Bank of America last week published parameters of what is and what is not allowed for relationships of the selling agent or buying agent to the selling borrower.
Short Sale commissions have been a matter of continuous discussion amongst those that have had commissions reduced or short sales denied because of relationships of the brokers or agents to the seller. Arm’s Length Transaction rules are fiercely enforced by lenders and understanding the agent commission rules and how they interact with Arm’s Length Transaction rules is a “must know” and “must understand” part of short sales.
When I said that the rules are fiercely enforced, I can only tell you of an actual example for you to get the point.
EXAMPLE #1
The lender holds a mortgage for $6,100,000 on a residence. The offer from the qualified all cash buyer is $6,400,000. There are liens that must be satisfied of $200,000 and selling expenses and tax proration and including broker fees for a total of another $400,000. Net to lender is $5,800,000. Value of the home is $5,000,000. The listing broker for the past 4 years on this spec home a national brokerage and the listing agent is the builder’s son. The lender denied the short sale because of the relationship between the seller and the agent. Note that they did not merely deny the commission – the lender denied the entire sale!
EXAMPLE #2
Next example has the same home now listed with a different broker and different buyer (the last buyer walked and bought elsewhere). Seller’s listing agent (who has done little work since this is really another buyer the other agent (son) had waiting as backup) is a “team member” in a national brokerage of the mother in law of the seller’s son. The lender sniffed out the relationship and denied the short sale for that reason! Oh, did I forget to mention that the new offer was $3,600,000? That is net $3,000,000 to the lender, or about 40% less and was because of water damage and no electricity to the home for the past 3 months.
OLD LAWYER SAYING………
This makes me think of the old saying some lawyers use, “It’s not the principal of the matter, … it’s the interest!” Here, standing on principal of staying with the parameter of the “rule” is costing the lender millions!
So let’s get to understanding what is this almighty “principal” the lender is using in the fulfillment of its policy.
Here is the template from Bank of America that they published:
Acceptable and Unacceptable Short Sale Transactions
In an acceptable transaction, commissions will always be paid within the following guidelines:An eligible short sale transaction is made on an arm's-length basis, meaning the buyer and the seller have no personal, familial or professional (business associate, business interest) relationship and the property is listed for sale on the open market at fair market value. There may not be any actual or implied conflicts of interest.
From this template you can see how and why the commissions were denied in my two real life examples. Why the short sales were denied instead of the commissions refused is a mystery. The selling broker would have probably waived the seller side of the commission to get the deal done!
HOW MUCH IS THE COMMISSION ALLOWED?
The report by Bank of America also gives the limits of the amount of commissions they will allow, which is dependent on the size of the transaction as follows:
|
Sale Price |
Maximum Commission |
|
$0 - $49,999 |
$3,000 |
|
$50,000 - $999,999 |
6% of the total price |
|
$1 million - $2 million |
5.5 % of the total price |
|
> $2 million |
5% of the total price |
There are more rules that will be applied based on the mitigation results of the short sale vs. the foreclosure route. You should read the report for more information and it can be found at the article titled Understanding Short Sale Agent Commissions.
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© 2012 Richard P Zaretsky, Esq.
Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader.
Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide! Shortsales@Florida-Counsel.com New Website www.Florida-Counsel.com.
See our easy to find articles at
TABLE OF CONTENTS - SHORT SALE AND LOAN MODIFICATION ARTICLES
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