Bank of America's policy on allowing third-party negotiators to work short sales
I am a third party negotiator that the agents and homeowners select to assist with the short sale process. For a year I have been negotiating with lenders through the Equator system, this past week I was told that I was not an agent or attorney and that I was not allowed to be working on the short sales. Has anyone else encountered this? Also how is Bank of America able to tell the homeowner whom they can have negotiate the short sale for them as long as I abide my our state laws (which I am). Most agents don't want to spend the extra time it takes to get a short sale approved and closed and that is why they come to me. I had 4 BofA short sales that have been being worked on for 3 months get denied and closed due to me not being an agent. I think that if the government investors were aware of this issue they would not be ok with it.
Replies to This Discussion
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Permalink Reply by Jeff Payne on
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Thanks for the reply. Just curious, what REO sellers are requiring the use of a particular lender? In my area they require a simple preapproval but nothing more. I don't believe that it is legal for a REO seller to force the buyer to use a particular lender.
I agree it is up to the buyer for sure but I was asking why the seller would hire the 3rd party if the buyer is paying for it. Why could the buyer not hire the 3rd party?
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Permalink Reply by Natalie Arndt on
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Jeff,
I believe that REO sellers are asking buyer to get pre qualified with certain lender is to be able to determine if buyer is pre qualified for real. They can not force the buyer to use certain lenders.
With some properties that buyers can not get loan via conventional or FHA due to the substandard shape of the listing the lender can offer rehab loan. What else could they do with that property except receive cash offer from someone?
FHA and conventional underwriters have been asking for home inspections and they have been so picky and that is only one more bridge we need to cross once we get an offer.Simply if no one else would offer rehab loan on certain properties beside the lender who owns the property than I guess your buyers only choice is that particular lender.
Natalie
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Permalink Reply by Paul Francis - Vegas Short Sales on
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My references to the buyer being asked to pay the 3rd party negotiation fee is in ADDITION to what the sellers lender agreed to short sale the property for.
For Example: Approved short sale price is $160,000 but your buyer needs to come in and pay an additional $1,500 because we outsourced the short sale to a 3rd party service and the seller or the listing agent is not going to pay for somebody who did the work for us.
I have no problem with listing agents / homeowners who want to outsource their work.... just don't ask me to pay for it.
You are absolutely correct though... it's up to the buyer if they want to pay for it or not. I just have not had a buyer that wanted to pay for it. As a buyer... I certainly won't pay for it.
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Permalink Reply by Kristin Johnsen on
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Also as Bank of America wants and several of you have suggested it "working under agents log in on Equator" then that ultimately makes that agent responsible for my actions when they shouldn't be that's why I have E&O Insurance, am bonded and insured with the state Attorney Generals Office. The agents should only be held responsible for the contractual real estate issues that they are trained and licensed for not the short sale portion which they are not.
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This is very interesting. I have been working under my supervising agent's Equator login through all my short sales. I am real estate licensed but not hung with the broker. I have never been questioned, I'm assuming it's because I am my agent's assistant. Should our office be concerned that I'm not hung with the broker?
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Permalink Reply by ElizabethWeintraub00697006LyonRE on
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Oh, man, you had my heart all a-flutter with this title. I thought AMS and UTLS were going away. Now, you have ruined my entire day.
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Permalink Reply by Ernest & Debra Carter on
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The ony people that are alowed to negotiate per the DRE are Attorneys or Realtors.
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Ernest & Debra Carter What state are you in? That makes a huge difference on who's DRE guidelines you are referring to.
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California
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I reside and handle short sales in the state of Indiana and our DRE DOES NOT require you to be a real estate agent or attorney. In fact as I pointed out previously real estate agents are not properly bonded and insured with our state to handle short sale just by having their real estate license they have to also do the property registering with the Attorney Generals office which most are not.
