Replies to This Discussion

Permalink Reply by Ashly Alexander on March 13, 2011 at 10:25am

But, you can and should submit any and all offers to the bank!

Marcy Moyer said:

Seems like a hoax to me.  The seller can only sign one offer.

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Permalink Reply by Raymond Kennedy on March 13, 2011 at 10:29am

Smitty, Hence the term Highest & Best offer. Notice I didn't say only "Highest". My response was based on the subject of submitting all offers so I was offering a solution so you don't have submit multiple offers and still avoid potential fraud. You have to look at all offers and consider the terms as a whole. For the sake of keeping the forum response short, I didn't put a dozen different scenarios in the comment.

 

However, I have never had a bank/lien holder questions finance of a buyer in a Short Sale. It is a direct RESPA violation for them to counter the terms of a contract. They can only agree to approve or disprove it based off their loss and costs they will incur. Of course, we all know they still counter with their terms in some cases but it's pretty much always a net on what they will take with stipulations on fees and costs. 

 

You do have an obligation to mitigate the loss to the seller and reduce and or remove liability. Simply getting a Short Sale approved isn't always completing your job but that could be dependent on your state laws regarding lien holders rights for recourse. In Illinois this is a recourse state and the lenders have a right to pursue the homeowner for full liability after a foreclosure. If we don't get this liability removed or reduced on the Short Sale approval letter we can be putting our clients in harms way. Getting the highest offer is the easiest way to reduce the amount of liability and your chances of getting them to remove DJ/liability language is increased. This is because the banks look at certain numbers and determine if the Short Sale is better vs. Foreclosure. If they feel that they can get more money with recourse in a Foreclosure than you job has just became more difficult. Ignoring possible higher offers would be irresponsible and harmful to your client. Advising them to do so would be the same.

 

Cash vs. FHA is definitely better. However Cash $50K less than FHA is not definitely better. There are risks you and your client have to review and discuss and let the client choose. Part of the bump in my contract uses the phrase "terms" not "price" so when we ask a buyer to firm up it's not always price but it usually comes down to price.

 

Yes, you can have multiple signed contracts with full disclosures as long as you have a "Subject to cancellation of previous contract" on the 2nd purchase offer. Basically this contract is not fully executed until the 1st buyers contract is declared null and void or until the "Subject To Cancellation ... " is expired on the 2nd buyers contract which is indicated on the contract and at which time the 2nd contract will be null and void. That might have been confusing so to simplify, if it's in black and white on the purchase agreement and both seller and buyer sign it you can do it so long as your not acting as a Attorney (assuming your not an attorney) and adding the verbiage yourself. That would be bad!

 

It sounds like your process is a bit different so it's difficult to judge other states procedures without all the facts. Plus I am not familiar with your state laws regarding bank recourse so your obligation might be a bit different. There is not P&S Agreement in Illinois that is executed later. We have a Purchase agreement signed and there is a short period of time the attorneys can modify, accept and/or kill the contract. Usually 5 days but it is all depends how that is written up in the purchase agreement.

 

Every situation is different and has to be looked at on a case by case basis. But I wanted to respond as you might have misunderstood or did not interpret my message clearly. I understand your point as there are many professionals out there that might make decisions for their clients and not fully understand the ramifications of that. Usually I find agents on forums like this have a much stronger grasp of their responsibilities due to their desire to learn.

 

By the way, FHA has to be 3.5% down not 3%, perhaps that is why they were rejected. I don't know the facts of the contract but maybe 3.5% is what you meant.

 

It's A Good Life!

 

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Permalink Reply by Raymond Kennedy on March 13, 2011 at 10:52am

Jim, One thing to be concerned about having the seller as well as the agent agreeing not to consider other offers is that could open the door for fraud depending on how it is handled. Basically if the lien holder ever found out you withheld a higher offer, you and your client could be put in harms way regardless of a written agreement. You may not work for the lien holder but that is exactly why their is potential fraud situation since their is a loss that can be calculated from that based off your actions in the transaction. If you advise your seller to sign this document you might be implicating them as well as yourself. 

