Home : Blogs : Erik Hitzelberger, --Louisville-Bullitt County Real Estate : Erik Hitzelberger - Louisville & Bullitt County Real Estate

Attention Real Estate Pros: Are you ready to be sued?

Ready for court? I wrote an Open Letter to First Time Procrastinating Home Buyers a couple of days ago. The point of the post was to inform buyers that the deadline for writing an offer on a home was somewhere in October. This post garnered a lot of attention and comments. Of course, the best was from my new favorite McKinney, Texas Broker Kim Daughtery whose comment included "You're a genius." Thanks Kim. Flattery will get you referrals.

All kidding aside, there were some very profound comments that needed to be considered once my suddenly Barry Bond-sized noggin returned to its original size.

In particular, at least 3 very specific scenarios discussed in the comments which could spell trouble for real estate agents and lenders. Despite my flippant attitude above, each of us should think about the following very seriously.

Scenario 1: Your buyer misses the deadline and doesn't get the $8000.

Matt Stigliano aptly pointed out he expects lawsuits to arise if this is the case. I agree. Think we are wrong? Consider...

What if you the lender says you can close in 40 days and it takes 50? Does it matter that the delay was caused by the buyer not submitting all docs on time?
What if you the buyer's agent takes on a new client Oct 1st and don't write an offer until October 20th? If you miss the deadline, will your clients claim you didn't tell them about the risk? Does it matter if you did?
What if you the seller's agent don't do due diligence with respect to pre-approval letters in multiple offer situations and the buyer your client selects can't close? Does it matter if you did?
What if you the appraiser take 3 weeks to get your report submitted due to the glut of deals? Does it matter if you worked 60 hours per week just to accomplish that?
More importantly, what if you the professional do everything right and it just doesn't work out?

Scenario 2: The buyer walks.

Does anyone really think this won't happen?

How do you the buyer's agent educate the client to prevent this?
How do you the seller's agent protect your client?

Scenario 3 The deadline isn't extended.

Many commentors believe the tax credit will be extended. I probably do as well. Certainly, we can predict NAR,etc will be all over Congress this fall to make it happen. That being said, I would never advise my client to that fact. This credit has been available in one form or another for well over a year. I am loathe to throw my support behind any petition for an increase on the grounds that buyers have somehow been unable to get motivated to get free money. Of course, if I have a client in that position, I'll probably have to swallow my principles and argue on their behalf.

In the meantime, my argument to them is "Why do you want to wait? What benefit do you expect to get? Rates aren't dropping. Inventory isn't improving. Where exactly do you think you'll make up the $8k if you are wrong?"

Here's the question though. Does merely mentioning the possiblity open you up to a lawsuit if it doesn't occur?

The Answers

Despite Kim's faith, I don't have the answers. But, I have 2 months to figure it out and this is definitely not something I'm procrastinating about.

Thoughts?

* * * * *

Erik Hitzelberger is a licensed REALTOR with RE/MAX Alliance in Louisville. If you need a Louisville Real Estate agent please email me or call 502.921.3989.

I specialize in the following areas of the Metro Louisville Area: Prospect, Middletown, Jeffersontown (J-Town), Fern Creek, Okolona, Shepherdsville, Mt Washington, Hillview, Brooks and Pewee Valley. Click the following links to learn more about Louisville and Bullitt County Real Estate or to Search for Louisville Homes

Get Updates in a Reader

Get Louisville Real Estate News by Email

Posted by Erik Hitzelberger, --Louisville-Bullitt County Real Estate on 08/06/2009 08:54 PM

Comments (91)

Lawsuits in the ActiveRain Channel

8000 agent credit

Post is included in group: M.A.N.C.R.O.W
Post is included in group: RE/MAX Active Rain Bloggers
Post is included in group: Realtors®
Post is included in group: Dedicated Bloggers
Post is included in group: Club Chaos

91 Comments on Attention Real Estate Pros: Are you ready to be sued?

AUG

Nice post - I absolutely agree with the scenarios that you describe. The danger of missing the deadline is real. Don't forget that the Housing and Economic Recovery Act has created new regulatory guidelines that can impact the closing date such as:

Mortgage disclosures must be given 7 days before closing.
Appraisal must be provided 3 days before closing.
If the APR increases by more than .125% from the initial TIL disclosure, then an updated disclosure must be provided. The revised TIL disclosure must be provided 3 days before closing.

Ryan - You make some excellent points. There are literally hundreds of things that can go wrong. As agents, we are really going to have to be on top of our game during this time period. "Time is of the essence" is about to take on a whole new meaning.

AUG

Erik - We have already included new disclosures in our buyer's agency agreement and an addendum to the standard sales contract addressing this specific issue.

This could get very interesting...

Many attorneys are already circling the wagons around real estate offices in preparation for the onslaught of lawsuits.

Your comment about extension reminds me of a situation here. There is a mobile home park over in Mission Bay that takes up prime property and doesn't bring in anywhere near the amount of taxes that a nice resort hotel would. The mobile home park was originally created so that the people creating Mission Bay had a place close by to live. The park was supposed to close in 1959. They got a 10-year extension in 1969, 1979, 1989, 1999. Of course, no one who worked on developing Mission Bay lives in any of those mobile homes anymore. In 1994 residents of the mobile home park sued because they didn't have enough time -- they still had five years -- to find a place to move to. They got an extension to 2009. Now they are suing again because they don't have enough time to move. Of course, they are simply hoping for another extension, which I'm sure they'll get.

