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