Court Case Could Effect Short Sale Specialists

Real Estate Agent with Virtual Properties - Atlanta Real Estate 255736

Short Sale LawRecently a court case ruling about Administrative Fees (Busby v. JRHBW Realty, Inc, d/b/a RealtySouth) made me think, "Good for them!"  I've never been a proponent of Admin Fees.  They are junk fees after all.  However, as a short sale specialist, I had to think about this a bit more.

In this case, the plaintiff won a class action law suit against RealtySouth for charging Admin Fees that were legally proven not to have done anything to help in the transaction.   Short Sales can feel like the wild west and now some of the extra ways of collecting a full commission are in jeopardy.

Let's look at Section 8 of Respa (since it was used in this court case)

"No person shall give & no person shall accept any portion, split or percentage of any charge made or received fro the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed."

While RESPA allows for fees to be paid with cooperative brokers, the plaintiffs in the above case argued that the admin fee charged was not for services actually performed.  This got me to thinking about Short Sales.   I've got some key areas where there is potential grey area, especially if the seller of a short sale has to take a note back (liability!).

  • Negotiations - You might be doing this or outsourcing it, are you collecting the fee for it? Might be best to outsource or at least have it go to someone other than your Broker or personal business.
  • Extra Fees - Did you pad the HUD to allow for you to cover HOA, taxes, etc.  Now that the deal is approved you want to pocket the extra money.  After all you earned it, Short Sales are tough! Now with this case, any fee could be questioned at a later date. (Not suggesting that padding the HUD is right or wrong, just a practice that I have seen)

Ultimately, it's better to try to charge a higher (but not exhorbinant) commission % than it is to add fees onto the HUD needlessly.

Luckily, most sellers and buyers are extremely happy when the short sale process is complete, but it does bare paying attention to!

Article over your head?  If so, feel free to contact me with referrals! (I LOVE SHORT SALE REFERRALS!) or questions!

Join Us For This Type of Discussion on ShortSalePros!


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Nathan D. Kerpan / Benchmark Mortgage NMLS: 2143 a division of Ark-La-Tex Financial Services LLC - Edwardsville, IL
Champions For The American Dream! Your Mortgage Pl

So was the verdict that they are not allowed to chage admin fees for the processing an negotiation of Short Sales, over an above the real estate commission? I ask as I know a few people doing this regularly on a pretty hefty scale...

Jul 08, 2009 05:42 AM #19
John Germaine

You call yourself a "Short Sale Specialist" and then you pad the HUD to cover expenses your title company is suppose to find out about and put on the HUH??? This is laughable.

Jul 08, 2009 05:44 AM #20
Scott Nelson
Medford, MA

I don't think it's considered padding the HUD if it's monies you legitimately carried for the HOA fees, maintenance or other services in furtherance of the sale. An alternative to all of these questions would be to document fully what services are covered and what are not and costs involved for what is not PRIOR to the signing of the listing agreement and then all parties are aware & made informed consent. Properly evaluate your business, fixed costs etc. prepare your systems and methods and then charge an appropriate commission this way "Junk Fees" wouldn't be as big of an issue.

Jul 08, 2009 06:41 AM #21
Joshua Jarvis
Virtual Properties - Atlanta Real Estate - Duluth, GA
Moving Families Forward.

Everyone is keying in on the padding of the HUD, I'm not suggesting that I do that but rather that it does happen.

Jul 08, 2009 07:36 AM #22
Joshua Jarvis
Virtual Properties - Atlanta Real Estate - Duluth, GA
Moving Families Forward.

... the HUD to cover expenses your title company is suppose to find out about and put on the HUD???

Sometimes HOAs will fine the homeowner and/or other things will happen throughout the short sale process, that can effect the bottomline.  I'm not condoning padding anything, but it does happen and for good reason.

Question:  Is it considered padding a HUD if you are planning for a closing 5 months out?

Jul 08, 2009 07:40 AM #23
Derek Noggle
Beach & Luxury Realty, Inc - Lake Mary, FL


I think you raise good points, and I recommend the KISS principle.  Stick to what you do as a Real Estate Professional.  Let someone else make a little money if they can successfully negotiate with the seller's lender and buyer.  If they can't, they don't get the fee (and you avoid the risk).  The only problem I have with this scenario is if negotiators want to "cut" the Realtor commissions without cutting their own fees commensurately.

