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 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

New Twist in Short Sale Negotiations

New twists in negotiating short sales are occurring almost daily. Frustrated by long delays and lack of success in utilizing others, some investors have entered the negotiation arena. The concept is fair and simple: investors want some control over the process and many have taken to negotiating the short sale.
Everyone in the industry has an opinion on who should negotiate a short sale. I can say that major lenders (I work as a consulting attorney for two of the largest) do not favor short sales that are negotiated by someone with an interest in the property, or an interest in whether a property closes escrow. This would include listing and selling agents as well as the home owner. I suppose that this must now also include the investor as well. It would also include third party negotiators that are paid only if the property closes escrow. However, it is unlikely that a lender would ever discover the financial arrangements of a third party negotiator and client.
You can understand why – temptation and greed are powerful motivators for someone to fudge a short sale a little bit – state something to the lender that may not be accurate or fail to provide information that may lead to a denial or less favorable terms.
Today, I was contacted by a gentleman who was advised IN WRITING that the second and third liens were released and that a waiver of deficiency had been obtained. The short sale was negotiated by the investor buyer personally. You can imagine what happens next: there was not a full satisfaction of the second and third liens and one of the lenders filed suit in pursuit of a deficiency judgment. Perhaps the investor buyer honestly believed that he had obtained a waiver. It does not matter because the fact is that there was no waiver and now the home owner is in litigation.
There is a dramatic increase in litigation such as this. There is likely to be a lot more ahead as more restrictions are belong placed upon a short sale home.

Paddy Deighan
http://www.homesavers.pro

Hypocrisy of Freddie Mac and Lenders in Short Sales

It never seems to get any easier. Short sales have become increasingly more difficult. Wells Fargo for example, has included addenda that require an investor buyer to hold a property for 90 days prior to reselling. This mandate comes from the investor on the note (Freddie Mac). Here is the hypocrisy: Freddie Mac is not the government as many people believe. However, the government (and taxpayers) have a relationship with Freddie Mac and own a sizable chunk of the company.
Several states have enacted legislation or already have legislation that prohibits such restrictions. I am going to blog about the topic of the legal implications of the restrictions in another blog because it is a lengthy discussion. There is little question that addenda are getting more restrictive on buyers. There are legal, contractual problems with this and there are also title issues as well. Regardless, lenders are including the restrictions in the approvals.
Yesterday, I had a conference call with Freddie Mac, the lender (servicer), the buyer and the closing attorney. The closing attorney (who of course is neutral in the transaction and does not takes sides) indicated the Freddie Mac that there 90 day restriction on sale violates North Carolina law. Freddie Mac responded, “We do not care. Unless the affidavits are signed as is, we will not approve the sale”. So a quasi-federal governmental agency does not care about state law and it wants what it wants even though there are legal and title issues in their policy. Despite such behavior, there are many in the real estate industry that believe that the federal government is a solution to the sagging real estate market.
I have a solution to this situation and it works for now, but we should not have to go through this. Real estate agents should not be required to execute affidavits that are not legally supportable and which put them at a litigious risk. In one recent transaction, the real estate agent felt so strongly that he should not sign the affidavit that he withdrew from the transaction.
We all have to stand up to this because the lenders and their investors are making more and more restrictions on transactions. The ultimate hypocrisy is that they do not even have standing to assert these restrictions, but that argument is reserved for another day and another blog.

Paddy Deighan, Esq
http://www.homesavers.pro

Everyone Must Stay in their Lanes in This Real Estate Market

I typically try and only write positive and useful blog entries. However the events of the past week have compelled me to blog and vent about some recent developments:

•an agent in New Jersey refused to relinquish a listing 45 minutes after it was signed and despite my directive to her (as the home owner's attorney) and the home owner himself, the agent listed the property in the MLS and is refusing to terminate the agreement. Worse still, is her buffoon broker threatened to place a lien on the property if the listing is not honored. The agent admitted that she had very little short sale experience and this is a complicated matter.
•another agent in New Jersey advised my clients that they should not file bankruptcy. The sought legal counsel and that attorney recommended that they file;
•an agent in California has refused to relinquish the short sale negotiation even after the home owner signed an agreement with a 3rd party firm. The agent is demanding an additional 1/2 percent for the short sale negotiation and she advised the client that the lender will pay it at close of escrow
•an agent in Florida advised my clients that they should not appear before a hearing officer in a foreclosure matter. Although I may have agreed with her, time was of the essence and she should not have advised the clients of this. It was the only option that we had but her advice severely upset the clients and she should not have commented on this,,,,

As the market becomes more challenging, there will be more bizarre occurrences. However, if everyone works together and stays in their lanes, more transactions will successfully close escrow. All of the above occured THIS week!!! It takes so much additional time for me to handle these matters because time is wasted on non productive matters.