In america you can be sued for anything. In the examples you mention, however there is nothing in the buyers agents conrol. An unlikely lawsuit a buyer would win.

Ryan - That's intersting. I was thinking of something along those lines.

C- Yes indeed.

Russel - A perfect example of 'working the system.' The tax credit issue would have been a lot simpler had the deadline been related to an accepted contract or submitted loan package. A lot of variables would have been removed.

Bill - My thought process was to give he said / she said examples. You are right in that these are beyond the BAs control. But, does it matter? Lawsuits cost time and money regardless of the outcome. What, if anything, can we do to protect ourselves? Here is an additional example. What if you the BA, are sick, out of town, dealing with a family crisis, etc and don't get the FHA Amendatory agreement back to the bank the same day you receive it? If you miss closing by one day, what happens?

Erik - I expect some exciting times ahead, we better make sure we have good E&O. Ryan does have some good additional comments, and regardless of whether or not a buyer would win a lawsuit, it will still cost us money if we get sued.

Solution - don't work with Buyers - stick with listings and refer out the Buyer leads that come from them.

I practice 'safe' real wstate...always have a paper trail!

That said, I guess we will have to come up with a clause in our 'buyer broker agreement' that spells out that the receipt of any government credits cannot be guranteed.

Imagine selling cars under the clunker program and finding out late in the program that funds have run out.....hmmmm

Erik,

Most of my colleagues "think" the tax credit will be extended. However, there's a big difference between the $8,000 tax credit and the former $7,500 tax credit that buyers had to pay back....prior to the expiration of the $7,500 credit, there was lots and lots of talk about the new and improved $8,000 tax credit, and many buyers just waited for it to happen. I'm not hearing the similar rumor mill swirling around an extension of the current $8,000 credit. Not much talk about it all? What do you guys think?

I'm with Mike on this. It doesn't matter if we are right or wrong; disclosed or didn't disclose; pushed enough or didn't push enough. If someone wants to sue, they will sue and we will have to defend. There are plenty of hungry attorneys out there-- almost as many as hungry agents-- and they are circling.

Amy

This was a great wake up call. Thanks for bringing it to our attention.

I practice 'safe' real estate...always have a paper trail!

That said, I guess we will have to come up with a clause in our 'buyer broker agreement' that spells out that the receipt of any government credits cannot be guranteed. Anyone have some suggestions? 20 words or less!

Imagine selling cars under the clunker program and finding out late in the program that funds have run out.....hmmmm

We can only work with the facts. Fact is that at this time all we know is the 12/1/09 deadline. We have our experience to provide adequate guidance to clients in a process where many facets exist that we do not have control over. We know the IRS to be unwavering with deadlines but I have faith exceptions will be made where our best efforts failed in the process.

Erik - a nice post, but I think it's a little "salemanish" to espouse why - and in some part chastized - people haven't jumped on the credit yet. I am working with a number of buyers who are hoping for the credit, but they are only now in a position to buy a home. Most people couldn't just drop everything and start a home search and purchase process, even with the $8k there. Not to mention the education program behind it.

I don't think it's fair to compare last year's $7,500 IRS "loan" with this year's tax credit. Last year's deal was fine if you didn't mind paying it back, so that's why it didn't inspire the sales that the 2009 credit has.

So, people who heard about this in January/February probably didn't understand it. By March/April it was all over the news so they started thinking about it. Come May, they decided to look at their finances to see if it was even feasible to buy instead of rent (or move out of their parent's basement). Now we are in the summer and they are hot and heavy into looking. People STILL don't exactly understand how it works!

I've spent the last two month's of weekends showing houses to primarily first time buyers. I think they are one of the primary engines for the slight recovery we've seen in the last few months.

Just like the "clunkers" program, this is helping drive the economy's engine... It would be foolish to let it expire when it's just starting to really work!

In Florida we have a $50,000 homestead tax exemption but people have to close by January 1 in order to get it. Otherwise they have to wait the entire year. Savings is typically around $1000 per year in property taxes. I've had on more than one occasion a closing get delayed for a variety of reasons and the home buyer missed their exemption deadline. Never had a suit yet because of it. Granted an $8000 check is a whole bunch more incentive.

Erik, you absolutely make several valid points of discussion and we need to continuously educate our clients about the real hurdles of the home purchase process. As a Certified Mortgage Planning Specialist in Northwest Indiana, just creating the urgency in regards to the deadline for the $8,000 tax credit is only second behind getting home buyers and Realtors to understand the new paradigm of loan process and loan underwriting.

Life is full of what ifs. The reality is that there are still many variables that can't be foreseen. For instance, did anyone see the collapse of Taylor, Bean & Whitaker in less than a 24 hour period from the HUD suspension press release. Just so you know, Taylor Bean was the 3rd largest originator of FHA insured mortgages in May.

All that we can do is control the things that we can control. We could always take the defense of Donald Trump...force majeure.

Erik - any chance you can make this post re-bloggable? VERY valid points.

