Myth #1: That the lender/servicer is obligated to pay you a commission if you have procured a possible buyer through your marketing efforts.
Reality: The servcier may change the amount of commission which you will receive at any time, including just before and up to the time of the closing.
Reason: The lender/servicer is NOT a party to the listing contract. They are not legally bound to pay the brokerage firm anything and since they are agreeing to accept a short payoff they are not in the mood to pay full commission. You can understand that, right?
Myth #2: That it is okay to wait until a buyer writes an offer to notify them that it might be a possible short sale.
Reality: While you avoid the risk of running a possible buyer away you open yourself (and the brokerage firm) to the strong possibility of a complaint or lawsuit for failure to disclose. There appears to be wide misunderstanding about Federal privacy laws and I repeatedly hear that you can’t disclose because of the seller right to privacy. What the Federal privacy actually states is that you can not disclose certain personal information “without the seller’s knowledge and consent.” It is imperative that licensees understand the vast difference between the two statements, get appropriate permission from the seller (in writing) so they do not run afoul of state law and ethical concerns.
Reason: Both the seller and the agent are obligated to disclose a possible foreclosure; the seller by seller disclosure law, the agent by ethical guidelines. The “SELLER DISCLOSURE LAW” provides for a buyer to be informed of anything which might impact their decision to write an offer on a particular house. It would be a significant “failure to disclose” to not mention a little detail like ‘possible foreclosure’.
Myth #3: That bank-owned property is always free of any undisclosed liens or other encumbrances.
Reality: Many of the homes being purchased as REO or bank-owned properties are being transferred with liens already attached or the possibility of liens becoming attached.
Reason: The kind of title policy which is used for REO sales is a special, limited coverage policy. The holder of REO properties makes no warranties about possible clouds on the title prior to their acquisition through foreclosure or deed-in-lieu. Title is transferred using a special warranty deed or a sheriff’s deed and most importantly all the documents which the purchaser has signed states that they understand these facts.
Myth #4: That you are entitled to the amount of commission which is stated on your listing contract even when the home is being sold as a short sale.
Reality: Maybe you are; maybe you aren't. Most importantly, can the person who signed the listing contract afford to pay the commission if the new purchaser does not offer enough to cover all closing expenses, including commission?
Reason: If there is the need for a short pay-off, most often EVERYTHING which can legally be compromised will be; including commission.
Myth #5: That there should be no ethical concern if you inform the co-op agent at the time the lender approves a short sale that there isn’t enough money there to pay the percentage of commission which your brokerage firm advertised.
Reality: If you have advertised a co-op fee to promote the sale of a home, then you should be prepared to pay whatever you advertise. If you do not do so you are begging to be taken before the Ethics committee.
Reason: You have promised to abide by the NAR ethical standards, one of which states you will deal fairly with your fellow agents. Is it fair to promise me (through your advertising) $4,700.00 if I bring a ready, willing and able buyer for your listing and then tell me at the last minute you made a little mistake and I will only be getting $3,200? While the lender is controlling what commission they will ALLOW on the short sale, they do NOT control what you advertise, what is to be paid to my brokerage firm nor what your client agreed to pay for the service of having their home listed and sold. I understand the short sale game; that does not change the fact that I am legally and ethically entitled to receive the amount of commission you advertised. As a buyer’s agent my relationship is with you and your brokerage firm. I am not a party to nor do I care what contractual concerns or restraints are involved on the listing side of the transaction. It would be extremely helpful if real estate boards got some clarity about WHY lenders can control the amount of commission paid from proceeds and then made the necessary accommodations to address the new reality. Changes to commission policy, MLS guidelines for advertising, data input sheet, and training for practioners are sorely and urgently needed to address this matter.
Myth #6: That it is okay to list a home even though the consumer has filed bankruptcy because the attorney told you (or your client) to do so.
Reality: When a consumer files a bankruptcy petition all creditors are now prohibited from having any interactions with the borrower or their representatives. All borrower assets (including the aforementioned house) are frozen. Nothing is to be liquidated without the express approval of the trustee of the court.
Reason: All of the things stated above; additionally, it would be unfortunate for you to have a listing which is a “frozen asset” by a Federal court which someone wrote an offer on. Check the questions on your state “Seller Disclosure Form”: “Is there any threatened or pending litigation?” The trustee may put the consumer into a Chapter 13 or may require they sign a deed-in-lieu. In either case, there is now no house to be sold.
Myth #7: That the lender should not have anything to say about the short sale transaction since the consumer still owns the house.
Reality: The lender/servicer does not have anything to say about whether or not a borrower sells their home. They do, however, have a lot to say about whether or not they will release the deed to facilitate such a transaction if they are not being paid the full amount the borrower committed to pay under the terms of the mortgage.
Reason: Quite simply, the borrower MUST have the lender’s approval because the lender is being SHORTED.
Myth #8: That the consumer does not have to worry about a deficiency if the lender agreed to a short sale.