Paddy Deighan

http://www.homesavers.pro

Fear of Fraud Ruining Many Investor Deals

It keeps getting harder and harder to get shorts sales accomplished. It is especially difficult with investors even though they are paying cash in most instances. Investors are more than one-third of current transactions do it does not behoove the industry to make matters more difficult for them.



Lenders have certainly made it more difficult for investors with restrictions in reselling, re-listing, marketing, etc. However, now the listing agents and their brokers are injecting personal feelings, emotions, and LEGAL opinions into the mix and this is REALLY hurting the industry.



Earlier today, I was on the telephone with a listing agent in Florida. I was on the call as the attorney for an investor/buyer with cash. This agent explained to me that she does not so “investor” deals. I explained to her that this is distressed real estate and she cannot afford to maintain this position. WELL!!! Missy Miss advises me that she does $20M a year in production and does not need to do investor deals! Folks, this lady would boo a cure for cancer. Could not have been more negative, condescending and arrogant.



My response to this verbal diarrhea was that she accepted a client and has a duty to the client. He position necessarily violates that duty. She then explained that her broker told her not to accept investor deals. OK, a new wrinkle. She stated that attorneys told them not to participate in them because they might lose their licenses. I advised her that NOT participating in investor deals and presenting all offers, FAIRLY (without sabotaging them) could cause her to lose her license!!!



Ladies and Gentleman, this is really getting out of hand. Not all investor deals are fraud. A small fraction of them are. Do we judge ALL attorneys and ALL real estate professionals by the bad actions of a few?? There is NO place in the real estate market for the injection of personal feelings and emotions into the process. This listing agent was clearly sabotaging the deal because she “didn’t like it”.



I then decided to review the foreclosure status online. The foreclosure is 2 ½ years old and getting close to sale. I asked what the status of the property was and the listing agent told me “pre-foreclosure”. PRE-foreclosure?? Honey, this property is half way to gone!! Did she not know the difference?? A willing buyer, with CASH, told her that there is not a good fit – and it was not because of price or terms, it was because of her!! Investors need love too!!! LOL



Paddy Deighan JD PhD http://www.homesavers.pro

Fear of Fraud is Ruining More Workable Real Estate Transactions

It keeps getting harder and harder to get shorts sales accomplished. It is especially difficult with investors even though they are paying cash in most instances. Investors are more than one-third of current transactions so it does not behoove the industry to make matters more difficult for them.

Lenders have certainly made it more difficult for investors with restrictions in reselling, re-listing, marketing, etc. However, now the listing agents and their brokers are injecting personal feelings, emotions, and LEGAL opinions into the mix and this is REALLY hurting the industry.

Earlier today, I was on the telephone with a listing agent in Florida. I was on the call as the attorney for an investor/buyer with cash. This agent explained to me that she does not do “investor” deals. I explained to her that this is distressed real estate and she cannot afford to maintain this position. WELL!!! Missy Miss advises me that she does $20M a year in production and does not need to do investor deals! Folks, this lady would boo a cure for cancer. Could not have been more negative, condescending and arrogant.

My response to this verbal diarrhea was that she accepted a client and has a duty to the client. Her position necessarily violates that duty. She then explained that her broker told her not to accept investor deals. OK, a new wrinkle. She stated that attorneys told them not to participate in them because they might lose their licenses. I advised her that NOT participating in investor deals and presenting all offers, FAIRLY (without sabotaging them) could cause her to lose her license!!!

Ladies and Gentleman, this is really getting out of hand. Not all investor deals are fraud. A small fraction of them are. Do we judge ALL attorneys and ALL real estate professionals by the bad actions of a few?? There is NO place in the real estate market for the injection of personal feelings and emotions into the process. This listing agent was clearly sabotaging the deal because she “didn’t like it”.

I then decided to review the foreclosure status online. The foreclosure is 2 ½ years old and getting close to sale. I asked what the status of the property was and the listing agent told me “pre-foreclosure”. PRE-foreclosure?? Honey, this property is half way to gone!! Did she not know the difference?? A willing buyer, with CASH, told her that there is not a good fit – and it was not because of price or terms, it was because of her!! Investors need love too!!! LOL

