Be Cautious When Hiring Short Sale Negotiators and Delegating Potential Agency Duties to Others

By
Services for Real Estate Pros with Group One Legal, PC / RE/MAX of Santa Clarita

 

Be Cautious When Hiring Short Sale Negotiators and Delegating Potential Agency Duties to Others

Dear Agents:

I have heard and spoken to many agents who have understandably complained about this hectic real estate marketplace, and the increased workload and responsibilities to close the same or less amount of deals for less money. 

We all know the arduous process of completing a short sale transaction and many agents take the route of hiring 3rd Party Negotiators to process and negotiate their short sales.  From a business model perspective, this can make complete sense for many individuals who want more time available to prospect and to do what they are paid to do, which is to market and sell homes.

Our law firm currently teams with many agents in the Santa Clarita Valley to negotiate and process Short Sales on behalf of their Sellers, and we absolutely know the time and administrative detail the complete process mandates.


We have also run into situations; whereby agents have told us they or their client have hired unlicensed negotiators to process their short sales.  In my opinion, this can be a major problem and several levels.

Currently, we are the banking industry and Third Party Default Services Portals refuse to authorize unlicensed negotiators, or to allow them into their system.  We think this is positive action, and believe unlicensed individuals or companies should not be negotiating this form of deal in any way or matter.

The California Association of Realtors® recently noted the following concerns in a legal article, that make some important legal and practical points about only hiring licensed Parties or Attorneys to negotiate short sale transaction on behalf of clients.

Since the short sale arena will continue to be a viable and substantial portion of our real estate market, it is essential have the appropriate tools and relationships in place, so you can compete and thrive in our market:

Here are a couple tips and notes that C.A.R. Legal has rightfully suggested (Credit Given toC.A.R legal department):

  •      As the listing agent, you should discuss with your client the merits of retaining a SSN to help with a short sale transaction and to represent the seller in the short sale negotiations with the seller’s lender. A seller should be fully informed as to what a SSN is, the pros and cons of using a SSN, the costs if any to the seller, and the seller’s right to select a SSN of his or her own choice. It is advisable that a SSN has a SSN agreement in writing for the seller to sign;
  •   As the listing agent or SSN, you cannot provide your client with legal advice, so if the seller has specific legal questions regarding any SSN agreement, you should suggest in writing that the seller review the agreement with an attorney;

 

  •   Licensing: Make sure a SSN is properly licensed. A SSN must be a licensed real estate broker or a licensed salesperson who is working under a broker. An attorney is exempt from the real estate license requirement if certain conditions are met, such as the attorney is not using or attempting to use the exemption for the purpose of evading the licensing laws (Cal. Bus. & Prof. Code § 10133(a)(3)), and the attorney is not actively and principally engaged in the business of negotiating mortgage loans (Cal. Bus. & Prof. Code § 10133.1(a)(5));
  •    An indication that a SSN is not properly licensed is when the short sale negotiation entity is an LLC. In California, an LLC cannot get a real estate broker’s license and therefore, should not be doing short sale negotiation. It is illegal to pay an unlicensed individual or entity for doing licensed work. Even if it is technically your client who pays the SSN, as the person who effectively arranged the transaction, you may expose yourself to both criminal and civil liability, and you could have your license revoked or suspended by the DRE;
  • The law generally prohibits anyone who negotiates, attempts to negotiate, arranges, attempts to arrange, or offers to perform a loan modification or other form of mortgage loan forbearance, from claiming or demanding any upfront compensation (Cal. Civil Code § 2944.7(a)). Furthermore, a SSN cannot collect an advance fee from a seller unless the advance fee agreement and materials have been submitted to the DRE for review (Cal. Bus. & Prof. Code § 10085), and any fees collected are handled in compliance with DRE advance fee and trust fund handling requirements (Cal. Bus. & Prof. Code § 10146)
  • Some SSNs will suggest that the buyer’s agent pay the fee. While this is not illegal per se, it cannot be done with properties that are placed on the MLS due to the MLS prohibition on conditional offers of compensation. Under Model MLS rule 7.12, an MLS offer of compensation, “may not contain any provision that varies the amount of compensation offered based on conditions precedent or subsequent or on any performance, activity or event.” Therefore any attempt to condition payment of the commission being offered in the MLS on the buyer’s agent paying a fee of any kind would appear to violate this provision.