Reality: The fact that a lender/servicer allows a short sale does not automatically grant the consumer protection from a deficiency judgment in the future. The only automatic provision for such protection is if the loan were insured by FHA
Reason: Being allowed to close does not negate the terms of the mortgage. One of those terms is a provision which allows the lender to come after the consumer for any shortage even when the lender has granted a short sale or accepted a deed-in-lieu if the lender has not specifically agreed to waive their right to do so.
Myth #9: That processing a deed-in-lieu of foreclosure is such a simple process that there is no need to involve an attorney and pay their high fees.
Reality: While the deed-in-lieu process is exceedingly simple (the consumer simply signs the one-page document produced/presented by the lender, gets it notarized and sends it back) the process has MAJOR, POSSIBLY DIASTROUS consequences for the borrower. Therefore, it is never a good idea for a consumer to relinquish a property via deed-in-lieu without adequate legal and insurance counsel. Real estate professionals should have nothing to do with this simple, disaster-prone activity.
Reasons:
a) Any number of things could happen between the time the borrower MAILS notification of a title transfer to the lender/servicer and the time when that transfer is, in fact, recorded. The Ohio Attorney General’s Office has shared with me that the office has received numerous complaints of the lender’s failure to do so for MANY months. In the meantime the borrower remains responsible for any damage, costs, injuries, etc associated with the property.
b) Lender/servicer may claim to never have received the MAILED deed-in-lieu if the problem which has arisen is a particularly expensive one.
c) Acceptance of the title to the home does not absolve the consumer of the financial obligation for the full indebtedness; i.e. possible deficiency judgment.
d) Additionally, there is always the possibility of a tax liability associated with eventual transfer to a new purchaser if the home sells for less than full pay-off plus costs.
The risks are substantial: Hiring a competent attorney is the only smart thing to do. REALTORS are advised to keep your nose out of this.
Myth #10: That consumers who are behind do not have any money to pay for professional representation when they are in default.
Reality: One of the most common myths out there and nothing could be farther from the truth. Just because a borrower cannot:
1. find the right office to accept their money 2. pay the 8 months they are behind plus attorney’s fees 3. understand the process well enough to know who to go to when they keep getting snatched around like a rag doll.
DOES NOT MEAN THEY ARE BROKE
Reasons: 1st, everyone who is struggling is not lower income 2nd, borrowers have demonstrated through their willingness to pay scam artists thousands and thousands of dollars for "phantom help” 3rd. Non-profits organizations frequently have income guidelines which exclude many of the middle and upper-income borrowers who are struggling
Myth #11: That non-profits agencies are the ONLY option consumers should have for default counseling and other real estate professionals (especially REALTORS) should stick to selling houses and keep their nose out of foreclosure intervention.
Reality: As stated above, many borrowers who need help are prohibited by income from receiving help because their income is too high. Even if they were not, non-profit agencies across the country are staggering under the volume of requests for help. While they are reluctant to see any other professionals step onto what is perceived by many to be “their turf” consumers need help; they need it today not four months from now.
Reason: The shocking answer is that a turf war has emerged over who should claim the defaulted borrower. Should it be the lender? (whom the consumer does not trust and who has made no inroads in connecting with such borrowers). Should it be non-profits who gleefully tell everyone “that is our job”? (while distraught borrowers by the HUNDREDS and HUNDREDS of THOUSANDS say they called the toll-free number to no avail. Funding, staffing and training are the issues for the organization and the politicians. The consumer issue is they are in default NOW and need someone who can provide them with some clarity and direction NOW. Many will disagree but I am the author of this article and I believe that history will show that real estate professionals will step up to fill that gap in significant ways during the next 3-5 years as we see this housing crisis run its course.
Myth #12: That consumers might as well pack up and leave if they cannot make their mortgage payment.
Reality: The consumer who moves out has dramatically DECREASED their chances of a successful workout of any kind with the holder of the mortgage. Additionally, they will be incurring a housing expense when they could have remained in their home for a longer period of time.
Reason: By vacating the home the borrower has violated the terms of the mortgage note, specifically the paragraph which deals with abandonment. The consumer is also demonstrating ability to make some kind of payment if they have rented (please don’t tell me they bought something else).
Myth #13: That a REALTOR can take a 2-3 hour class and pretty much know what they need to know to effectively handle short sales and other challenges associated with selling and buying real estate in the current market.
Reality: The issues of foreclosure process, state law, consumer rights and responsibilities as contrasted with the lender’s obligations, accurately accessing the borrower ability and willingness to complete and implement a workout plan as well as at least a hundred other considerations which need to be analyzed make this issue vastly too complex to understand without extensive study. With extensive home study and the completion of 1-2 weeks of intense training I believe someone could be competent. Conversely, with less than that I believe you are operating in a way which puts yourself, your client and your brokerage firm at risk.
Reason: Non-profit organizations and I share one strong point, that non-professionals, who have not undergone substantial training in this area, should not be providing financial counseling which will impact consumers' entire lives. I agree that the consumer does not, in fact, need a REALTOR. The consumer needs a Foreclosure Intervention Specialist. Most real estate agents are not trained to be that, but then, neither are most counseling agency staff.
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