 

I understand that trying to appease the buyers is beneficial in keeping deals together. I agree with a lot of the comments like Jim Hale's but it sometimes is more complicated than that. At the end of the day we work for the seller. Sometimes our position and the sellers best interest will not be favorable to the buyers on the contract. Unfortunately contract law is not moral. I have been put in this situation and I really did not like it. Luckily it doesn't happen often. Once the property goes contingent on the MLS it usually doesn't get activity so it's rare that you will get additional offers later. However, I had situations where previous showings will come back and put offers in regardless of the MLS status. 

Jim Hale said:

I would recommend adopting/including contract language that specifically obligates the seller and the listing agent to NOT forward any other offers other than that of the agreed upon buyer.

That protects the buyer whose offer goes forward.  No one is going to sneak in on him....with a slightly higher offer.

I want to motivate that buyer to agree to making his earnest money non-refundable for a specific period.  I also want that buyer to agree to do the inspections and the inspection period up front, so that it doesn't have to take time and so it can't blow the deal at the last hour. 

That protects all parties from having things get screwed up half way through the process.  That doesn't prohibit the LA from keeping a "waiting list" for the possible benefit of the seller. 

But it does put one offer in front of the lender for approval......and the fact that the restriction on other offers has been made a term of the agreement is right there in black and white for the negotiator to see.

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Permalink Reply by John Bacon on March 13, 2011 at 11:03am

I think the point is to cover youself very well with clear paper trails showing how and why you did what you did in case it ever comes up. 

 

We keep our short sale listings "active" until the lender approves an offer so that means more showings over time and a higher offer is always possible while waiting on the lender to make a decision.  I think it's at least prudent to suggest to your seller that you recommend notifying the lender if you receive a higher offer.  Obviously the lender is doing their own valuation of the property and will determine a fair price but I think we still need to explain to the sellers the lender should be kept in the loop as to other offers, not that the seller can accept one but that it has been received. If the lender knows a higher offer has come in on the property, they have full information and you and the seller have went the extra mile with regards to transparency.

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Permalink Reply by Thom Colby CA Brkr 888-391-5245 on March 13, 2011 at 11:07am

At the very end of the day...... if you perform your duty according to the Laws of your State, in concert with the REALTOR Code of Ethics and Standards of Practice, and in accordance with the local Association and MLS Rules, you have nothing to be concerned about.

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Permalink Reply by Raymond Kennedy on March 13, 2011 at 11:13am

I do agree with that. What about those sections of the laws and Code of Ethics that are vague. I am just being difficult now, playing devils advocate :). That is an excellent and accurate point.

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Permalink Reply by Wendy Smith on March 13, 2011 at 11:47am

seriously?  this article must be bogus (maybe a reporter hoping to sensationalize?) - as Deidre pointed out, in a short sale, the Realtor relationship & responsibility is with the seller, not the lender.

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Permalink Reply by Smitty on March 13, 2011 at 11:59am

Hi Raymond,

People make mistakes believing higest is best and that simply is not the case.  That is the point I'm trying to convey, maybe not so eloquently.  Highest is not always best.  Yes, you can decrease the amount of the deficiency with a higher offer but what are the risks?

"Getting the highest offer is the easiest way to reduce the amount of liability and your chances of getting them to remove DJ/liability language is increased." I've seen high offers get approved and lien holders forgive deficiency, and guess what?  Sellers ended up having tax ramifications as they weren't insolvent.  So, NOT every case of a lienholder reserving it's deficiency language is a bad thing.  Every short sale should be looked at very carefully before determining the best course of action.  We have to keep in mind many times deficiency language is boilerplate and it doesn't necessarily matter what the offer was.  The amount of money a buyer has and is willing to offer certainly can be used to try to negotiate out that language but no one knows for sure if that will occur.

 

You also have to keep in mind that purchase money used for a primary residence in a non-recourse state which may not be subject to deficiency IS subject to tax ramifications as it doesn't qualify cancelation of debt income by IRS standards. 

