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FIDUCIARY AND LEGAL RESPONSIBILITIES OF REALTORS RELATING TO SHORT SALES - Part II - Explaining to the Homeowner What Their Options Are.

By Jim McNinch

Real Estate Agent with Trademark Loss Mitigation

April 03, 2012 01:55 AM

FIDUCIARY AND LEGAL RESPONSIBILITIES OF REALTORS RELATING TO SHORT SALES - Part II - Explaining to the Homeowner What Their Options Are.

FIDUCIARY AND LEGAL RESPONSIBILITIES OF REALTORS RELATING TO SHORT SALES

First my disclosure: I am not an attorney. This is a Part II of 4 RE-Blogs from one of my consulting attorneys regarding a important subject on fiduciary responsibility for those of us who do short sales as a licensed agent.

By Jeff Watson, Attorney, jwatson@srecnow.com

FIDUCIARY AND LEGAL RESPONSIBILITIES OF REALTORS RELATING TO SHORT SALES - Part II - EXPLAINING TO THE HOMEOWNERS WHAT THEIR CHOICES ARE

This is the first obligations of a Realtor. A real estate agent who chooses to become involved in a distressed property or in a short sale transaction must have adequate knowledge and training in order to convey all of the necessary material information to a homeowner so that the homeowner can make an informed decision about what their choices and options are.

The options and choices facing a homeowner in foreclosure can be separated into four categories. The first is to remain in the property as a “squatter” using multiple bankruptcy filings until the foreclosure auction occurs and they are evicted. This allows the homeowner to stay in the property for as long as possible at little or no cost.

The second option that the homeowner has which is usually very unrealistic is to list the property for an amount high enough to pay all of the liens in full and pray that some buyer will come along and pay that price. Ultimately, the result is that the homeowner lives in the property without making payments, experiences foreclosure, and then is often confronted with the need of having to file bankruptcy in order to discharge the personal responsibility of hundreds of thousands of dollars of debt.

The third option and one that is frequently recommended by many traditional real estate agents who do not understand all of the complexities of the short sale world is for the homeowner to list the property seeking a short sale buyer and hope that the short sale buyer has the patience and endurance to wait out the 90 plus day process as the seller(s) or their agent negotiates with the lien holders all of the things necessary to get the short sale approved. The biggest concern and drawback to this approach is that the buyer will get frustrated over waiting 90 or more days and move on to another house that is already available.

Second and more insidious concern with this is that the real estate agent and the seller are not always properly equipped to handle the negotiations with the lender. The lender is in the process of seeking to collect a debt and they will use any and all means at their access in order to try and obtain money and information. Unless the agent is extremely familiar with the entire short sale process as well as the BPO process they can make fundamental or critical errors that will either delay or destroy the short sale process.

The fourth option that can be presented to a homeowner is for the homeowner to list the property seeking a short sale and to work with a competent and knowledgeable investor who seeks to buy the property. In exchange for the investor agreeing to wait the 90 plus days to be able to buy the property the investor assumes the responsibility for negotiating the short sale so that the investor knows where the process is at all times. The investor/buyer may be choosing to keep this property in their own keeper portfolio
as a rental property or they may be seeking to quick turn this property for a profit. The advantage to this approach is that there is a competent, persistent, committed end buyer who has submitted a legitimate arms length contract to the Bank in order to buy this property.

An additional benefit to this strategy is that the investor is knowledgeable about the entire short sale process and understands the key steps in the negotiation process and is able to handle the BPO in a manner that will more likely result in favorable short sale outcome. Few, if any, homeowners realize that during the BPO they should be emphasizing the negative aspects of the distressed property, rather than promoting it’s benefits, features and attributes. An investor who is aware of how the BPO process works will
make sure that the BPO agent has all of the necessary information in order to properly and accurately complete the Fannie Mae BPO form.

A Realtor that adequately understands these choices can then present the foregoing options to the homeowner who is in default or distress.