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Permalink Reply by Thom Colby CA Brkr 888-391-5245 on
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Reprint from an Association Attorney's "Legal Brief" regarding Short Sales & 3rd Party Negotiators:
This is CALIFORNIA Specific
Use of Short Sale Negotiators
Completing a successful short sale often requires time-consuming negotiations with the lender or lender’s representative. Many agents or offices are inexperienced, unskilled, or just too busy to efficiency and effectively conduct such negotiations. They prefer to utilize the services of a third-party negotiator who often has an established relationship with a person in the lender’s loss mitigation department. Use of such a third-party negotiator, particularly one who is not “in-house,” may raise a multitude of legal and ethical issues, including questions relating to fiduciary and ethical duties, license requirements, contractual relationships, compensation, disclosure, confidentiality, compliance with MLS Rules and civil and criminal law, insurance coverage and liability. Some brokerages bring the negotiators in-house and under the umbrella of the supervision of the broker and the company’s insurance coverage.
DRE License Required for Negotiators
Real estate licensees who take short sale listings must ensure that the third party conducting the negotiations is properly licensed. The DRE has made it clear that a real estate broker or salesperson license is mandatory to represent the parties to a short sale, unless negotiations are conducted by an attorney or the party. If the negotiator is a licensee, then he or she must have a supervising broker. Careful consideration must be given to whom the fiduciary duty is owed. Is the negotiator an agent of the seller, a dual agent, or an employee/agent of the listing broker, the cooperating broker or both?
If the transaction involves a loan secured directly or collaterally by liens on real property, California Business and Professions Code section 10131(a) and (d) requires a person to be licensed who negotiates as a representative of another for the purchase, sale or exchange of real property, or who, for or in expectation of compensation, acts in a representative capacity for another to negotiate loans or perform services for borrowers or lenders. (Narrow exceptions exist for attorneys acting in the course and scope of their law practice and a person or entity acting solely on his or its own behalf).
A license is required regardless of the title used by the negotiator. For example, none of the following are exempt from the license requirement: debt negotiator, debt resolution expert, loss mitigation practitioner, foreclosure rescue negotiator, short sale procesor, short sale facilitator, short sale coordinator, or short sale expeditor. Persons who engage in short sale negotiations without a DRE license are in violation of California law and could be fined and/or imprisoned under section 10139 of the Business and Professions Code. Persons who knowingly hire them may also be in serious difficulty.
Obligations of Listing and Selling Brokers and Agents
Seller’s Written Agreement and Disclosure
The listing broker/agent must have the seller’s written agreement for the negotiator to provide services. This is required for several reasons:
(1) The listing broker/agent must disclose to the seller that the negotiator’s services will be used.
(2) The negotiator must have authority from the seller (borrower) to communicate on the seller’s behalf with Lender.
(3) The agreement of the seller is required regarding compensation to be paid to the negotiator.
(4) Use of the negotiator must be disclosed to the buyer’s agent.
These requirements may be met by completing the appropriate C.A.R. Form – Short Sale Addendum and providing the buyer’s agent a copy of the form. In addition, it is this author’s opinion that an agency disclosure form may often be required. If the licensed negotiator is acting on behalf of the seller (and/or buyer) in a principal/agency capacity, an Agency Disclosure form is mandatory.
Relationships between Listing Broker or Agent and Negotiator and/or Outside Broker
The listing agent generally has an independent contractor relationship with the listing broker. The negotiator may be an employee, an affiliated independent contractor, or an outside vendor of either the listing broker or the listing agent. If the negotiator is not an affiliated licensee of the listing broker, he must himself be a broker or be affiliated with another “outside” broker. The listing broker/agent should have a clear written agreement establishing the relationship with the negotiator.
If the negotiator is affiliated with an outside broker, there should be a written agreement between the listing broker and the outside broker confirming that the outside broker will meet the fiduciary and legal duties to supervise the negotiator’s activities, not delegate tasks requiring a license to unlicensed persons, and provide insurance coverage for worker’s compensation and liability coverage for negligence or unintentional misrepresentations by the negotiator to the lender, buyer, seller or others. The agreement between the brokers should also establish their rights regarding commission splits and method for compensating the negotiator for his services. Providing for mediation or arbitration and attorney fees in the brokers’ agreement is also advisable.