 

"Cash vs. FHA is definitely better. However Cash $50K less than FHA is not definitely better. There are risks you and your client have to review and discuss and let the client choose."  Again, I disagree with this.  Yes you must look at the whole sale but there are many variables as you've pointed out.  A lender who hasn't recieved payment on a property for over 24 months about to foreclose may gladly accept an offer of $200,000 vs. $250,000 if it were cash vs. FHA.  A cash buyer that can close in 3 weeks vs an FHA buyer with barely a down payment, who needs to go though a stringent appraisal process, may need to sell their home and the soonest they can close is 60 days looks less and less appealing.

 

Highest and best certainly applies to traditonal real estate but in the arena of negative equity doesn't mean the same thing to a seller who walks away with nothing.  Their primary concerns are tax ramifications and deficiency.  They aren't as motivated to take the highest offer as in a traditional sale.

 

I find your ideas of multiple contracts interesting and eye opening.  I've never heard of such a thing but if that works, that's great.  I don't think that would fly where I am because buyers tend to want to know where they stand in the offer process and many aren't willing to wait 6 months in a back up position.  If I were representing a buyer, I wouldn't encourage them to wait in back up position either, unless it was a house they truly wanted. 

 

I don't think we are that far apart on our opinions, but maybe needed clarifications.

 

Thanks so much

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Permalink Reply by Stenya Dautrich on March 13, 2011 at 12:29pm

I agree with Deidre... our fiduciary duty is to the Seller.  And a higher offer isn't always a "better" offer.... 

Deidre St. Romain said:

First and foremost our fiduciary duty is to the Seller who until the Lender takes back the property, is the actual homeowner so I don't see how we would be at risk here.  Comments? Opinions?

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Permalink Reply by Frank Shamoo on March 13, 2011 at 12:33pm

Not sure how you came across this information, Every Lender that we deal with and have been for the last 3 years, well over 365 short sales, they will only accept one offer at time.  Not to mention that the property is owned by the seller and the seller can only execute one offer at a time. Now, once the offer and full short sale package is assigned to a negotiator / asset Manager, at that time they will ask if there other offers and the amounts, but never have they asked to see them. 

 

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Permalink Reply by John Bacon on March 13, 2011 at 1:03pm

FROM MY REVIEWING BROKER REGARDING THIS: 

We have always instructed agents to let the lender know when additional offers are received, even though the third-party lender is only accepting one offer.  This can be in an email or fax, but it’s important for the agent to have receipt of delivery to the bank, such as a date/time stamped email, read receipt and/or a fax confirmation cover letter. Information conveyed to the lender should include Sales Agreement number, date additional offer was recieved, price, terms, etc. It’s up to the bank if they want to see the actual offer.  It’s very important for agents to keep a clear consistent paper trail about what they do in a short sale. 

 

It’s also why we keep a record of all rejected offers in the office.  Hopefully the seller rejects the offer outright, but sometimes they just let it expire.  Listing agents should also have a record of presenting all offers to the seller and should always complete the section on the last page of the sales agreement saying the date and time they presented the offer.  One reason I don’t want agents to use a back-up offer addendum in a short sale situation is because it can put a low offer in front of a better one because it structures the offers in order of receipt and not benefit to the seller/lender and neither the agent nor seller can guarantee which offer a bank will accept

 

This also goes to the issues of agents fishing for the bank acceptance number and thereafter adjusting asking price in the RMLS to reflect what the bank will take.  All offers should be verifiable and bona fide and turned into the office as a short sale so we have a record of it in our electronic filing system. 

 

It is the lenders decision what they are going to do with the information.  I like the language they suggested here.  Agents also now have to deal with the language a buyer includes in the offer that says no other offers will be presented to the bank. 

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Permalink Reply by Raymond Kennedy on March 13, 2011 at 1:40pm

Smitty,

I think we are agreement in certain points and others maybe vague. In my last response I did mention that "you do have to look at every situation on a case by case basis". There is no way to give a general answer when there are so many different scenarios  and variables in state laws, lenders rights to pursue homeowners and offers vs. offers. Even in the case you speak of a tax liability, getting a higher offer is still better because it reduces the amount they pay taxes on if they are not in a position to get this waived. Of course that has to be an offer that can get to the closing table. It's easy to say Cash is better but the situation will dictate that. In many situations there are different ways of handling and quite often will be handled differently in different states. It's good to get other peoples perspective on this though. Regardless, I think both of us agree that we have to assess and advise our clients of the risk and let them decide what they feel is the best option. I believed we strayed off topic though. The question was about fraud and not submitting all offers to the bank. A separate post on what "Highest & Best" means in regards to Short Sale would make an excellent point of conversation. 

