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
http://www.homesavers.pro

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
http://www.homesavers.pro

3rd Party Short Sale negotiations, Part III

3rd Party Short Sale negotiations, Part III. Today, I wanted to discuss the reasons in favor of utilizing in- house 3rd party negotiators. The first reason for an in-house negotiator is that the agent already has established a relationship with the seller and there is a high level of trust. The seller will be comfortable discussing finances with the agent. The agent will also be diligent in pursuit of the approval since they are a professional and their compensation will dependent upon a successful outcome.
Agents also have the experience and depth of knowledge to complete a successful approval. Keeping the negotiations in-house also simplifies the process since there is not another person or firm engaged in the process. This simplifies the process and avoids the all-to-frequent occurrence of “too many chefs in the kitchen”. I have been involved in many short sales during the last six months in which too many people get involved and call the lender and title. Title in particular will be disturbed by too many calls and people involved in the process. The situation was analogous to the telephone game that we played as a child. As the message was whispered from pupil to pupil, the message is completely distorted. The more individuals involved in the short sale negotiation (even if they are from the same firm, broker, etc.), the higher the possibility that some information may be distorted.
All in all, I do not believe that there is a definite answer to which method is best. There are great 3rd party negotiators and there are no so great negotiators. This is also true of agent negotiators too. So, there is no definitive answer. Even though there is no definitive answer, the issue is a very important one. The success (or failure) of a short sale negotiation is the single biggest issue in obtaining approval. Such an important decision must be made with great care.

Padraic Deighan
http://www.homesavers.pro

3rd party Negotiations in Short Sales, Part 2

Yesterday, I wrote about whether it is prudent to utilize a 3rd party negotiating firm or perform the services in-house. I presented two legal considerations for the utilization of a 3rd party negotiation firm. Today, I will discuss the practical reasons why it may be prudent to employ a 3td party negotiating firm.
According to NAR, the average short sale negotiation takes 27 hours to consummate. I maintain that this number is based on data that is now outdated. I believe that it takes at least 40 hours on average to complete a short sale. In any event, it takes a lot of time and effort to get a short sale approved (or denied). It is arguably not the best use of an agent’s time to negotiate the short sale. The time can be utilized in better business development or direct client services. The compensation is not commensurate with the amount of time spent (if there is additional compensation at all).
One of the other troublesome aspects of (listing) agents performing the short sale negotiations is that most buyers want the lowest approvable price. They are bidding on a short sale because they either truly love a particular home or they are shopping for the best price. It is in the agent’s financial best interest to obtain the highest approvable price because it will yield higher compensation for them and make the approval process easier for them. It is not difficult to get a short sale approved when the offer is close to fair market value.
A point can be made that the listing agent is in a difficult position with respect to their duty to their client. Their duty to the client in a short sale is to get the home approved and closed. The easiest way to ensure that this happens is to obtain the lowest approvable price because this will increase the likelihood of approval and close. It is a bit counter-intuitive that the best price may be the lowest price, but short sales are a different dynamic. This is especially true in the case of investor-buyers.
Tomorrow, I will present the considerations in favor of in-house negotiations.
Paddy Deighan

http://www.homesavers.pro

3rd Party Short Sale Negotiation or In-House??

3rd Party Short Sale Negotiation or In-House?? This has certainly become a contemptuous issue…so much so that it is almost political!! LOL I participated in a blog discussion about this last week and the opinions were strong on both sides. Soooo, I thought that we could have a discussion on here to view each other’s opinions. I will present the pros and cons and hopefully others will comment so that we can have a discussion.
I personally feel that neither the listing agent nor buyer agent should negotiate the short sale. There are two legal reasons and two practical reasons for this. I will discuss the legal issues today and the practical issues tomorrow.
The first legal reason is that despite what many have heard, lenders prefer negotiations from a 3rd party. Think about this logically. Would you rather see an offer and negotiations (as a lender) from someone which has a vested interest in the outcome negotiate the sale, or a neutral third party. I work for lenders and I can tell you that they prefer the third party negotiations. I work with investors and home owners on foreclosure defense and my experience is that many third party firms are really good at this and utilizing them strips all emotion and appearance of impropriety from the transaction. Virtually all of the fraud that we have read about comes from too many people with too much financial interest in a property – all working together in a fraudulent manner.
The second legal reason is that negotiating a short sale is outside the scope of your real estate license. Few attorneys or regulators will argue with this. One of the reasons is that when licensure was established in all states, short sales were unheard of and not even considered. The issue was not part of the established guidelines. Perhaps this will change, but for now, it is outside the scope of your license.
One of the problems with this is that your Errors and Omissions policies can void coverage!! Virtually all such policies contain provision that enable a carrier to deny coverage. There are catch-all phrases such as complying with all laws, rules and regulations and if the carrier can illustrate that you acted outside of your licensure, you will be personally liable for the claim defense and any loss associated with it. This is happening today!! I am in Orlando on a foreclosure defense hearing for a client and I saw an ad on television last night that stated what I have said is coming for years…”did you lose your home in a foreclosure auction?? Did you have a real estate professional negotiate your short sale?? You may have a claim for damages.”
Also, realize that your broker will not be pleased either as he or she will be a named defendant as well. The irony is that their liability insurance coverage may protect them but you may have no coverage as discussed above.

