This post has the potential to be inflammatory so let me begin by saying, "I'm just the messenger."
In Georgia there are two attorneys who are considered to be and are, in fact, held out to be the real estate contract experts. By experts I mean they wrote the book on Georgia real estate contract law. "The Red Book on Real Estate Contracts in Georgia" published by the Georgia Association of Realtors was authored by firm partners Ned Blumenthal and Seth Weissman of Weissman, Nowack, Curry & Wilco, P.C.
Mr. Blumenthal recently wrote an opinion letter ("The Letter") about how the new effects of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 wherein it relates to negotiating mortgage terms. When I say this has already been discussed among Mortgage Loan Originators (MLOs by license) the topic of real estate agents discussing loan terms with clients did arise. Instead of jumping on the knee-jerk bandwagon I opted for the "time will tell" approach.
The Letter seems to hold more with a recommendation, ne admonition, for agents who do not hold a National Mortgage Licensing Registry MLO license to avoid talking about loan terms with clients under what could possibly be the jurisdiction of NMLS and the S.A.F.E. Act.
The Act, in fact and according to Mr. Blumenthal's Letter plainly states, "it shall be prohibited for any person to engage in the activities of a mortgage loan originator without first obtaining and maintaining a mortgage loan origination license."
The Letter continues in Mr. Blumenthal's own words to state/ask, "Normally, real estate brokers and agents do not get involved in negotiating with the terms of loans for their clients and should not run afoul of the Act. However, what about in short-sale situations? If an agent contacts the seller's lender trying to negotiate terms for a short-sale, does this violate the Act?"
Without copying verbatim The Letter, which is three pages printed, we should skip to the punch line. Remember, Mr. Blumenthal and Mr. Weissman are the preeminent real estate law attorneys in the state. This is not hearsay from some bar room talk with a couple of loan officers and a closing attorney. "We do not have any definitive case law on this yet", writes Mr. Blumenthal, "but the answer certainly appears to be 'yes'".
Possible resolutions:
Get your NMLS license and find a lender/broker to sponsor you.
Team up with an NMLS licensed MLO and let them handle the negotiations for you.
Your thoughts and ideas?
Ken Cook - Web coder (I write the programs that make the whole world zing!) (678) 439-8683 Anything your mind can conceive I can create - online that is!
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Ken- Well, I'll be darned if I EVER let anyone negotiate our short sales for us!!!!! I can not even tell you how many people profess to know how to negotiate short sales and yet have no clue. I just took a referral listing from an agent who is helping the same seller on a short sale he is doing in another county- when we met with the seller- we assumed this agent- who we respect- had done her short sale intake- nada! The sellers had not even given her any short sale paperwork yet she listed their home for sale as a short sale. I can go on about how many processors we have fired over the years who claim to be short sale processors yet all they really are - are telephone callers.
Here in Florida the statute specifically states that real estate agents can negotiate short sales. I guess, with the rest of it all, one of these days we shall see how far state law is allowed to go and how much the feds can push the states down. Katerina
Same thing in MD. Agents who negotiate notes for modification need a license. They need one to negotiate notes for short sale sellers too.
Agents can negotiate short sale contracts for seller clients but not new NOTES. When the bank wants the seller to agree to repay an amount of money by signing a new note, that negotiating should be between the seller and the bank. The agent can advise about real estate but not personal financing which is what the after settlement NOTE would be.
There is a reason I stay away from things I'm not qualified to do... There are times it is painful, but I know that I have to trust good people to do their jobs...
What about consulting? Feed the borrower the script. Or give them a checklist. Or be on conference call with them while the consumer does the talking. Just be the agent who listed it and you get the commission, per the listing agreement. If they don't want to pay the brokerage commission, then they cut their nose to spite their face. I know a lot of lenders with no nose. But, hey, there are ways around. Hope it's not in Texas anytime soon!
Well, I know that in the state of California, you are required by the California Business and Professions Code to be licensed in order to negotiate. Not everyone who has a license is competent and not everyone who is competent has a license. Go figure!
When that letter came out we almost flipped out. Then we realized what we call "negotiation," everyone else calls passing information.
Luckily we don't negotiate anything. =p
Looks like the short sale flippers will have a new script to use on us.