Back to the topic, The last couple of posts have great points about how the sellers are our clients and we are only responsible for them. I think we all need to just be aware of the potential risk of taking that stand. While we have a fiduciary responsibility to our clients as it has been trained and ingrained in us since we received our license. Keep in mind Short Sales are a bit of a different animal. The only thing I can say is you should really consider the lien holders position. While we represent our client we still have a responsibility to be honest and forthcoming to the public and this would include the lien holder. If the lien holder had received information at some point of a Real Estate professional with holding information they can make the case that do to the actions of the agent or lack of actions they lost money. The scary part is this is a loss they can calculate and in some cases maybe a large dollar amount. The question now is do they have a right to legally pursue the professional and/or seller for not being forthcoming with other offers that might have netted them more money. This is where the question of fraud comes in. So while you represent your client and only your client, is your advice for not considering other offers to the sellers really in the best interest since it may prove to put them in harms way. 

If for no other reason, this is just a good point to keep in mind when discussing this with your client about subsequent offers. I myself would never tell my client not to consider other offers. If they decide to decline other offers that is their choice. This will of course be done after considering the risks in doing so. How you handle the offers is probably best left up to your brokers direction since there seems to be a difference in state & MLS rules and regs pertaining to offers. Disclosure to principals is always the safest bet though. 

Bottom line watch your six and your sellers!

Smitty said:

Hi Raymond,

People make mistakes believing higest is best and that simply is not the case.  That is the point I'm trying to convey, maybe not so eloquently.  Highest is not always best.  Yes, you can decrease the amount of the deficiency with a higher offer but what are the risks?

"Getting the highest offer is the easiest way to reduce the amount of liability and your chances of getting them to remove DJ/liability language is increased." I've seen high offers get approved and lien holders forgive deficiency, and guess what?  Sellers ended up having tax ramifications as they weren't insolvent.  So, NOT every case of a lienholder reserving it's deficiency language is a bad thing.  Every short sale should be looked at very carefully before determining the best course of action.  We have to keep in mind many times deficiency language is boilerplate and it doesn't necessarily matter what the offer was.  The amount of money a buyer has and is willing to offer certainly can be used to try to negotiate out that language but no one knows for sure if that will occur.

 

You also have to keep in mind that purchase money used for a primary residence in a non-recourse state which may not be subject to deficiency IS subject to tax ramifications as it doesn't qualify cancelation of debt income by IRS standards. 

 

"Cash vs. FHA is definitely better. However Cash $50K less than FHA is not definitely better. There are risks you and your client have to review and discuss and let the client choose."  Again, I disagree with this.  Yes you must look at the whole sale but there are many variables as you've pointed out.  A lender who hasn't recieved payment on a property for over 24 months about to foreclose may gladly accept an offer of $200,000 vs. $250,000 if it were cash vs. FHA.  A cash buyer that can close in 3 weeks vs an FHA buyer with barely a down payment, who needs to go though a stringent appraisal process, may need to sell their home and the soonest they can close is 60 days looks less and less appealing.

 

Highest and best certainly applies to traditonal real estate but in the arena of negative equity doesn't mean the same thing to a seller who walks away with nothing.  Their primary concerns are tax ramifications and deficiency.  They aren't as motivated to take the highest offer as in a traditional sale.

 

I find your ideas of multiple contracts interesting and eye opening.  I've never heard of such a thing but if that works, that's great.  I don't think that would fly where I am because buyers tend to want to know where they stand in the offer process and many aren't willing to wait 6 months in a back up position.  If I were representing a buyer, I wouldn't encourage them to wait in back up position either, unless it was a house they truly wanted. 

 

I don't think we are that far apart on our opinions, but maybe needed clarifications.

 

Thanks so much

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