All good points, and thanks for raising this timely subject. In our area around La Jolla and UCSD, my estimate is that what remains in the sub-$600K condo market must be around 90% short sales. That's it! Multiple bids. Rising prices. I require my prospective buyers to come with their Letter of Pre-approval in-hand (we strongly suggest at least 2 or 3 apps), and since many hope to take advantage of the $8K F-T Tax Credit, I caution them that unless they make a decision soon, they will miss the opportunity. I also explain the risks last-minute buyers face re: locking and funding their mortgage. Even the many all-cash buyers we have shopping and investing in our area, our main problem is that they CANNOT BUY SHORT SALES because they simply don't stand a chance of closing in time. If there are any lawsuits by disappointed wannabe buyers, the subject of their suits should be the Federal government! After all, that's where this debacle originated. Hmm.

One of the things I enjoy most about Active Rain is that at least once a week,though someone else's post, that little "Ahhaahhhhh Light Bulb" goes off in my head. This post set the dimmer switch to high. In this bottom feeder market, a lot of the attorneys involved are waiting for any reason to garner a retainer. While I agree that anyone can be sued for anything, an addendum, and perhaps a Hold Harmless, would get a salivating attorney to look else where.

I would disagree with Mike,above. Working with sellers doesn't insulate you from being sued. Banks, they being the majority of sellers right now, are the biggest causes of delays. That same attorney will go for the deepest pockets involved. Those belong to the banks. And rest assured, the banks representation will be named right under them.

Thanks, Erik. Very thought-provoking conversation, as usual! On a related note, I wrote a new construction contract with 1st time buyers back in May, and we negotiated to add verbiage to the contract providing that if the home is not completed, and the builder is unable to close on or before November 30th, they will credit the buyers $8,000 toward the purchase price. I think I'll stop over there again today to see how things are progressing........

Erik,

Thanks for poking us in the ribs with a friendly reminder. Rob - please do not give Florida lawyers any ideas about who to sue next.. ;-^)

There are other factors that could delay the close. The 90 day flip rule could hinder a close. This will rear it's ugly head during the course of the escrow.

Getting sued for missing the deadline is one thing, what about all the short sales that have been done over the last year. When tax time rolls around we will find out if the banks will go after the sellers for deficiencies, are sellers going to be taxed on the shorts in some cases. If some agents didn't cover themselves with disclosures then there will be a slew of lawsuits. The short sales that were done early on in the year are going to be the most vunerable as allot of agents weren't educated on the pitfalls and didn't have disclosures in place.

Wow, this is a scary reality! I am working with a buyer now who found their home of choice and we submitted an offer that is $15K lower than the listing price, and it is a short sale situation that hasn't been approved yet. I have done everything I can to explain that waiting for the bank's answer (which could be no), is going to eat up precious time to find another house, write, get accepted, and settle before 12/1. The only saving grace (very small) is the short sale addendum that I added to the offer that states the buyer can walk if we haven't rec'd word after 45 days. I am very concerned that after that time 1. the buyer will still want to wait for this house he and his wife "love", or 2. he will find another short sale (our market is saturated with them). In a normal market we could get things closed in 2-3 weeks time! This buyer just doesn't seem to understand the time period and how crucial it is NO MATTER WHAT I SAY TO HIM! He thinks that he has plenty of time! Am I just being paranoid here? I think not.

Ryan -- Could you share what addendum and disclosures you use to help prevent litigation?

Erik - We have already included new disclosures in our buyer's agency agreement and an addendum to the standard sales contract addressing this specific issue.

Thanks for the post and all the comments, as always very helpful.

Dawn

Erik...

My thinking is along the lines of what others have already said. Anyone can sue. However, a Buyer would have to have a strong case when sitting in front of a jury. I think a paper trail and sign offs by the Buyer will be our best defense.

TLW...ROAR!

Valid points, may be make an addendum to the contract or additional provisions to the buyers agent contract the buyer understands that the deadline is Dec 01, and that to really truly accomplish what needs to be done they must be under contract by mid to late October.

Interesting post, Erik. I'll have to think about this one; plus, continue to hound my buyer's builder to complete his home by the deadline.

Cheers,

Robin

Yikes - I didn't realize this was featured. Thanks to everyone for their comments. I'll reply to each as soon as I get a chance.

Excellent post, Erik. I have a bunch of 1st time buyers hoping to get the credit, and I have been banging the drum loudly for months that they need to get going if they want that credit. "What if the funds run out?" or "What if the bank delays its response and we miss the deadline?"

Over the last few weeks my counsel has been that we will do our best to close in time, but there are no guarantees until we are closed. There are things beyond our control that may cause us to miss the deadline (the short sale black hole comes to mind). My question now is: "Are you still willing to buy this house if you DON'T get the tax credit?"

Maybe I should get THAT in writing!

Jennifer - I have the Allow Reblog button checked. Not sure why it isn't working.

Great stuff. I would be interested in seeing a copy of your letter you sent out. That seems like a very good idea.

Thanks!

Ken

Erik,

Wow, I have been representing several buyers and have not been able to get into escrow due to multiple offer situations. As the "end" draws near I will have to be very careful about what I say and do, as well as carefully scrutinize any new first time buyers I take on.