I honestly don't think the letter amounts to anything other than a cry for more lawyering. I was surprised there was an flat out motion for attorney to do negotiations.
Does this mean ATTORNEYS need a mortgage license to work on loan mods and short sales... to me that's a bigger question since they are getting fees for it, unlike agents who earn a commission for procurring a buyer.
I was asked by another agent recently if I knew of an an addendum that would allow his seller to accept an offer in a short sale as long as he wouldn't have a deficiency judgment. I can't imagine that a brokerage or a Board would ever produce a legal document that gave a seller the idea that he could over turn a binding contract, which is what a mortgage is. Perhaps an attorney can negotiate a "free and clear" settlement, but at least in Illinois I don't think a Realtor can do so.
Not sure if Georgia law has any effect here in Florida since each licenses its own professionals. That said, I have never had to deal with a short sale on either end and hope to keep it that way.
This is a great post. There really is alot of Gray area. The way I handle it is (as advised by my attorney). I have an attorney handle the closing for the seller. When the approval letter comes in and questions arise regarding approval letter language, cash contributions, or new notes, I have my client call the attorney for "legal advice". After All, I am not an attorney.
We are allowed to sell real estate and provide information but we are not attorneys. And I am probably over cautious but my clients are very happy to get sound legal advice.
If Ned Blumenthal and Seth Weissman speak, I suggest Georgia Real Estate Brokers and Agents listen.....this firm design contracts for the GAR. Their firm is responsible for the publication of the Red Book (Georgia Real Estate Law).
When I opened my firm, I had my brother (whose law firm specializes in other types of law) find a firm to retain that would be the best real estate counsel in Georgia. After researching, he recommended Ned and Seth. I can't say enough about the quality of their work and the amount of knowledge available through their firm.
my first reaction is to say negotiating a short sale is not originating a mortgage, rather its ending one. if we are talking about renegotiating the terms of a mortgage, thats different. Although its not "originating" a mortgage (the mortgage has already been originated) I can see that one could look at it as originating a new mortgage....In any case the solution is easy (at least in Florida). For a few dollars and a weekend in class, get the license.
Interesting topic as I am in the middle of the process mess with a client. In my part of the world title steps up and with their retained lawyers facilitate the process.
To #8 - The whole purpose of doing a short sale is to eliminate the deficiency judgement against the seller and on top of that there is the 2007 Mortgage Foregiveness Act. Please check your facts before stating something regarding your area especially when it comes to short sale.
I find it interesting that we would allow those that got homeowners into exotic loans the ability to negotiate the short sales so they can make money off that transaction also. Each profession - attorneys and mortgage brokers wants a piece of the pie - sometimes they profess to protect the seller but at times it appears that they just want to make the most money off the seller. A lot of lawyers recommend bankruptcy as the way to fix everything when in reality by doing the short sale they can resume paying their other bills and resolve those issues.
As a realtor we are presenting the lender an offer to purchase for less than what the seller owns. The bank either accepts the offer or counters the offer and the buyer accepts or counters. The realtor is not countering or accepting - just presenting. The seller asks that the they accept payment in full and not go after a deficiency from them after the sale from the 1st and also the 2nd. That becomes part of the offer. All parties either accept or counter.
We are the messengers in this scenario. We are not asking that the loan be renegotiated - that the terms or interest rate be changed - just that the lender accept a "short" payoff.
But perhaps this is just my perspective. Since I did loan origination and I understand that process and have a different view on the that aspect of real estate.
Ken, then who is going to negotiate these? We are negoiating to sell the house - it still has to do with the transfer of property, it is not really modifying a loan. It's all about how much someone will take to sell the house.
In Texas, a licensed real estate professional or a loan originator may negotiate a short sale. I confirmed this with both the real estate commission and the agency overseeing mortgage originators. Either way, I'm safe as I am both a real estate broker and a loan originator.
Perhaps the term "negotiate" needs to be more clearly defined. Our MLS has short sale forms, defined and created by attorneys, that are attached to purchase contracts. I clearly advise, in writing, that any short sale seller consult with an attorney, tax, or any other professional they choose. I don't "negotiate" anything. Apart from listing and marketing their home, I merely obtain permission from a seller to present their lender with an offer to purchase, assist them in assembling their documents, and continually follow up with their lender to be sure that their offer is considered. Then I pass all / any of the lenders documents back to the seller. ... and coordinate close of a sale if it's possible.