Fear of Fraud is Ruining More Investor Deals

MORE on Flipping, Flopping and Fraud

We have had great dialog regarding fraud and disclosure and I wanted to follow up on this based upon the GREAT comments that we are entering. This is what Active rain should be....professional dialogue to vet issues and voice opinions (naturally networking is huge too).
Much of the discussion relating to fraud has been based on disclosure. Disclosure is a HUGE issue today because the short sale process has escalated the importance of disclosure. This is not only on what TO disclose, but also what NOT to disclose in a short sale transaction.
Many have expressed that as long as you disclose, there is no fraud. This is generally a good starting point, but it is not dispositive of the issue. Disclosure alone will not prevent fraud if the other underlying elements of fraud exist. The challenge in a short sale is that there is frequently an extra buyer – the “end” buyer. The presence of this additional party has complicated the disclosure topic.
Fraud has more to do with intentionally deceiving someone in the purchase and sale process. Misrepresenting on a HIGH level the facts or issues. Obtaining a BPO or appraisal by intentionally mis-stating aspects of the home MIGHT rise to fraud.
In these transactions, we must all stay within our lanes. By this I mean, realize who are client is, and appreciate what are duties are relative to that client. This applies to EVERYONE – agents, brokers, attorneys, buyers, sellers, title agents, mortgage brokers, and the lender. Rarely does anyone in the transaction have a duty to the lender (unless it is a listing agent and their client is the bank such as a REO). The lender has its own protections and staff. Whenever listing agents or the buyer’s agent discloses something to the lender, they probably have just violated their duty to their CLIENT! Not a good plan!!
Lenders have embarked on creating the duty by asking buyers, listing and buyer’s agents to sign various forms of addenda or disclosures that CREATE the duty to inform lenders of other offers, etc. THIS PROVES MY POINT!!! THE DUTY DOES NOT EXIST AND LENDERS ARE TRYING TO CREATE THE DUTY! DO NOT sign these addenda!!! You do not have to!! I also frequently see the reference to a “fiduciary” duty in such addenda. It is NOT a “fiduciary” duty. Perhaps use that as the reason to not sign the addendum.
Tell the lender that your attorney, broker, client, or barnyard animal of choice has instructed you to not sign this. Tell them that there is no privity of contract to sign this; no legal consideration to sign this, etc. More often than not, they will back down!!!

Scary Outlook for Real Estate Agents and Investors in Short Sales..MUST READ

As always, there seems to be good news and bad news for real estate investors. The truly great news is that recent statistics indicate that 37 % of transactions are now completed with investors. This is up from a previous average of 30% (according to NAR). I personally view this as good news since investors are clearly keeping the market alive since they are completing more than one-third of the transactions.
The bad news?? Seems that major lenders are continuing to clamp down on investor deals. Wells Fargo has recently released a new standard approval letter than includes a NINETY DAY restriction on reselling by the investor. Bank of America is thought to be ready to adopt this policy as well. Additionally, many lenders are placing real estate professionals in harm’s way by requiring them to sign an addendum that indicates that they acknowledge a fiduciary duty to the lender to disclose any higher or otherwise better offers during the course of the transaction.
This is legally not supportable because the lender is placing the real estate agent at a litigious risk to their contractual client (this would not be true in the case of a REO listing agent, however). In fulfilling the “fiduciary” duty to the lender that the lender has now created (and without legal consideration to you for this), you are sometimes violating your contractual duty to your client. In fulfilling the “fiduciary” duty to the lender (that legally you do NOT have) you will be causing the investor buyer to walk since their offer will be rejected and the home owner is now in a worse position than they were before (no buyer) and it is because of a the disclosure to the lender of a potentially higher or better offer that may never come to fruition! If you disclose and your client was the buyer, the sale will be rejected and the buyer will have a claim for lost profit against you since your action caused the offer to be rejected and your contractual duty was to the buyer. Whether you are the listing agent, transactional agent or buyer’s agent, the bank wants you to disclose higher or better offers.
I also strenuously object to the description of your new duty to the lender as “fiduciary”. It is not a fiduciary duty. It is my recommendation that you refuse to sign this and state that there has been no legal consideration for this promise; that you cannot execute that provision because it puts you at a litigious risk by potentially violating your contractual duty to your client (regardless of whether the client is a buyer or seller) and that you are not a party to the contract. We all need to stand up to lender intrusion into the market.

Things a Listing Agent Should Never tell a Short Sale Lender...

I know that this sounds like a question from the $25,000 Pyramid show, but....There is a disturbing trend in short sales....an investor puts a property under contract and begins to market the property for future sale. Listing agent discovers that there may be a higher offer. They then tell the short sale lender!

This is a mistake for valid legal reasons. The listing agent's duty is to the home owner. In telling the short sale lender that there "may" be a higher offer, you are breaching that duty to your client! If the short sale that you submitted is rejected, you are now liable to yoru client because you had no duty to disclose the higher offer and in doing so, the bank rejected the offer because they believed that a higher offer is coming in. Of course the higher offer does not come in because the contract with the investor is now terminated!!

There is some misguided notion that you have a duty to the bank. The only time that you do is when the property is a REO. In that situation, of course, you must advise them of the higher offer, BECAUSE THEY ARE YOUR CLIENT!

There is no duty to advise the bank of the higher offer. There IS liability to YOUR client if you DO! So, please do not do this. You will lose investor buyers, and subject your self to liability...and by the way, in all likelihood, your E&O policy will not cover this loss because you were not acting within the scope of your duty and license and your action caused the liability!!

Investors are around 30% of the buyers right now so it makes no business sense to alienate them!!! This is also a good reason for the listing agent to NOT negotiate the short sale....you are putting yourself in harm's way when you negotiate the short sale