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.
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?”
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?