Carolynn

Erik - Just saw this was featured. Loved reading it last night and loved reading it again this morning. Thanks for the mention as well. I'm working on a bigger comment at the moment, but wanted to at least let you know, I've read it and re-read it and I agree (obviously).

We deal with late closings on a daily basis. When it comes to manufacured homes for some reason the last thing the homeowner, buyer and even RE agent think about is the necessary engineered certification, affidavit of affixture and/or foundation inspection and necessary upgrades i.e. retrofit, repair, etc. and it's aways our fault even though we're just the contractor.

Mike - Exciting would definitely be one word for it. I mentioned something to Bill along the lines of your final point. Even if I prevail in a courtroom, it is going to cost me time any money to do so. Not to mention, it is probably a little stressful. I want to avoid the issue entirely.

Tony - That would certainly reduce the risk. Most of my clients are buyers right now. I guess I'd have to think through whether I want to continue that way.

Spouses - I've discussed the additional CYA clause with a couple of others. At least there would be a record of the discussion at that point.

Melissa - If you'll remember, the $8000 credit actually started as a $15000 credit and was in the Senate bill for some time before being negotiated down. To my knowledge, there is no currently proposed extension. In fact, congress isn't even in session. When they return, health care will be the primary focus. IF an extension occurs, my guess is that it will occur late in the year. My question to buyers remains "Why risk it?"

With all of the new banking rules, it is very likely that deadlines will be missed. I think it is a good idea to educate buyers that they may not close in time.... and do they still want to purchase. Delays are not only caused by buyers ... lots of issues come up for sellers as well.. eg., lack of recorded payoffs on old mortgages or letters of credit.. it can go either way.

Erik: The 3 scenarios you mentioned could be possible. When we approach the deadline, one must advise their buyers that this is time sensitive and all the stars must line up. If the lender can't get the transaction closed on time, there is a possibility that you may not get the $8,000 Tax Credit. Time is of the Essence.

I guess I will just ditto everything here but its pretty scary to say the least.

The fact that here in New Jersey litigation/lawsuits are the second highest form of income has always bothered me and I'm afraid this would look like a main course to many people and attorneys of this state

I definitelyagree, a paper trail is essential.Creating a letter with many of the scenarios described here and saving it in the drafts section of your email account can also be sent out to your potential clients.Not as an attachment but make it look like you've typed it directly into the body of the email.Asking them if they understand will generate a reply email.Print it out and keep it for them to sign the first time you meet,(that's date number one).I would assume all agents here do some form of a buyer consult before stepping foot out the door with anyone, Right???????,that's a perfect time to have them sign and date it in person.(That's date number two) you've just double covered yourself. Their response email and signature acknowledges they've read and understood it twice. Now they cant say that the agent just slipped in one of many addendum's to be signed while writing up a contract without explaining it.

They wont exactly be able to say" Well, in all the excitement and confusion over purchasing our first home we got talked into just signing all this paperwork without really understanding it or having it explained to us properly"

Remember the excuses for the whole sub prime mess? They all said they were duped into it or they didn't really read all the paperwork. (Kind of like our congressmen and senators)

Fact is you will have a response e-mail acknowledging the letter that is dated, and then dated again when they sign it in person.

Just an idea,wondering what everyone thinks

I advise realtors to NOT write short contracts 2 weeks before the tax credit ends.

Amy - That was my line of thinking after reading Matt's comments on my previous post. This one is to make sure we (as RE pros) are thinking about the possibility and being proactive.

Teri - Glad I could give you something to think about.

Lisa - You are right. We have to inform buyers that they need to be under contract in time to meet the deadline. Whether that is 30,45, or 60 days before Dec 1 will depend on your area.

John - Thanks for your comments. I too have spent as many weekends as I can remember working with FTHBs who are looking for a home. I have also spent several days working with a few buyers who want to take advantage of the credit, but are in no hurry. They expect the credit to be extended and aren't motivated. One even went and bought a car using his downpayment money. These are the people to whom I ask the above questions. I care deeply about trying to help my clients improve their lives and I really believe that buying a home and taking advantage of this credit will help accomplish that. To me, there is nothing "salesmanish" about making them think about why this goal is not forefront in their minds as well.

Rob - Well, that's good news. Hopefully, FTHBs will be as understanding. After all, with current rates, most of them will save far more than $8000 just in interest.

James - Good points. There are a multitude of things beyond our control. Making sure the buyers understand this is going to be even more important now. I just had a closing delayed 2 weeks because the UW kept coming back with conditions and would take 72 hours to review the submitted docs. My buyer kept saying "It's just one form. Why does it take 3 days?" I tired everything I could think of, but he couldn't or wouldn't believe that there wasn't something more I should be doing.

Tim - Your comments and Johns (#16) bring up some interesting thoughts. Many buyers are months behind in their understanding of market conditions. Some are still just finding out about the credit and how it works. Others still think every area is a buyer's market. Clearly, buyer's in your area need to be prepared to enter a fray. Breaking down their misconceptions and educating buyers to the current state of the market is possbily more important now than it has been in a long time.

Pat - I don't sell REO properties, but your comments should be a warning to those who do. Several agents (not all) around here have a laissez-faire attitude towards getting docs to / from banks. I wonder if they'll perk up a little as the deadline draws nearer.