One other important concept when to think about when deciding on hiring a Short Sale Negotiator is the Agency concept Delegation of Duties and Responsibilities.  Legally speaking, delegation of duties does not eliminate Broker/Agent liability when things go wrong.


Unless the delegation is specifically forbidden by the principal, the general rule is that an agent may delegate certain of the agent's powers to others. In review of Business and Professions Code §10232.6:

The powers which may be delegated by the agent to others are generally limited to the following:

a. When the act is purely mechanical.

b. When it is such as the agent cannot do alone and the subagent can lawfully perform;

c. When it is the usage of the place to delegate such powers, or when the principal authorizes the delegation; or

d. When such delegation is specially authorized by the principal. (Civil Code § 2349).

 

When delegating a power to another, the agent must exercise care in delegating the authority and in choosing and appointing the delegee.

The doctrine of respondent superior holds a broker liable for the negligent and even the intentional acts of salespersons or broker associates, when such conduct is reasonably foreseeable, and may apply even where the supervising broker unaware of the conduct (Business and Professions Code § 10159.2; 10 CCR, Chapter 6, § 2740 et seq.).

 

This is at least food for thought when determining whether or not to hire a Short Sale Negotiator to process your short sales.

 

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Re-Blogged 4 times:

Re-Blogged By Re-Blogged At
  1. Robert L. Brown 11/23/2011 11:48 AM
  2. James Muhammad 11/23/2011 12:24 PM
  3. D B 11/24/2011 02:44 AM
  4. Sam Miller 11/24/2011 05:04 AM
Topic:
ActiveRain Community
Location:
California Los Angeles County Santa Clarita
Groups:
Realtors®
California Short Sales, REO's, and Foreclosures
Short Sale REALTORS®
Diary of a Realtor
Tags:
short sale
short sale negotiator
3rd party negotiator
short sale transaction
unliscensed negotiator

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Rainer
284,418
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

David -- Thank you for this very useful information, to help all of us who may be (or will be) dealing with short sales.

Have a safe and Terrific Thanksgiving!

Nov 23, 2011 08:04 AM #1
Rainmaker
1,557,374
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Real Estate

I have often wondered about this. In fact, I have a sellers attorney that has hired unlicensed folks at his title company to negotiate a short sale.

Nov 23, 2011 08:16 AM #2
Rainmaker
511,053
Robert L. Brown
www.mrbrownsellsgr.com - Grand Rapids, MI
Grand Rapids Real Estate Bellabay Realty, West Mic

i passed this along to my broker. This is some very interesting reading. Thanks for the information.

Nov 23, 2011 11:28 AM #3
Rainmaker
246,810
James Muhammad
RE/MAX Champions - Upland, CA
RE/MAX Champions

This is a very, very good blog post about the Short Sale process. This gives great insight to the Short Sale negotiation process and what to look out for when finding an attorney, Real Estate agent or company. I will be sharing and re-blogging.. Thank for sharing! 

Nov 23, 2011 12:20 PM #4
Rainmaker
2,190,192
Elizabeth Weintraub Sacramento Realtor Top 1%
RE/MAX Gold - Sacramento, CA
Put 40 years of experience to work for you

I think the question is whether the individual is negotiating or merely pushing paper. There is a big difference between the two. Not every agent negotiates. Some just send documents to the bank and they do the bank's bidding. The bank says "remove XYZ fees," and the agents says "OK." That's not short sale negotiation. However, if a SSN does more than fax documents, that SSN better be a lawyer or licensed. If my clients don't hire a lawyer, then I am their negotiator, and I wouldn't dream of hiring a third party.

