Real estate agents breaking federal law by negotiating Short Sales?

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Real Estate Technology with Content, coding, marketing, host.

This post has the potential to be inflammatory so let me begin by saying, "I'm just the messenger."

In Georgia there are two attorneys who are considered to be and are, in fact, held out to be the real estate contract experts. By experts I mean they wrote the book on Georgia real estate contract law. "The Red Book on Real Estate Contracts in Georgia" published by the Georgia Association of Realtors was authored by firm partners Ned Blumenthal and Seth Weissman of Weissman, Nowack, Curry & Wilco, P.C.

Mr. Blumenthal recently wrote an opinion letter ("The Letter") about how the new effects of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 wherein it relates to negotiating mortgage terms. When I say this has already been discussed among Mortgage Loan Originators (MLOs by license) the topic of real estate agents discussing loan terms with clients did arise. Instead of jumping on the knee-jerk bandwagon I opted for the "time will tell" approach.

The Letter seems to hold more with a recommendation, ne admonition, for agents who do not hold a National Mortgage Licensing Registry MLO license to avoid talking about loan terms with clients under what could possibly be the jurisdiction of NMLS and the S.A.F.E. Act.

The Act, in fact and according to Mr. Blumenthal's Letter plainly states, "it shall be prohibited for any person to engage in the activities of a mortgage loan originator without first obtaining and maintaining a mortgage loan origination license."

The Letter continues in Mr. Blumenthal's own words to state/ask, "Normally, real estate brokers and agents do not get involved in negotiating with the terms of loans for their clients and should not run afoul of the Act. However, what about in short-sale situations? If an agent contacts the seller's lender trying to negotiate terms for a short-sale, does this violate the Act?"

Without copying verbatim The Letter, which is three pages printed, we should skip to the punch line. Remember, Mr. Blumenthal and Mr. Weissman are the preeminent real estate law attorneys in the state. This is not hearsay from some bar room talk with a couple of loan officers and a closing attorney. "We do not have any definitive case law on this yet", writes Mr. Blumenthal, "but the answer certainly appears to be 'yes'".

Possible resolutions:

 

  1. Get your NMLS license and find a lender/broker to sponsor you.
  2. Team up with an NMLS licensed MLO and let them handle the negotiations for you.
  3. Your thoughts and ideas?

 

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Re-Blogged 4 times:

Re-Blogged By Re-Blogged At
  1. William J. Archambault, Jr. 04/01/2010 12:30 PM
  2. 1~Judi Barrett 04/01/2010 12:56 PM
  3. D B 04/01/2010 02:30 PM
  4. Joseph J. Chang 04/02/2010 03:57 AM
  5. Gene perez 04/02/2010 09:34 AM
Topic:
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Tags:
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short sales
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Rainer
60,622
Pam Turner, REALTOR®, e-PRO®, SFR
Century 21 Belk Realtors Dalton GA - Dalton, GA

Makes you wonder if any of the SS courses and training out available today are worth anything - haven't seen this addressed.

Apr 01, 2010 11:30 PM #40
Rainmaker
559,938
Tim Maitski
Atlanta Communities Real Estate Brokerage - Atlanta, GA
Truth, Excellence and a Good Deal

Hey Ken, That was an eye opening letter.  I did a post on it last month and quoted some of the key parts.

All the states are supposed to implement uniform standards based on the Federal SAFE Act.  In the act they define the key terms of mortgage originator and others.  It was my understanding that all states had to conform to these standards.  So I think it is wishful thinking by some to think that their state is different and they won't have to follow these standards. 

Apr 01, 2010 11:38 PM #41
Ambassador
920,301
Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Savvy Realtor - Ann Arbor Real Estate

Hey Ken, any chance you can link to the letter. Sounds like a good legal firm.

My quesiton would be are HEMP and HAMP counselers licensed to negotitate loan mod's?

I don't think so. Sent a few people to them for counseling.

Regardless, I would like to read the letter.

Apr 02, 2010 12:07 AM #42
Ambassador
1,509,742
Renée Donohue~Home Photography
Savvy Home Pix - Allegan, MI
Western Michigan Real Estate Photographer

Even lawyers use assistants to negotiate.  There is no way they stay on hold all day long :)  I do not negotiate my short sales, I use lawyers for the process!