I agree, we have to have our ducks in line and have our paper trails in place. Law suits will occur and while we might win them all, more than likely your E & O carrier will settle for the $8000 or a bit above and the broker/agent will have to pay the deductible. In the meantime you've expended energy and time to defend you and after its all over your E & O carrier will use the costs to defend you in their criteria for re-rating you when your policy comes up for renewal.

Erik, last we heard there was a bill introduced into Congress to make the credit $15,000, extend the term an additional year, make it available to ALL home buyers, not just first timers, and remove the income stipulations. It's Bill S. 1230, and I've read about it here. As far as I know it's still being considered, but it's far from certain that it will be passed.

Solution: Insert special stips language in your buyer's agency stating that in the event the buyer is no longer eligible for the 8K tax credit that the agent will not be responsible for it. Or something to that effect. I would suggest you consult with an attorney regarding how best to draft the special stips language.

Eric this is a great post!

This is a very interesting conversation. I work with allot of buyers, most of which want to take advantage of the $8,000 credit. They are very smart people who understand the market conditions. When we consider the federal moratoriums on foreclosures and at least here in California our state imposed moratoriums its causes me to wonder the obvious. Did the government deliberately slow the process to save the owner who is losing their home? or was there another agenda here? How many homeowners are being helped with the bank bailout funds? How many buyers will be stopped from closing escrow on a home thus taking advantage of the $8,000 credit within the impending deadline. Counties are losing home tax revenue from values crashing down, the government apparent fix was to trickle the foreclosed homes on the market creating a false sellers market in the hopes of stabilizing values and the tax base. In doing so this minimizes the tax credit paid to buyers while setting a temporary floor for taxes. Will this ploy create lawsuits from buyers who missed the deadline. Perhaps, but; these are the same type of people who will spill water on a grocery store floor then pretend to slip and injure themselves. Ambulance chasing lawers are always out there looking for the accident that never happened. Yes great conversations with buyers will help along with a solid disclosure within a buyers broker agreement.

I often thought about what you all have been saying. What if.... It seems pretty soon we won't be able to say anything! Thanks for the great info!!!

Great post. Personally I don't think the credit will be extended - it's been available for long enough that anyone who truly wants to take advantage of it has had time to choose a home and begin the process. But I do think there will be a "last minute" rush to close by the deadline, which will cause a multitude of problems starting with paperwork backlogs...

I wrote a post a while back discussing the fact that agents now need to start thinking about protecting themselves from last minute problems with this. I expect a lot of law suits and angry people out there.

Bgpic11142008103101_l Featured in M.A.N.C.R.O.W. CONGRATS!

Linda - Good strategy. I was having builders sign a contract saying they would be done no later than October 15th or the buyers could walk. I hope yours is coming along well.

TFSLO - LMAO at your comment to Rob.

Scott - Several excellent points. I hope everyone reads your comments (#24). There are several investors flipping homes in my area. Heck, I've done 4-5 this year. Buyer's agents definitely need to verify length of ownership. You point about shorts and taxes is also valid. Unfortunately, what is done is done there.

Dawn - This sounds like a disaster waiting to happen. Perhaps they will find the home of their dreams and the $8000 will be inconsequential because of the short sale. However, time is definitely not on your side if that is not the case.

TLW - I hate that it comes to this, but I agree with the signed disclosure approach.

Tatyana - In my area it would be early to mid-October, but I agree with the philosophy.

Robin - You may need to start swinging a hammer.

Barbara - I think your message is correct. Getting it in writing is the next logical step.

Ken - The letter is here

Carolynn - A heightened level of awareness and due diligence is definitely in order.

In Illinois, not only would the licensee have the challanges mentioned, but it would extend to the broker (brokerage firm). These are all valid concerns and the broker should perhaps consult legal counsel in regards to disclosures and established and written company policy.

These are great points you raise and the professional broker should do his due diligence to insure that his client is properly represented and that he himself has reduced his risk of liability.

Mike Fair

Although your points are valid and this post is necessary, I find it odd that any one would consider suing over this. If we strongly encourage people to buy so they don't miss this opportunity, it may be considered putting extreme pressure/duress on them. At what point will my fellow Americans stop blaming every one but themselves for pouring hot coffee on their laps!? Grrr!!!!!!!!!

As a realtor and a pre-paid legal representative, I sleep well knowing that for $35.95 per month I am protected from lawsuits. We have over 44,000 attorneys in our network, the largest powerhouse of attorneys in the world. 37yr old NYSE traded company. www.prepaidlegal.com/hub/stevesiegwalt. This is not a shameless plug just a tool I use to enjoy the Real Estate business with integrity.

Had some buyers ask me last night while at showings, "Do you think the tax credit will get higher?" My response, "It could, It could also be lowered, It could get extended, It could get taken away" I then asked them, "It's a gamble no matter what you do, are you ready to buy now?" Their answer was yes.

Great post!!! I referenced it in my most recent post!

LOVE IT!!!

Erik,

We don't have that particular problem in Canada, but your point is well-taken.

Actually, there are relatively few lawsuits against real estate agents. There should be more, but people who suffer losses often don't really appreciate the extent of the loss, they just "move-on".

