAR didn’t say that, Lance did. So I don’t think that’s it.

    Could it be that you’re getting to the nitty gritty and calling them out for the comma after Idaho (since the list of cities is only two long, no comma is required to separate them…the word “and” is the separation for this list – its only after there are three items in a list that commas are needed).

    That coming from a guy who overuses commas all the time.

    Anyway, welcome again Bob!

  17. Bob

    March 28, 2009 at 3:57 pm

    Thanks Matt.

    You are correct that it is Lance, not NAR per se, but it’s NAR’s mag, so by extension…

    Anyways, here is a hint – it has to do with the limitations he specified.

  18. Matthew Rathbun

    March 28, 2009 at 4:08 pm

    Welcome BOB!

    Let me just submit this… I have been critical of the Realtor magazine to some limited extent, but I realized that writing a magazine that would appeal to 1 million different personalities is impossible.

    However, kudos for actually reading it and not trashing it. I think if we all took a bit of time to comb through the stuff that bored us, the useful stuff would shine through.

    Having said that – I would LOVE to see (hint to Pam) Realtor mag, just be on RSS feed and allow members to choose their preference.

    There is a number of our local agents who read it and would never read anything online. It’s sad, but true.

    Great first post!

  19. Bob

    March 28, 2009 at 6:23 pm

    We have a winner – Curtis Van Carter.

    The quote in question is this:

    Although it’s true that the federal government passed a law in 2007 directing the IRS not to count mortgage debt forgiven by a lender as income, the provision is limited. It applies only to purchase money; it doesn’t apply to debt on a cash-out refinancing, and it doesn’t apply to second homes.

    The issue is acquisition debt, not whether or not its a purchase money.

    To be specific, the tax code calls its “qualified principal residence indebtedness”:

    Section 108(a)(1)
    (E) the indebtedness discharged is qualified principal residence indebtedness which is discharged before January 1, 2012.

    Acquisition indebtedness is defined in Section 163 cited below:

    Section 163(h)(3)
    (B) Acquisition indebtedness
    (i) In general
    The term ”acquisition indebtedness” means any indebtedness which –
    (I) is incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer, and
    (II) is secured by such residence. Such term also includes any indebtedness secured by such residence resulting from the refinancing of indebtedness meeting the requirements of the preceding sentence (or this sentence); but only to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness.

    Purchase money is acquisition debt, but refinancing purchase money for rate and terms, or to consolidate two loans into one can still apply. Even part of a cash out refi can still apply. You can use it to build a garage and your good. If you use it to build a garage and buy a new car to put in the garage, you have to back out the money spent on the car.

    I wrote an overview of the original bill here that ties together the relevant parts of the tax code. Keep in mind that the sunset date was changed with the passage of TARP from 2010 to 2012.

  20. Thanks for the article Bob.

    We’ve bought a number of short sales where we’ve gotten the idea that nobody talked to the seller about tax consequences and …..

    Even though we obviously don’t represent sellers I’m thinking I might want to grab that magazine out of the recycle basket!

  21. bev meaux

    March 28, 2009 at 8:49 pm

    This was the first issue I truly read cover to cover. In this tumultuous time with things changing quickly, we need more issues like this that truly offers something worthwhile.

  22. Gwen Banta

    March 29, 2009 at 12:51 pm

    Welcome to AG, Bob. Thank you for the intelligent, well-written article. It made me realize how little I know. My next course will be on Short Pays, and I am running to retrieve my newsletter now!

  23. Lisa Sanderson

    March 29, 2009 at 3:05 pm

    Welcome to AG and thanks for pointing out these issues. It’s hard to know what you don’t know if you don’t know……you know what I mean?

  24. ines

    March 29, 2009 at 4:35 pm

    What’s up Bob!!!??? so happy to see you here! and so well deserved

    it’s funny how everyone can be an expert no? so many things just taken for granted

  25. Hilary Marsh

    March 30, 2009 at 2:27 pm

    To Matt Rathbun:

    REALTOR Magazine does have RSS feeds for some content — the daily news and the blogs. You can subscribe here:
    https://www.realtor.org/RMODaily.nsf/pages/aboutussubscriptions?OpenDocument#two

    Look for more of the magazine’s content via RSS feeds in the future.

    Thanks for a great post and great discussions too!

    Best,

    Hilary Marsh
    Managing Director, REALTOR.org (NAR)

  26. Jay Thompson

    March 30, 2009 at 4:50 pm

    Bob who? 😉

    Welcome!

    Bob said (in a comment to Pamela), “You folks ever thought about going a bit more green and giving us the option to only receive an online version?”

    My wife and I each get one. 5 of our 9 agents get Realtor Magazine delivered to my house (which is technically our “office”). We all read it online.

    So every month, that’s 7 copies that hit the recycle bin. Instantly.

  27. Matthew Rathbun

    March 30, 2009 at 6:13 pm

    Hillary,

    Yep, I could have worded that better. I was thinking that the RSS feed would be primary and members could choose print if they needed to. This, as opposed, to killing trees for members who really don’t read it because of lack of desire or they have already read it online.

    It’s seems odd that REBAC and NAR are pushing tons of Green information out, yet the magazine and other extensive materials still get sent out to everyone in print. This could also save money and allow those dues dollars to be used in developing other programs.

    You folks in the tech area are far ahead of some of the other divisions.

    There’s no perfect answer… this is just my thoughts.

  28. Matthew Rathbun

    March 30, 2009 at 6:15 pm

    …sorry Hilary, I keep adding letters to your name…

  29. Mack

    April 2, 2009 at 5:56 am

    Sorry to be late to the party, WELCOME BOB.

  30. Dan Connolly

    April 4, 2009 at 11:21 pm

    Hey Bob! Glad to see you writing articles here! I have been crazy busy lately and haven’t been able to read my favorite blogs, so I missed your entry.

    The AG readers will be happy to learn that you have great expertise in a few more areas than short sales as well 😉

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