I've got an offer in on a Short Sale where my buyer agreed to a third-party "negotiator" service that the listing agent found (and that the buyer will pay for should the lender refuse).  At first, I was a little skeptical, but it makes complete sense from a liability (and time-consumption) standpoint.  Additionally, my buyer is clearly benefitting from "negotiator" services already rendered for a previous offerer because this particular property already has an "approved sales price"

Jul 08, 2009 08:15 AM #24

There may come a time--where the negotiation of short sales is not something a Realtor may want to get involved with. First and foremost, it is too time consuming. I just cannot spend hours on the phone dealing with a mortgage company that may or may not approve the short. Then there is the liability. If things don't go well and the client's house goes into foreclosure--thinking the client will blame the bank and the Realtor. Six hours on the phone to not get an approval: six days in court fighting with your once happy client. Not sure if it is worth it.

Jul 08, 2009 08:52 AM #25
Joseph "Cathan" Potter
Coldwell Banker - Sebastopol, CA

I agree with Scott (#21).  The bigger issue is full disclosure (and full documentation of services rendered).  If the admin fee was discussed in advance it probably would not be as great an issue.

Jul 08, 2009 09:00 AM #26
Joshua Jarvis
Virtual Properties - Atlanta Real Estate - Duluth, GA
Moving Families Forward.

Joseph - in the court case, it was clearly discussed and even defined... it just did not stand up in court.

Jul 08, 2009 09:05 AM #27
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

I think you always have to be careful charging fees for services.  I am out sourcing some work for which there is a charge, that I do not see a penny of.

Jul 08, 2009 09:31 AM #28
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
"It's Wendy... It's Sold!"

Joshua - Florida allows Realtors to faciliate short sales, but there are stricter regulations on outside companies, reference the Florida Foreclosure Rescue Fraud Prevention ACT.  If preliminary HUDs are estimating anticipated costs at a later date, they need to be made "exact" at closing.  If the funds went someplace other than where stated on the HUD, the Florida title agent and Realtor would be committing fraud.

Jul 08, 2009 09:44 AM #29
Kerry Jenkins
Prime Properties - Crestline, CA

I didn't know that real estate agents do a HUD...doesn't that come from a lender?  And since when can an agent tack on a fee anyways?  I know that sometimes things are slightly overestimated(not grossly from all that I've seen) but that way there'e enough money i escrow to cover anything unforseen rather than scramble towards the end of an escrow and have a buyer wire in or bring in additional funds.  i've not known there to ever be an exhorbitant check given back for leftovers in escrow. 

Jul 08, 2009 11:11 AM #30
Joshua Jarvis
Virtual Properties - Atlanta Real Estate - Duluth, GA
Moving Families Forward.

Amy - The bank requires a HUD so you either get a lender or attorney to create it or you do it yourself.  It's a preliminary HUD so the bank can see their true "NET."

Jul 08, 2009 12:02 PM #31
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

It seems to me there are additional services performed in a short sale than in a traditional sale, and it should be permissible for the agent to be compensated for the work.  That said, it must be done legally and in line with the bank's approval.

Jul 08, 2009 01:28 PM #32
Sylvia Barry
Coldwell Banker Previews International (#1 Marin_Sonoma_San Francisco_North_Bay) - San Rafael, CA
Marin and Sonoma Real Estate Leading Expert

Thanks Joshua, nice article about short sales and what the sellers/listing agents should watch out for.  When I get a short sale; the first thing I do is to ask the escrow officer to run a HUD1 for the property.  They will also do a Prelim, which helps me understand the seller's / property's siutation better.  I will then ask for an update HUD1 when we have an offer to be sent  in. 

I actully like short sales, believe or not!.   

Jul 08, 2009 04:47 PM #33
Satar Naghshineh
Satar - Amiri Property and Financial Services Corp. - Irvine, CA

First off, CDPE has only a 47% success rate on a short sale so you shouldn't be calling yourself a specialist or an expert (in my opinion) because someone gave you a piece of paper.

Anyway, padding the HUD is perfectly fine. Moving the money elsewhere on items that the lender has limits on, such as commissions, is not. The latest strategic way to maximize your profits on a short sale is to set up an LLC and have the buyer to pay the LLC for the short sale processing fee. You could also have the majority of the commissions paid to the listing agent and have a separate buyer's broker agreement between the buyer and the buyer's broker to compensate the broker for the loss of the commission.

