One of the things I absolutely love about my brokerage is our emphasis on training. Our broker and management are constantly looking for important topics on which to talk. Our weekly meetings always contain useful, interesting information that helps us become better agents.
Today was no exception. Today our management began discussing short sales, and, in particular, short-sale negotiators. To be clear, this means third-parties who negotiate on behalf of sellers with the bank, not the internal bank negotiators.
Before I go into a lot of detail, I'd like to remind everyone that this information is California specific, and may not apply in other states. Nonetheless, I hope some of this information might be helpful.
The Department of Real Estate has come out with a lot of information on this topic here in California. As everywhere, we currently have a lot of short sales, and we are seeing a lot of "interesting" things happen in the market. To see the actual alert issued by the DRE, click here.
Here is my 50 word synopsis of their 5 page document:
If you participate in a short sale, and don't follow the procedures to a "t", you are at risk for:
1. Federal Loan Fraud
2. Undisclosed dual agency (and therefore recission of the transaction and loss of all commissions)
3. Breach of fiduciary duty
4. RESPA violations
5. Licensing violations
Whew! Now - I will say that I do list short sales and I do show my buyers short sales. Luckily, I have not directly run into any of the situations that the DRE describes in their memo, including:
1. Non-licensees operating as short sale negotiators (not legal in most cases)
2. Addenda that require the buyer to pay the negotiator's fee (can lead to federal loan fraud)
3. Requiring that the addenda be signed before presentation of offer (possible breach of fiduciary duty)
4. Requests for non-recurring closing cost credits to pay for negotiator or other seller costs (again with the possible loan fraud and a violation of certification of fair market value)
5. Claiming the negotiator represents the buyer (possible undisclosed dual agency)
6. Classifying the negotiator's fee as a separate additional fee when the negotiator works for the broker (possible "junk" fee in violation of RESPA)
Even though I haven't run across these, now that I am aware of the legal problems with the practices (these already didn't pass my personal smell test) I can better educate my buyers and sellers about the pitfalls of using short sale negotiators unless it is covered under the original commission arrangement with the listing agent. I'm glad to have this information in my back pocket, because I CERTAINLY do not want to close a transaction and then lose my commission, lose my license, or go to jail!
I would definitely be curious to see if there are similar rules in other states, and I know the federal rules apply. Let me know your thoughts!
Day 29 - one day left!!