Is that "negotiation?" ... I'm not negotiating the terms of a mortgage; I negotiate the terms of a sale between a buyer and a seller, then merely facilitate the presentation of those terms to a third party.
Furthermore, I presume that with all the research and attention NAR and local Realtor organizations have paid to establishing short sale certifications and classes, that this has been carefully studied.
Were this to be true, short sales would be more expensive...more actors to pay.
That would make short sales more scarce.
Attorneys are a wonderful bunch of folks...mostly. But you always have to know their bias. Apparently, in my state we have lawyers that advise the real estate associations on sales agreements and othe form language but who also advise banks.
So everybody can end up with an axe to grind: more bodies, more axes...more grinding.
Thanks for sharing this information. Unintended consequences indeed. Subtle language can be interpreted many different ways. In fact, On a separate note, I'm still trying to figure out how the new SAFE Mortgage Licensing Act is going to affect seller-financing and whether I need to become a mortgage broker. Perhaps if I get licensed for that I'd at least be covered for short sale negotiations should a similar subtle law reveal itself in Texas.
Here is my thought/idea: Ignore it! Nothing is going to come of this, and I am confident that the courts will be in our favor. If you're worried, hire somebody who isn't an agent to do short sales for you, or outsource it.
Glad I'm in Oregon. The loan has already been made, and no one is quoting terms, rates, etc. It's about selling SHORT 'cause the real estate market had tanked.
You have been one of the better advocates on AR about the new S.A.F.E. Act. rules and laws. Many real estate agents have turned a blind eye or have been unaware of the new laws that can and will affect them. In AZ we have some additional state laws that loan originators must adhere to that might not even protect a real estate agent if they talk to a client about a mortgage.
Thanks for bringing these things to the forefront again. Time will tell with the courts how these things will pan out, but taking a cautious approach at this time is probably best. Thanks for getting the message out.
Hey Ken, That was an eye opening letter. I did a post on it last month and quoted some of the key parts.
All the states are supposed to implement uniform standards based on the Federal SAFE Act. In the act they define the key terms of mortgage originator and others. It was my understanding that all states had to conform to these standards. So I think it is wishful thinking by some to think that their state is different and they won't have to follow these standards.
Even lawyers use assistants to negotiate. There is no way they stay on hold all day long :) I do not negotiate my short sales, I use lawyers for the process!
I don't believe the real estate agent is doing any negotiation on a loan origination, or a loan mod, when s/he works on a short sale. They are simply asking the lender to accept less money for the property than the loan balance.
Thanks for the post, Ken. I am a licensed loan officer and keep myself licensed (will be taking the MLO exam soon) for this very reason. We negotiate short sales every day for agents and believe it is in ours and their best interest to maintain that license.
In California, you need a real estate license to negotiate a short sale. But there is also a fine line between negotiating and giving a client legal advice. As real estate agents / brokers, we can never give a client legal advice.
There are also a lot companies popping up on the horizon that purport to offer short sale negotiation, and it seems pretty straight forward as to whether these companies are operating within the scope of the law if they are not licensed, and many are not. In California, you need a license, people.
Great post & something that we have been discussing inside our firm for many weeks. I have exchanged several emails with Mr. Blumenthal and I can confirm the information in your post.
Regarding comments about different states, the S.A.F.E. Act is a federal act which Georgia lawmakers have sought to expand on through more specific legislation. But, that does not mean the the ACT has no weight in other states.
Also, I think a large area of liability is being overlooked by realtors in thinking that federal & state law is the only thing that could come around to bite them in the backside. If and when "short sellers" get hit with deficiency judgments or other bad news down the road, they are very likely to drag their realtor into court, because maybe they were told that it wouldn't happen.
In an effort to adopt and move with the market, many realtors have stepped FAR OUTSIDE their realm of expertise and have likely crossed many, many lines in working with short sales & banks on behalf of clients.
My guess is that this is a new angle for attorneys to open up a new niche market to generate revenue for themselves. Negotiating a short sale is not negotiating terms. They need to stick with the practice of law and let real estate agents stick with what they do best, real estate negotiations.