Apr 02, 2010 12:13 AM #43
Rainer
264,127
Bill Travis
Captain Bill Realty, LLC - Gilbert, AZ
Broker/Owner

I don't believe the real estate agent is doing any negotiation on a loan origination, or a loan mod, when s/he works on a short sale. They are simply asking the lender to accept less money for the property than the loan balance.

Apr 02, 2010 12:20 AM #44
Rainmaker
88,098
StepStone Realty
StepStone Realty, LLC - Austin, TX
Freedom to Succeed

Thanks for the post, Ken.  I am a licensed loan officer and keep myself licensed (will be taking the MLO exam soon) for this very reason.  We negotiate short sales every day for agents and believe it is in ours and their best interest to maintain that license.

Apr 02, 2010 12:45 AM #45
Rainmaker
2,190,142
Elizabeth Weintraub Sacramento Realtor Top 1%
RE/MAX Gold - Sacramento, CA
Put 40 years of experience to work for you

In California, you need a real estate license to negotiate a short sale. But there is also a fine line between negotiating and giving a client legal advice. As real estate agents / brokers, we can never give a client legal advice.

There are also a lot companies popping up on the horizon that purport to offer short sale negotiation, and it seems pretty straight forward as to whether these companies are operating within the scope of the law if they are not licensed, and many are not. In California, you need a license, people.

Apr 02, 2010 12:45 AM #46
Rainmaker
335,661
Jenna Dixon
DRA Homes | Cobb County Real Estate - Marietta, GA
Empowers You With a Better Real Estate Experience

Ken,

Great post & something that we have been discussing inside our firm for many weeks.  I have exchanged several emails with Mr. Blumenthal and I can confirm the information in your post. 

Regarding comments about different states, the S.A.F.E. Act is a federal act which Georgia lawmakers have sought to expand on through more specific legislation.  But, that does not mean the the ACT has no weight in other states.

Also, I think a large area of liability is being overlooked by realtors in thinking that federal & state law is the only thing that could come around to bite them in the backside.  If and when "short sellers" get hit with deficiency judgments or other bad news down the road, they are very likely to drag their realtor into court, because maybe they were told that it wouldn't happen.

In an effort to adopt and move with the market, many realtors have stepped FAR OUTSIDE their realm of expertise and have likely crossed many, many lines in working with short sales & banks on behalf of clients.

Be careful out there everyone!

Apr 02, 2010 02:12 AM #47
Rainmaker
67,028
Terry Thomas Your Home Sold Guaranteed
Joyce Thomas Team - San Tan Valley, AZ
Your Home Sold or I'll Buy It!

My guess is that this is a new angle for attorneys to open up a new niche market to generate revenue for themselves.  Negotiating a short sale is not negotiating terms.  They need to stick with the practice of law and let real estate agents stick with what they do best, real estate negotiations.

Apr 02, 2010 02:49 AM #49
Rainmaker
176,237
Aaron Silverman
SuccessfulRental.com, Bluewater Property Management, LLC and Lowcountry Turnkey Properties, LLC - Charleston, SC
Improving Real Estate Experience through Education

I wonder what the legal fallout will be from all of the short sales especially when real estate investors are involved.

Apr 02, 2010 03:15 AM #51
Ambassador
2,009,552
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

This is interesting to think about.  I'm not sure the answer, but perhaps will consider getting the license as I'm a broker and can do that in California.

Apr 02, 2010 03:52 AM #52
Rainmaker
2,477,045
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

Ken.....

It always gets worse before it gets better....is what your post pulled out of me. Solutions to problems more often than not are pushed aside in the pursuit of a chance to make a buck. This problem needs to be fixed, not capitalized on. We keep forgetting that Real Estate is part of a three legged stool. If that stool goes, we will have no place to sit down. Thank you

Apr 02, 2010 03:57 AM #53
Ambassador
525,439
Tom Branch
RE/MAX Dallas Suburbs - Plano, TX
Broker, CDPE, SFR, ACRE, Plano TX Ambassador

Jenna (#47),

The SAFE act is one issue although I think the Georgia lawyers have taken it to the extreme. While the SAFE act applies to all states once they come on-board, some states will take it to new levels.  TXSML has issued guidance that states only an MLO (licensed or working for an FDIC insured bank) may negotiate a loan modification. Short Sales are not modifications and may be worked by either an MLO or real estate licensee.