I expect that things will change.

Brian

Matt - I read your note last night and look forward to your post. I too appreciate the round-robin discussion format that can occur here. Lots of good thoughts above. Hope you have time to read through them.

John and Janis - You just went beyond my area of expertise. I can see where manufactured homes would be in their own class though regarding timelines.

Joan - Deadlines will be missed indeed. I may have said this before, but there are dozens if not hundreds of ways to delay a closing by a day or two. No one person can avoid them all. It takes a group effort and even then.... My own closing was delayed because the seller's bank demanded 7 days to review the payoff request and took every one of them.

Roland - I'm concerned that telling them won't be enough. With $8000 on the line, some buyer's are going to have very selective memories when it comes to recalling conversations.

Jim - First, that is an interesting (depressing) stat regarding NJ. Second, I like your idea. Having 2 unique recordings would certainly help in your defense. You make very good points about potential arguments the buyer could put forward. Rightly or wrongly, I can easily see a jury nodding their heads and agreeing with that the buyer got snowballed.

Tom - I'm not even going to write one 4 weeks before the deadline unless I have at least 1 if not 2 signed docs saying the buyers understand they won't get the credit.

Gary - You are right. I've mentioned this to a couple of others, but getting sued regardless of the outcome is time-consuming and costly. Heaven forbid, you actually caused some delay.

Pat - This was initially proposed at the beginning of this year. It was included in the Senate version of the American Recovery bill, but was among the first things axed when negotiations between the House and Senate started. With economic indicators trending up (slightly) and healthcare the primary focus of Washington, I'm not sure that increasing the housing credit is a high-enough priority for this to gain traction. I wouldn't be surprised to see the current deadline extended though. It will be interesting to watch. Thanks for the link.

Rob - I agree. Having an attorney review the clause would certainly be helpful.

Erik,

We don't have that particular problem in Canada, but your point is well-taken.

Actually, there are relatively few lawsuits against real estate agents. There should be more, but people who suffer losses often don't really appreciate the extent of the loss, they just "move-on".

I expect that things will change.

Brian

Erik,

Great post, with all the new mortgage rules (HVCC, TILA, HOEPA and REG Z) on top of the FHFA, time to close will continue to increase. I am telling my buyers that if we are not under contract by Oct 15th there is a chance they will lose out on the $8000. After reading your post and replies, I believe telling them may not be enough and will draft a disclosure to have my buyers sign. Just to CYA.

Happy Selling!

Peter

Great post... we should all be thinking ahead to possibly negative scenarios. My first thought was "I'm glad my E&O is paid up." My second thought: "Will E&O even cover such scenarios"?

Thanks Erik; informative as usual. I think Peter is also on the right track. A disclosure sentence is a CYA and it should include a consult with your loan originator and tax advisor. Agents are NOT the experts in financing.

I am telling my buyers that if we are not under contract by Oct 15th there is a chance they will lose out on the $8000. After reading your post and replies, I believe telling them may not be enough and will draft a disclosure to have my buyers sign. Just to CYA.

Excellent idea! Once again - you are ahead of the curve Erik.

Clearly the safe approach on the buyer side is to refuse to assist all first-time buyers between October 1 and November 31. After all, agents need vacations too! It's a little harder on the listing side as a delay in escrow could also result in a buyer lawsuit. Food for thought indeed.

Good point and the entire situation calls for another disclosure and release. Nothing like keeping it simple.

I have found that I am having a terrible problem in getting offers accepted here in So. California. The most difficult price range is, unfortunately, the range that most people who are first time buyers are interested in. We will have a property go on the market for $250K, and by late afternoon, there are cash offers up to $350K. It's like a feeding frenzy. Some of my clients have had 10-15 offers before I finally can get an offer accepted. I work with great lenders and great clients -- but if it's up to another agent to accept or decline an offer through their seller, there's not much I can do. I like the idea of a disclosure, and will be implementing that myself. ARGH! I feel so bad for my first-time buyers and know how discouraging this can be. Hope info about an extension of the rebate comes out soon.

I've been telling my Buyers that they need to be under contract by mid-September to be on the safe side. And I read today on AR that FHA credit score require changes 8/15/09 to a required 640. So, I'm passing along THAT info today to any Buyers not yet qualified through a Lender.

Congrats on your feature!

You brought up a very good point and an issue I have thought of recently, too. We must keep our buyers informed as much as possible and disclose this very important fact that the expiration means that you must close on a property by the date, not just be under contract, and that a number of factors can cause a delay in the close that they need to be aware of. That may not avoid lawsuits, but we must protect ourselves the best we can.

ERIK! I almost missed that I was tagged here. Wow, and back at cha - flattery for dropping my name in a post will get YOU referrals too! Seriously, feel free to SOMEHOW bring me up in each of your posts for 7 days and I'll give you 1000 points per post. Oh wait, I'm not Bob Stewart. Can't give you points. A nice cyber HiGH 5 will just have to do!

I think a letter to our Senators and Congressmen maybe in good order explaining the situation in detail. Then with a stroke of luck we can divert the law suites.

Congrats on being featured in the newsletter and on MANCROW. You bring up some good points and I'll for you to share what you find out as we get closer to the deadline. I think many assume it will be extended and perhaps thats why the question was not mentioned before. Who knows.