Nov 23, 2011 01:20 PM #5
Rainmaker
711,839
John Juarez
The Medford Real Estate Team - Fremont, CA
ePRO, SRES, GRI, PMN

Short sale” negotiators” come in all shapes, sizes, costs and levels of competence. Short sale negotiation is a cottage industry that has sprung up as a by-product of the short sale market. As pointed out in this excellent post, using a short sale negotiator is a decision that cannot be taken lightly and the selection of the negotiator must be made with care and caution. The listing agent for the short sale will remain responsible for the correct and competent conduct of the negotiations.

Nov 23, 2011 05:49 PM #6
Rainer
75,717
David James
ReMax Real Estate Services Columbia South Carolina - Columbia, SC

I guess Elizabeth would consider me a "paper pusher", but since your seller is going to break even regardless, and the sellers' only major interest is getting out from under a mortgage, the only negotiation involved in a short sale is on the buyers' side.  We just finished our first and so far only experience with a short sale negotiator.  Unfortunately, my seller had already paid them $700 and then they had some agent who called me to request a referral fee.  After a couple of unretruned follow up calls when I didn't return his referal form, he gave up.  What my client got for his $700 was an extra person in the way when we were trying to negotiate the sale (with the buyer) and close it.  If you are serious about short sales, learn how to do it from an experienced agent (I'm a little dubious about learning the process in a class) but based on my one experience, if that was typical, I would say a hired negotiator is a waste of time and money.

Nov 24, 2011 12:30 AM #7
Rainmaker
4,797,822
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

We use negotiators working from an attorney's office with attorney supervision.  It works well.

Nov 24, 2011 12:38 AM #8
Rainmaker
1,383,927
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

David, good information to keep in mind when listing a short sale. "The doctrine of respondent superior holds a broker liable. . . ." says it all.

Nov 24, 2011 12:50 AM #9
Rainmaker
1,570,633
Mike Cooper, GRI
Cornerstone Business Group Inc - Winchester, VA
Your Neighborhood Real Estate Sales Pro

Escellent advice, David.  Short sales are difficult enough without throwing a fourth party in the mix who is going to make it more difficult.  Happy Thanksgiving!

Nov 24, 2011 01:16 AM #10
Rainer
64,385
Brett Reichel
Homebridge Financial Services - Rancho Cucamonga, CA
MLO 210215

Very good article - thanks for sharing.  It's really timely, considering how big the short sale market is.

Brett

Nov 24, 2011 01:39 AM #11
Ambassador
1,229,956
Melissa Zavala
Broadpoint Properties - Escondido, CA
Broker, Escondido Real Estate, San Diego County

California has a bunch of fraud alerts on this (as you mention in your article). We do provide this service in my office and have been doing so for a number of years. 25% of our business is probably pickup business from people who tell the stories that you warn about here.

Nov 24, 2011 01:40 AM #12
Rainer
389,611
Keith Lawrence
Christie's International - Mahwah, NJ
ABR, CDPE, SFR, 203K Specialist

Thank you for this information

Nov 24, 2011 01:56 AM #13
Ambassador
3,113,723
Paul S. Henderson, REALTOR®, CRS
RE/MAX Northwest. - Tacoma, WA
Tacoma Washington Agent/Broker & Market Authority!

I am qualified to negotiate a short sale but most sellers have already signed on with lawyer services when I bring my buyer to the dance...

Nov 24, 2011 03:11 AM #14
Anonymous
David Rendall

Thanks Agents for all your responses.  I will attempt to continue to address topical issues in our industry.  I am In House Counsel for large Southern CA Brokerage, and know how hard agents work in this market, and how many sticky issues arise with the massive expectations that our placed on the shoulders of agents. Hopefully, I can give some added value here and there.

Nov 24, 2011 03:25 AM #15
Rainmaker
2,484,023
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

Well done and presented. This is definetly on the solution and results side of the whole thing....Carry on Counsel and thank you for keeping an eye and an ear out

Nov 24, 2011 04:18 AM #16
Rainer
211,341
Jack O'Neal
HomeSmart Elite Group - Gilbert, AZ

Good stuff, So many ways to get sued out there

Nov 25, 2011 05:34 AM #17
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