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Agent advised seller to loan buyer money as second...then the bank foreclosed 10 months later!

By
Real Estate Agent with Alain Pinel BRE 01367196

While browsing through listings of foreclosures in a certain area, I discovered that a house my client sold over a year ago, using another agent, was foreclosed. When I mentioned this to my client, he was surprised. It turns out that at the advice of his agent at that time, he agreed to loan $20,000 to the buyer of his home so that they can close the deal in December 2006. It was a $1.1M house. So it was rather surprising that he would need to lend money if the buyer can afford a house at that price range. Red flags should have been fluttering widely at that time.

My client recorded the loan but only after the buyer started missing payments.

On October 2007, the house was offered as a short sale. When it didn't sell, it was foreclosed, and is now offered at $899,000. At no time was my client informed of the short sale or the imminent foreclosure. So months later, he finds out only after I told him. Had he known it was being foreclosed, he may have opted to buy it back.

So....what is the seller's recourse? Did his former realtor violate her fiduciary duty/responsibility?

What would you have done? And is there anything the Seller can do? Or should he write off that $20,000 as a loss?

Comments(5)

MELISSA BATDORF ~ West Tennessee Agent/Broker
RE/MAX ASSOCIATES - Oakland, TN
Pacita:  Sounds like the home is still available through the bank it has forclosed with.  They second position lender (your client) should have a claim in this foreclosure as well.  Your client may be able to buy the property back and foreclose their position.... I would guess they need to see the Real Estate Attorney!  (FAST)   They may have the ability to slow and or stop anything that may be pending until all questions are at least answered!
Mar 04, 2008 04:41 PM
Vickie Nagy
Coldwell Banker Residential Real Estate - Palm Springs, CA
Vickie Jean the Palm Springs Condo Queen
NEVER give advice outside of your transaction. In such a situation, were it your transaction seek the advice of your risk managment team....always.
Mar 04, 2008 04:59 PM
Guy E. Gimenez
The PowerHouse Group - Austin, TX
ABR, CRS, GRI - Broker & Investor (512-731-5613)

Were the primary lien holders aware of this loan?  Was it indicated on the buyer's loan application?  If not, unfortunately, it sounds like there was fraud committed and both your past client, the agent and the buyer were in cahoots.  I would have your past client contact an attorney, but because he was involved, albeit innocently enough, he has culpability, and should not start raising a stink until consulting an attorney.  If the loan was "under the table", the lender could bring suit against all involved.   

Mar 04, 2008 05:01 PM
Michael Creel
InActive Agent - Bellevue, WA
He'll likely be writing that one off. Doubt he disclosed the little "loan" at the time of the close, in which case he participated in the mortgage fraud. Because of his under the table loan, the bank has lost a bit more than 20k. He may wish to be quite about it.
Mar 04, 2008 06:23 PM
Steven Keefe
Coldwell Banker Sky Ridge Realty - Lake Arrowhead, CA
It isn't about the size of the loan.  The fact it was a little loan is irrelevant.  If the agent advised the second without the banks knowledge, they committed fraud and the seller absolutely has both civil and criminal recourse against that agent.  That agent could lose their real estate license as well.
Mar 05, 2008 12:02 AM