Erik - What a great post (I also read your open letter post and loved that one as well!). I completely agree with you, it will be very interesting as we get closer to December 1...

Terry - You raise a lot of interesting questions. While we will never know the actual answers, the perceived answers will really depend on how cynical one is. Of course, when it comes to gov't intervention it is hard to be too cynical.

Cathy - I am not going to take a month long vacation, but I'll certainly mind my p's and q's a little closer over the next couple of months.

Penny - The fact that this was tied to a closing date rather than a contract date is really going to cause an issue. As I read through the comments here and on my previous post, I'm starting to wonder whether 45 days is enough.

JL - I missed your post, but I'll try to find it. You always have interesting insights.

JL - THANKS. My first MANCROW feature! This more than compensates for the gold star which seems to be missing.

Michael - I hope, regardless of state, that broker's have a plan to at least alert if not alert and protect their agents. I'll be interested to see wheter NAR or our local MLS's put out any advisory messages in the next month or two.

Natalie - I feel your frustration. I sense you, like me, are a generally trusting person who would never consider suing for missing a deadline such as this. However, we both know there is a percentage of people who will either view this as an entitlement. If they are denied, they will demand for someone else to pick-up the tab.

Steve - It is a shameless plug, but potentially relevant so I'll leave it.

Doug - IMHO, your retort was perfect. On a side note, I think it's time to break out the Magic 8-ball again. Whenever a client asks me this question, I'll just hand it over. Think they'll get the point?

Michael - While I haven't commented yet, I read your post. Thanks for the mention and I'll get back to it if I can ever get through the comments here.

Brian - Consider yourself blessed.

Peter R.- I think you are right. I particularly liked Jims (#15) opinion of getting it signed twice. Also, one or more commentors suggested having it drawn up by an attorney. More good advice.

Peter B. - Two good thoughts. However, my goal is avoid having to worry about it. One idea I haven't seen mentioned is conducting extra due diligence during initial buyer's meetings. If I don't have a good feel for the person, I am going to be less likely to find a reason to work with him / her.

Linda - Your comment inspired another thought. What if you recommended the lender who couldn't close?

Teresa - I think the curve is actually a circle. Being ahead/behind is a matter of perspective.

Richard - I'm not quite willing to go to that extreme, but it is certainly a thought.

Gene - It's all about being proactive.

Bonnie - CA is soooo different from KY. $250+ here is a second if not 3rd home. Our feeding frenzy price point is around $125.

Lori - I didn't know about the 640 credit score. Thanks for that tidbit. Also, depite headlining the newsletter this post wasn't featured by AR. I'd be bitter except I was featured by MANCROW. Woohoo!

Lisa - Some of our brethern, perhaps even some on AR, will get caught in the trap. There is only so much we can do short of walking away for 2 months.

Kim - I was wondering whether your google alerts would tip you off. BTW, that almost sounds like a challenge.

Joel - Start writing my friend. Start writing.

John - Thanks for the comments. I'll try to fill you in on the good, bad, and ugly as the eve draws nie. (Well, hopefully not the ugly).

Jeanna - Thank you. We all want to live in interesting times, but there is a limit on how interesting I need my life to be. Good luck out there.

I have been been sending out e-mails to all of my past clients. I've also made some appointments for next week to explain that time is running out. I have heard the same as other Realtor's that the incentive might be extended. I've been telling my clients it's possible, but there is no guarantee. We should proceed with what we know. The incentive ends November 30th, 2009.

Gwen - This is a running theme. No one knows that the credit will be extended. Operating in a manner that assumes it will is risky.

Erik - Amen to that! Interesting is great...but only when it is a "positive interesting"!! ;)

Good post and a lot of food for thought. Alot of folks expect the tax credit to be extended. That would be great but I certainly wouldn't tell any of my clients to count on that. One thing- it actually expires on Nov 30, not Dec 1. Like others have noted, I certainly won't be writing last minutes offers assuring my clients of ANYTHING!

Jeanna - Exactly!

Jenny - Good clarification. You have to be in the house prior to Dec 1 which means you have to close on Nov 30 or sooner. It's not as clear as I probably should have been on my last post, but if I edit it, the whole thing blows up.

Erik -- If the buyer does all they can, in good faith under the terms and conditions of their contract, and we (their agent) do everything, and the lender can't get loan docs out, or forgets to order the appraisal, or gets bogged down with the onslaught of late shoppers, etc. how can it be the agents' fault?

You (always) pose very good questions.

NOTE TO SELF: No new clients from Oct. 15 - Dec. 1

Carla - I'm not saying it would be your fault. But, the buyer is going to be upset and you are the closest target.

AUG

Sorry Erik, I think your being paranoid. Attorneys circling the wagons? Where? As some have mentioned you can be sued for anything, another reason for a good paper trail and due diligence on your buyers behalf. I think you're 'overthinking' the whole result. Can a buyer sue if he is stupid enough to miss his loan lock and be forced into a higher rate because he didn't move quickly enough? Same thing.

