Real estate agents breaking federal law by negotiating Short Sales?

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

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. 

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.

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!

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.

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.

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.

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!

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.

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

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.

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

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

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.

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.

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 

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

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. :)