Liabiity is the bigger issue.  We use two addenda to our standard listing agreement when it comes to Short Sale listings.  One is a Hold Harmless Agreement, the other is an agreement to seek appropriate legal and tax advice before closing. 

Tom

Apr 02, 2010 07:52 AM #54
Rainmaker
262,234
Christianne O'Malley
RE/MAX Realty Affiliates - Reno, NV
Exceptional Service - Delivering Results in Reno!

I do not negotiate loan modifications and thus negotiate NO MORTGAGE TERMS. I simply negotiate for a reduced payoff - I do not believe this is a violation.

Apr 02, 2010 10:09 AM #55
Rainmaker
224,121
Laurie Mindnich
Centennial, CO

NY operates with lawyers on both sides (rare exceptions) of all transactions. While I find it absurd and annoying with all other transactions, works for me with short sales.

Apr 02, 2010 11:39 AM #56
Rainmaker
275,571
Ken Cook
Content, coding, marketing, host. - Marietta, GA
Content Marketer/Creator

Thanks for all of the great insight and input! For those who aren't aware the letter did not arise from GEORGIA law it arose from FEDERAL law. The letter itself was written by one of two preeminent real estate attorneys from Georgia.

As for the one comment #24 "are we going to let the same people who got us into all these bad loans negotiate out of them" (paraphrased). Seriously, you're blaming the people who were following guidelines established by Fannie, Freddie and the biggest banks in the world. I bet you didn't mind taking the paychecks when we were all "rocking and rolling". Name one loan officer, ever, who created lender guidelines and approved even one single loan. Did you ever tell a buyer you wouldn't sell to them - ever one time - after they were approved for whatever type loan they were using to purchase the home? (Please don't read that with an angry tone as it was written only in the spirit of check and balance. And from a long time, well experience loan officer who has been an executive director for a successful mortgage lender.)

I'll see if I can find a link to the letter but I don't know that it was published online. I got it from Seth.

Apr 04, 2010 04:29 AM #58
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525,439
Tom Branch
RE/MAX Dallas Suburbs - Plano, TX
Broker, CDPE, SFR, ACRE, Plano TX Ambassador

Ken,

"However, what about in short-sale situations? If an agent contacts the seller's lender trying to negotiate terms for a short-sale, does this violate the Act?" ...but the answer certainly appears to be 'yes'".

That's a tall leap.  I can understand loan modifications requiring an MLO but a Short Sale is a real estate transaction. 

I'll be at a meeting with the Texas Real Estate Commission in a couple of hours. I plan on meeting with the legal staff afterwards to discuss this issue.  I'm both a broker and a bank MLO so I'm not worried about me but we have plenty of people working short sales who are not.

I'll post a follow-up this evening.

Tom 

Apr 05, 2010 12:38 AM #59
Ambassador
525,439
Tom Branch
RE/MAX Dallas Suburbs - Plano, TX
Broker, CDPE, SFR, ACRE, Plano TX Ambassador

Ken,

I met with the TREC Legal Staff today.  They have had discussions with the legal staff at the Texas Savings and Mortgage Loans (SML) Division (they oversee MLOs in Texas). TREC is issuing a letter stating that it is not a violation of the SAFE Act for real estate licensees to work a short sale.  It would be a potential violation for a real estate licensee to negotiate a loan modification. SML requires loan modification companies to be licensed MLOs. 

As I suspected, both TREC and SML see the real estate licensee simply presenting an offer for the lien holder's consideration.

It will be interesting to see where this goes.

Tom

 

Apr 05, 2010 02:19 PM #60
Rainmaker
275,571
Ken Cook
Content, coding, marketing, host. - Marietta, GA
Content Marketer/Creator

Tom - thanks for reporting back. I'm sure all the people in regulation and enforcement are working to make these determinations as well. The man who wrote the original letter is the attorney for the Georgia Association of Realtors and a litigating attorney as well so I am sure his eyes and ears are open.

Apr 06, 2010 03:28 AM #61
Rainmaker
432,699
Jen Bowman
Keller Williams on the Water - Holmes Beach, FL
Realtor - Anna Maria Island & Bradenton FL

Thanks for the info Ken. Short Sales are pretty common here. I'm in the middle of 3 right now, not negotiating, just passing info on. :)

May 19, 2010 12:28 AM #62
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