Additional issues arise if the lender requires or designates a negotiator or if the listing broker/agent is also the buyer’s agent (dual agency) and uses a negotiator who is an employee or independent contractor of the lender. In a dual agency transaction, the agent has a fiduciary duty to the seller to negotiate the best terms for the seller, not obtain the highest price for the Lender.
All appropriate disclosures regarding affiliate business relationships and referrals must be made to comply with the Real Estate Settlement Procedures Act (“RESPA”).
Compensation to Negotiator
The negotiator must comply with all DRE regulations and California law for advance fees. Disclosure of all fees, including short sale negotiator compensation, must be made on the HUD 1 Statement. Payment to the negotiator must be made through escrow. Conditions for valid payment to a short sale negotiator include the following:
- • Seller consent (written),
- • Agency Disclosure,
- • DRE license affiliated with licensed broker,
- • Performance of licensed activities,
- • Entitlement to compensation as an agreed commission split, a flat fee, or hourly rate as an independent contractor or employee of the listing agent, listing broker, or outside broker.
Will the fees still be due if the transaction fails to close or if the lender fails to grant approval?
Listing Broker/Agent Liability
Claims for breach of fiduciary duty, failure to disclose, or failure to supervise may be brought by a seller or buyer. DRE discipline and criminal and/or civil liability may attach even if the listing broker/agent is unaware that the negotiator is engaged in mortgage fraud.
MLS Listing Re Short Sale Negotiator Fees
Short sales present a special problem with conditional compensation being offered to a cooperating broker. The listing agent may not be entirely sure what the commission will be until the terms of a short sale are approved by the lender. The Multiple Listing Service (MLS) has adopted NAR-approved language giving participants in the MLS the ability to disclose or may require disclosure to other participants that there is a potential for a short sale. If the property is being listed as a short sale, that should be disclosed in the private agent remarks section.
A listing that requires the buyer’s agent to pay a portion of the negotiator’s fee may be a prohibited contingent offer of compensation. To avoid an MLS Rule violation, rather than requiring the cooperating broker to pay a stated amount of the negotiator’s fee, the listing agent may lower the percentage of the commission offered to the cooperating broker, subject to discussion with the seller and full written disclosure.
The purpose of the MLS is to exchange information regarding available properties for sale or lease and to establish legal relationships with other participants by making blanket unilateral offers of compensation. The MLS Rules govern the behavior of the participants. However, it must be abundantly clear that the Rules do not alter California law, including the DRE regulations, Statutory Law, and Case Law.
MLS Rule 7.12 sets forth the criteria for an offer of compensation as being a specific dollar or percentage amount. The Rule states, “… The amount 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.” Rule 7.16 limits the manner by which compensation may be altered.
IMPORTANT POINTS TO REMEMBER:
- A real estate licensee’s fiduciary duty is to his client and CANNOT be signed away.
- A listing agent’s duties cannot be delegated to an unlicensed third party.
- A dual agency disclosure does not eliminate the listing agent’s duty to the seller which may conflict with getting the best price for the investor.
- A real estate licensee who is collecting an advance fee for performing the short sale MUST follow the federal law, DRE guidelines and California law for advance or other fees.
- Not getting the best offer for the seller may expose the seller to a higher potential Deficiency judgment and a greater tax liability.
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I agree, if you are doing work for the seller than it shouldn't be up to the buyer to pay the third-parties fee. I actually have had a buyer state in their purchase agreement that I was to negotiate the short sale. There was only a buyers agent involved and they felt that I would be able to do the best job at getting it approved. In those circumstances the lender agreed to pay my fee but if not I would think since the buyers wanted me then they should have paid. but any other time the buyer should pay.
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