Short sale negotiations here handed to the busiest attorney practice in IL handling short sales. They do it all day long know all the contacts and have the connections. I hand all contracts over to them once buyer-seller have agreed.
This is interesting to think about. I'm not sure the answer, but perhaps will consider getting the license as I'm a broker and can do that in California.
It always gets worse before it gets better....is what your post pulled out of me. Solutions to problems more often than not are pushed aside in the pursuit of a chance to make a buck. This problem needs to be fixed, not capitalized on. We keep forgetting that Real Estate is part of a three legged stool. If that stool goes, we will have no place to sit down. Thank you
The SAFE act is one issue although I think the Georgia lawyers have taken it to the extreme. While the SAFE act applies to all states once they come on-board, some states will take it to new levels. TXSML has issued guidance that states only an MLO (licensed or working for an FDIC insured bank) may negotiate a loan modification. Short Sales are not modifications and may be worked by either an MLO or real estate licensee.
Liabiity is the bigger issue. We use two addenda to our standard listing agreement when it comes to Short Sale listings. One is a Hold Harmless Agreement, the other is an agreement to seek appropriate legal and tax advice before closing.
I do not negotiate loan modifications and thus negotiate NO MORTGAGE TERMS. I simply negotiate for a reduced payoff - I do not believe this is a violation.
NY operates with lawyers on both sides (rare exceptions) of all transactions. While I find it absurd and annoying with all other transactions, works for me with short sales.
Thanks for all of the great insight and input! For those who aren't aware the letter did not arise from GEORGIA law it arose from FEDERAL law. The letter itself was written by one of two preeminent real estate attorneys from Georgia.
As for the one comment #24 "are we going to let the same people who got us into all these bad loans negotiate out of them" (paraphrased). Seriously, you're blaming the people who were following guidelines established by Fannie, Freddie and the biggest banks in the world. I bet you didn't mind taking the paychecks when we were all "rocking and rolling". Name one loan officer, ever, who created lender guidelines and approved even one single loan. Did you ever tell a buyer you wouldn't sell to them - ever one time - after they were approved for whatever type loan they were using to purchase the home? (Please don't read that with an angry tone as it was written only in the spirit of check and balance. And from a long time, well experience loan officer who has been an executive director for a successful mortgage lender.)
I'll see if I can find a link to the letter but I don't know that it was published online. I got it from Seth.
"However, what about in short-sale situations? If an agent contacts the seller's lender trying to negotiate terms for a short-sale, does this violate the Act?" ...but the answer certainly appears to be 'yes'".
That's a tall leap. I can understand loan modifications requiring an MLO but a Short Sale is a real estate transaction.
I'll be at a meeting with the Texas Real Estate Commission in a couple of hours. I plan on meeting with the legal staff afterwards to discuss this issue. I'm both a broker and a bank MLO so I'm not worried about me but we have plenty of people working short sales who are not.
I met with the TREC Legal Staff today. They have had discussions with the legal staff at the Texas Savings and Mortgage Loans (SML) Division (they oversee MLOs in Texas). TREC is issuing a letter stating that it is not a violation of the SAFE Act for real estate licensees to work a short sale. It would be a potential violation for a real estate licensee to negotiate a loan modification. SML requires loan modification companies to be licensed MLOs.
As I suspected, both TREC and SML see the real estate licensee simply presenting an offer for the lien holder's consideration.
Tom - thanks for reporting back. I'm sure all the people in regulation and enforcement are working to make these determinations as well. The man who wrote the original letter is the attorney for the Georgia Association of Realtors and a litigating attorney as well so I am sure his eyes and ears are open.
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Mr. Blumenthal recently wrote an opinion letter ("The Letter") about how the new effects of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 wherein it relates to negotiating mortgage terms. When I say this has already been discussed among Mortgage Loan Originators (MLOs by license) the topic of real estate agents discussing loan terms with clients did arise. Instead of jumping on the knee-jerk bandwagon I opted for the "time will tell" approach.
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Ken,
This is vital if not good information.
It's a great example of the unintended consequences, of feel good legislation!
I'd love a copy of that letter. S.A.F.E. is federal law, it applies to all of us. Your state can not exempt you from federal law!
Bill