Lyn - No need to apologize for dissenting. I appreciate all views as long as the conversation is civil. More importantly, I hope yours is correct. I do think that the multitude of issues that can arise offer more opportunities (exposure) to create problems for the agent. We will each need to be on top of every detail and it's no secret that some among us are less on top of things than others.

Erik - I am hoping that this tax credit does not become an issue with buyers and their closing dates. There are so many things beyond the buyer agents control, I would think it would be very difficult for a lawsuit to incur. We as realtors typically don't have too much control over when a loan closes. We can only submit a purchase offer with a closing date, hopefully directed by the buyer. A lot of the responsibility of when the loan closes is up to the buyer more than the agent. They need to have pre-approval, submit all documents on time, and be available for signing docs when they are ready. There are so many variables that I could never come up with all of them. I think all we can say to our buyers is that there is no guarantee of receiving the tax credit any time we are working on a purchase offer, from now until the deadline.

As Realtors, we should all inform our buyers of the following when we first begin showing homes, or, at the very latest, when we begin to write offers:

1. We don't know if they're definitely eligible for the FTHB tax credit. We can tell them that we think they are eligible based on their circusmtances as the buyer has related them to us, but we are not accountants or attorneys. We should advise them to make a call to their accountant to confirm their eligibility.

2. We can't control when the Seller will look at the offer, accept the offer, or want to close on the contract. We can try to exert influence over the Seller, but ultimately we can't make the Seller do anything in a timely way.

3. We can't guarantee that their purchase will close by December 1. Once it goes into escrow, the deal is largely out of our hands and in the hands of other parties (title companies, inspectors, appraisers, and lenders, to name just a few). We can estimate the closing date, but we can't guarantee it, and we should tell the buyers that they should be prepared for the possibility of missing it.

4. We have no idea whether Congress will extend the FTHB credit.

There is absolutely no reason to be nervous about this if we provide the proper advice. And my last piece of advice is to all of the agents reading this blog and the comments: Provide your buyers with a written statement of the above admonitions, and have your buyers sign off on it at the time that they start submitting offers. That way, you've got written proof that you notified the buyers that there's a possiblity that their purchase won't close in time for them to receive the benefit of the FTHB credit.

AUG

Erik you are so right this is a subject that we need to pay attention to, even if as agent we are not at fault some buyers will try to pin the blame on us. It is estremely important to educate these buyers and take steps to protect ourselves.

Whew, I didn't read through all of the comments but I do believe a solid paper trail is important. In Florida, just about every home listed is a short sale so it is impossible at this point to promise a buyer will close in time to get the tax credit......unless it's extended.

AUG

When I first read, I though, OMG how true.... then I thought, how nuts. If what you are saying is true then anytime a transaction missess it's initial intended closing date, we are open to litigation. Think for a moment, buyer needs to extend the rental on their apartment, or worst yet, is stuck getting a hotel room... same could be true for a seller expecting to close, who has moved out, relocating and needs funds on their previous property to close on a new home clear across the country. It's ludicrous.

Think of it for a moment, who here has written a contract that in any way shape or form 1) indicated to the other party that they were a 1st time buyer, 2) was going to get a big fat $8,000 credit next year & 3) was not willing to pay another dime for the property because of it? Quite frankly if I were representing the buyer would I not be breaching my fiduciary responsibilities with regards to keeping their Free gift from Uncle Sam private.... you bet. Because the seller might see this as an opportunity so work the buyer for a few more $$$$.

Additionally, at least in my office, I have yet to see any Purchase and Sale signed by a Real Estate agent. The contract is not between us, it is between the buyer and seller. And none has yet had any disclosure with regards to the $8,000 credit and what would happen if the two parties were unable to close before the deadline.

Perhaps this is the closing or suggestion; a very generic paragraph needs to be added that indicates weather or not the buyer is or plans to apply for the credit, that the buyer waives their right to persue damages if closing does not occur prior to the expiration of the program. And lastly, unless you want to be party to the transaction, never sign a p&s.

AUG

Its shortsighted to think that there isn't a good chance to be sued. If we miss the deadline the attorneys will only have to file a suit against us for say $30,000 ($8,000 plus potential punitive damages due to our alleged negligence, plus attorneys fees). Our E and O carriers won't want to fight it and will offer to eventually settle for about $15,000.

In my office, if an agent is sued and looses or has to settle they are required to pay the deductible ($2500).

If there are no other consequences the agent is out $2,500 and both they and myself the broker are out of our time to defend ourselves.

I've put together an additional disclosure to be signed by buyers irrespective of whether we represent them as buyers or sellers. I have an obligation to protect my agents and company, even if the chances of needing to are remote or unneeded, as some other previous postings state. When we've represented sellers the cooperating agents and brokers have not once argued with having their buyers sign this in the last three weeks we've been using it.

AUG

Erik,

Good post, has alot of ppl thinking. Remember anyone can sue for anything... One question, where did you get that clock on your orginal post ??

AUG

I think that you are right Erik. I am going to make sure that my Clients are fully informed of this impending deadline.

OCT

Has anyone considered that there are NO enforceable regulations about the time a BANK may take to input, process and approve a short sale? Where does that leave us when we have a client who put in an offer months and months and months ago, and the short sale STILL has not been approved?

Leave a response…

Name:

Email:
(optional)

Comment:

What does the graphic say?