Sunday, March 4, 2012

Always Helps to Read the Fine Print

Always helps to read the fine print. This is especially true with government documents. For example, on a HUD-1, we typically read the second page first!! LOL I wanted to point something out that is frequently overlooked in HAFA (Home Affordable Foreclosure Alternative) programs.
The fine print in a HAFA transaction typically reads that if the lender rejects the HAFA short sale offer, the transaction AUTOMATICALLY converts to a Deed in Lieu (DIL)! For this reason, I have sellers execute a HAFA opt out form that is dated at the time of the purchase contract but not tendered unless or until I need it. The terms of a Deed in Lieu are typically not in the best interests of the seller and there will be no financial incentive to move or waiver of deficiency. The timing of the Deed in Lieu is also typically not conducive to a smooth transition for the home owner. It probably also goes without saying that there is no real estate commission paid either. The terms of the DIL are not specified but you can pretty much bet that they are not as favorable (or at least not as unfavorable) for the home owner.
HAFA has helped many home owners move on from a bad situation. For many, it is a tremendous program. However, for others, it has been a nightmare because of the Deed in Lieu. This situation also warrants great care in the submission on the short sale offer because you do not want to get the offer rejected (although a counter offer is fine).
As with many government programs, you have to be careful with proceeding under a HAFA program. The government required that lenders participate in the program but the lenders did manage to get certain concessions. The Deed in Lieu conversion on a rejected short sale in one such concession.

Paddy Deighan Esq

Thursday, March 1, 2012

Time for a Review of Listing Agreements

Time for a Review of listing Agreements
Time for a review of listing agreements. It seems that no one every talks about them and that they are largely taken for granted. However, some recent developments have placed emphasis on them and we should discuss the issues that relate to them.
Listing agreements form the basis of a relationship between the home owner and a real estate agent. For years, they have contained substantially the same information. However, I have noticed a marked increase in the variance of the terms of such agreements as well as a tendency to forget certain aspects of them.
Recently, I have encountered listing agreements with TWO year terms. No one should want that. If the home has not sold in a reasonable period of time, the home owner will want to work with someone else. Similarly, if the agent is unable to get an offer, they may not want to work with the owner either because the disconnect will probably be over the home owner’s reluctance to lower the price. We all know that price is the issue. If priced appropriately, almost anything will sell.
Please make the term within reasonable industry guidelines. Six months is certainly acceptable, and 12 months seems too long to me.
I have also encountered provisions which enable the agent to capture a commission TWO years after an introduction of a potential buyer. This seems too long as most agreements call for 6-12 months as a “look back” period.
Additionally, I have noticed commission rates creeping up. Lately, I have noticed compensation percentages of 8-10%. The norm is 6% and many lenders are unwilling to pay even that in a short sale. Home owners will be very angry when they discover that the norm is 5% or 6% and you signed them to a higher fee. Sometimes the higher fee is justified…so state that in the agreement.
Finally, I want to illustrate and interesting aspect of Listing Agreements. In many jurisdictions, they are INSTANTLY binding. There is no attorney review; there is no three day right to rescind or cooling off period. This is unlike a sales contract. It is easier to terminate a sales contract than a listing agreement. I personally feel that there should be strong warnings on the agreement to the home owner about this. However, it would be prudent to explain this to the home owner since doing so make avert negative feelings in the future.
Paddy Deighan