Arizona Pre Foreclosure Buyers & Agents-Demand A Copy Of The Preliminary HUD-1!

Arizona Pre Foreclosure Buyers & Agents-Demand A Copy Of The Preliminary HUD-1!

The great majority of my business in the past year has been that of an Arizona pre foreclosure listing agent.  As many of you know, Phoenix homes have taken a beating in the past two years, and short sales have become "the norm" for our market. That being said, today I learned a very valuable lesson when it comes to representing Phoenix short sale buyers.

We submitted an offer on August 6, 2010 for a Scottsdale short sale at full price, with no seller contributions ($445,000).  Because the home was getting some serious attention from other buyers and had only been on the market for 7 days, the Buyer demanded to come in strong from the outset. Great news! The listing agent called and his clients accepted our offer. He made sure to tell me that he has an experienced legal team review his short sales, he's listed/sold 20+ Phoenix short sales in the past month, yada, yada, yada.

So, fast forward to today. The listing agent calls and tells me that the 1st mortgage holder has approved the sale, but my client may have to come to the closing table with a "minimal amount of cash" to cover "some of the expenses" that the 1st mortgage refused to pay for. When I asked him what fees had been refused, he told me, "I'm not sure yet, but I'll know more once I get the approval on the 2nd (also Wells Fargo)". Interesting, I thought. "And what amount do you consider to be "minimal"?, I asked.  To which he says, "Maybe $5,000 or so".  Biting my tongue, I asked him to send me a copy of the lender approval letter, as well as the Preliminary HUD-1 that he sent to the lender back on August 6th.

First, he just sent me the approval letter.  On it, Wells Fargo had approved a net to them of $405,000. They approved the full 6% commission (of which I'm getting 2.5%, and he's getting 3.5%), as well as what I thought were very "normal" fees (i.e. title fees, tax proration, missed HOA fees, etc.). They were also demanding that the Seller come to closing with $2,500. I thought this was a little strange, as the loan was in 1st position, and received full protection from the Arizona Anti Deficiency Statute.  Needless to say, until I saw the Preliminary HUD-1, I couldn't determine where the shortfall/problem was.

I called again, asking for the Preliminary HUD-1. Finally, he sent it to me, and my jaw dropped. Lo-and-behold, there was the problem. He was asking Wells Fargo to cover a $5,000 fee to a law firm (whom I found out is also his broker), and a $4,450 "processing fee" to XXX Short Sale Processing, LLC. As you can imagine, I called and informed him that "this dog won't hunt". He basically "padded" the HUD-1 with $9,500 in lawyer/negotiating fees, and chose to keep it a secret until now.  Even more shocking, we was demanding that my buyer cover $5,000 of it. Nice huh?

Of course, he went on to tell me that if my client did not come up with the $$ at closing, they would simply take it to another buyer. I don't think so. The foreclosure date is scheduled for 3 weeks from today, and the loan is serviced by Wells Fargo and owned by Fannie (we all know Fannie's unwritten policy on extending foreclosure dates).

Before contacting him, I sent an email to the AZ Department of Real Estate, asking for their opinion on the matter. Within 20 minutes of sending the email, I received the following reply:

"In response to your inquiry, a licensee is required to:

-  Deal fairly to all parties to a transaction

-  Disclose in writing any information the licensee possesses that materially or adversely affects the consideration to be paid by any party to the transaction.

-  Disclose any financial interest they may have in the transaction other than a commission, this would include short sale negotiation or trash out fees if paid to the listing agent.

Based on your email, it is possible that the involved licensee(s) may be violating the Commissioner's Rules."

As a side note, I did not give the Department of Real Estate the agents name. I just wanted to confirm that we had a problem, and it's now obvious that we do.

When I asked this "experienced" crook/agent if he knew that this type of behavior was in direct conflict with the Commissioner's Rules, he told me, "I don't appreciate threats".

At this point, I'm hoping that because he has now been "enlightened", he will re-evaluate his position of not allowing my Buyer to purchase this home unless she gives into his demands. I've already spoken with her, and she's ready to do whatever it takes to get her pound of flesh, should he decide to continue down this path.

"Padding" the Preliminary HUD-1 is necessary when it comes to items that are "unknown" at the time of contract acceptance (i.e. Past HOA Dues, tax prorations, courier/messenger fees, etc.).  "Padding" the HUD to ensure a larger cut of the commission at the expense of your Arizona Pre Foreclosure Seller is egregious and unacceptable.

Lesson Learned....

Buyers & Buyers Agents- Always demand a copy of the Preliminary HUD-1 within 5 days of contract acceptance.

Sellers & Selling Agents- Be careful "padding" your HUD's. Placing your commission in front of your client's best interests is a big no-no.

For those of you that have experience in the "short sale world", what would you do in my shoes?  Hope the deal closes and forget about it, or let the AZ Department of Real Estate handle it? Your input is greatly appreciated.

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