Paddy Deighan
http://www.homesavers.pro

An Update on Title Insurance in Short Sale Transactions

An update on title insurance in short sales transactions. Title insurance is often overlooked in all real estate transactions and especially short sales. Many owners do not have title insurance and what is worse is that they are not even aware of it and they purchased something that they invalidated without even knowing it.

Many short sale investors purchase short sales in one name and then transfer the legal entitlement of the property to a business entity, trust or via quit claim. These investors are unaware that they just voided their title insurance. ANY divestiture of title…even a Quit claim from a husband and wife to just the one spouse will void a policy.

I recently blogged about a case decided by the Massachusetts Supreme Court in which the court invalidate a foreclosure sale acquisition by Bevilaqua. The Court concluded that the foreclosing lender could not prove that it was the real party in interest because it was unable to produce the original note. Cases such as this exemplify that title is more important than ever. What is worse, is that many title policies have been invalidated and the owners are unaware of this.

Many buyers incorrectly assume that if they close escrow and pay the title insurance premium, that they have fill coverage. However, it is frequently the case that they HAD coverage and lost it buy actions taken shortly after close of escrow.

In purchasing real estate it is important to read the title policy. Ask questions and perhaps even tell the representative the nature of your future plans. Also, at all times, realize that title companies are extremely conservative and risk averse. If there is the slightest chance of exposure, they will reject the risk.

The title insurance industry has very astute risk managers that assess risk. They tend to over-react to trend that may expose liability. Short sale addenda and affidavits are creating additional exposure to title insurers and they are now refusing to provide coverage in many short sale transactions.



Paddy Deighan

http://www.homesavers.pro

Ohhhh Boy!! Another Case of a Foreclosure Sale Gone Bad!!

Ohhhh Boy!! Another Case of a Foreclosure Sale Gone Bad!!I always stated that a bone fide third party purchaser has a lot of rights when they purchase a property in a foreclosure auction sale. They should have a lot of rights because they did nothing wrong in the transaction and they have every right to assume that they will get good and marketable title. Of course, they should always perform their own due diligence.

However, recently, The Massachusetts Supreme Court ruled against Francis Bevilacqua. Mr Bevilacqua purchased his home at a foreclosure auction in 2006, but the Court ruled that he never had legal title to the property since the lender had no right to foreclose on it in the first place! Five years after the purchase, the robo-signing bank’s “dubious practices” stand to cost Bevilacqua. Realize that he purchased the home long before the issues with title associated with robo-signing came to light and he reasonably believed that the title was clear!

Bevilaqua’s attorney commented that this is “scary” and he added that people with this new type of cloud on their title “don’t know they have this problem.” Prior to the state’s U.S. Bank vs. Ibanez decision, in which the Supreme Court ruled that the prior owner of a property has claim to a property if the foreclosure process is proved invalid, Bevilacqua would have been considered to have clear title. However, the Ibanez case changed the game because, according to the decision, if “the bank held nothing [due to improper foreclosure], Bevilacqua acquired nothing and had no standing as a result”.

Although Bevilacqua attempted to clear the title upon learning of the issue recently, his petition, based on a statute “designed to allow the holder of a clouded title to clear that title,” was denied by the state Land Court. The court ruled – and the Supreme Court upheld the ruling – that Bevilacqua did not have the necessary “plausible claim to the title” since he acquired the title following an invalid foreclosure. The ruling makes it clearer, at least in Massachusetts, how courts will respond when ownership of properties that were foreclosed on during the “robo-signing era” comes in question. They will likely rule in favor of the former homeowner.

There is still a possibility that Bevilacqua will be able to keep his home via a foreclosure proceeding on the prior owner. His lawyer has stated that they will proceed with this option. There is currently no information available on how the former owner of the home plans to respond to the news.

I wonder what would have been the result if Bevilacqua had purchased via a short sale as opposed to a foreclosure auction sale…..

Everyone have a wonderful Thanksgiving!!



Padraic Deighan Esq

http:www.homesavers.pro