I do agree, a short sale agent should realize that you should be paid for the time you spent on the phone with the banks. It is a different animal and you should compensate yourself for it.

Jul 08, 2009 06:35 PM #34
Brady Pevehouse
RE/MAX Downtown - Orlando, FL
Your Orlando Real Estate Professional


Maybe my response was made in a rush, as I was on my way out the door when I typed it up. Therefore I have edited it slightly, in hopes you can understand it better.
As for the mention of being bitter, not at all. Just like 2 attorneys can interpret one laws 3 different ways agents can as well. I find it unflattering that you attacked me the way you did, based upon my opinion, but that is your right, and I will give you that. I will make it a point not to respond your postings in the future so as to not waste your time, as you pointed out, I have done thus far.

In my opinion, the court ruling you referenced was in regards to brokers / agents charging additional admin fees that were added onto the HUD;
         1. without proper notification and documentation to the client
         2. without actually performing a service justifying an additional charge
         3. without performing a service above nor beyond the standard real estate duties

Now I admit, yes, that is my interpretation of the law, and if all 3 items are met, and justified then the fees can be charged and would be legal. The role of a negotiator goes above and beyond the role of a real estate agent (and is what I called laughable, and maybe what you took offense to?) which is why I explain to my clients, as a real estate agent, my job is to market a property, procure a viable offer to the clients best interest and satisfaction as well as perform as a facilitator between the buyer & seller or their agent to ensure the transaction closes all the while protecting the client through inspections and contract negotiations with the buyer or seller. None of those duties involve negotiation with the lender for 30-60 or sometimes 90 days, handling the paperwork as a lender would to get the seller approved for a distressed sale / short sale, risk the transaction not closing because the lender works on a different time line and under different interest all together.

In short, just as a lender / mortgage broker would expect to be compensated, a negotiator should do the same. Negotiators do compile near the same paperwork on behalf of the seller this time instead of the buyer, so again someone "asking" for a fee to be paid for this additional service is not out of the question. It is up to the lender to approve this fee. And naturally, it would be required that this fee be disclosed on the preliminary HUD to protect all parties including oneself as the negotiator.

I still stand by the last statement in my prior post, which may have been the part you took offense to, you did not state what you believe to be irrelevant, but agents who feel in their best interest to handle the negotiation as well as the duties of a full time agent, in my honest opinion may potentially do a disservice to their client and their business. Being stuck on the phones and not procuring new leads, new listings, new buyers, performing walk-thru's etc. may not appear as much of a loss of time in a single transaction, but as it can add up, and if so, the agents' business will suffer. This is why it is often better to consider a professional negotiator with experience to do what it is they do best while the real estate agent does what they presumably were hired to do which is market properties, procure new clients and manage their real estate career.

Needless to say, I have a feeling you will not see eye to eye with me on this, but it is just  my opinion.
And no, I don't think your article was over my head. The fact remains that not everyone will agree and if that is the case, then as stated before I will not trouble you with an opposing opinion again.
I am sorry that you felt, "my opinion" lacked value because I did not agree with you.
I do hope others see value in my previous post as well as this one..... &  thanks to the anonymous Consumer ~ who ever you are for reading & realizing I was not bitter. (someone buy that guy or gal a drink).. rushed maybe but definitely not bitter.....

Sorry for the long post, but as you may guess, just as I have not attacked your character, I do not take kindly to someone attacking mine.

Jul 08, 2009 07:05 PM #35
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg Real Estate

Yep, I think that if you are going to charge anything it should be upfront to the parties. If you honestly feel that you've earned the fee, then get it and defend it.  Being able to charge it just because you can, or no one will find it, is just not right. I love it when you find out that the listing agent charged 8% and you received 2.5% on the selling end.

Jul 09, 2009 01:04 AM #36
Mark Velasco
Sharpstone Commercial - Whittier, CA
Top Producing COMMERCIAL Team 30+ years experience

Interesting Blog Joshua. I think that too many agents think about "right now money" as opposed to being fair in our pricing and thinking about possible referrals down the line.

Jul 16, 2009 04:27 AM #37
Bob Wilson
Access San Diego - San Diego, CA

Laws are changing daily state by state, many with unintended consequences.

Jul 19, 2009 11:11 AM #38
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Joshua Jarvis

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