Listing Agent Withholding Better Offers from the Lender
I'm an attorney in California that just placed an offer down on a short sale with my fiance. After observing suspicious conduct by the listing agent, I did some investigation and discovered he did not submit our offer, which was the highest by over $20k per his admission, to the Bank. Further, he did not present our offer to the seller, who wants to sell to us as opposed to investors who plan to demo her property for apartments. Listing agent has had the property listed for 1 1/2 years, and said he submitted only the first offer ever made on the property because "that's the way the Lender wants it." After pressing him, he ran to the seller, had her sign a document, she didn't know what it was, and all of a sudden he claims the property is sold for $35k less than our offer. I recently informed his broker of the situation, who was silent on the matter, and the California Department of Real Estate. I tried notifying the Lender, but I can't get past the people who answer the telephone because I do not have a loan number or social security of the seller. I plan on filing a civil suit against the listing agent, but what I really want is this property, not a recovery against his E & O insurance. Any recommendations on what to do to get this property?
Replies to This Discussion
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Permalink Reply by Thom Colby CA Brkr 888-391-5245 on
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Was / Is the Listing Agent representing you as well as the Seller?
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Permalink Reply by Kim Olson on
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Initially, my mother was representing us as a real estate agent. She subsequently withdrew as an agent so I could deal with the matter directly. He is now dealing directly with me as a buyer.
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So your mom wrote the offer and sent it to the Listing Agent? Was a new offer ever written by the Listing Agent on your behalf? Whose Agency Disclosure was signed?
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Permalink Reply by Kevin - Greenville, SC on
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Does CA License Law say that all Offers are to be presented to Lien Holder(s)?
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I would have to do some legal research for the answer to that question, but based upon my own knowledge and experience, and the short sale addendums listing agents are required to sign, the listing agent is required to preent the best and highest offers to the lender or suffer legal consequences for breach of fiduciary duty to the lender as well. California DRE softly describes withholding such offers as fraud upon a federally insured institution, which carries criminal and civil penalties.
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I guess my question would be do you know specifically what forms have been signed? The CAR SS Addendum states other Offers that the Seller has the right to submit.
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Here's the 2012 updated version
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SSA 4-2012x.pdf, 55 KB
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Reading this there is a lot involved. First thing I would want to do as a buyer is be able to prove the offer was not presented. This is sometimes very very hard to do, and when researched it is discovered it was presented and rejected. REJECTION of a contract in CA. can be passive. It is does not require that the SELLER sign anything.
Agency is established with a FORM at the start of the transaction. I know of NO AGENCY established between a Realtor and a BANK...
This conversation could go on and on.. but Ca. does establish Agent at Gratis liabilities. Giving advise upon which an opinion is established and action taken could be at a Brokers peril. For that reason I would in this case send the BUYER to an Attorney who specializes in Real Estate.
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Once an offer has been accepted, it is basic contract law that the seller is obligated to sell according to the terms of the contract and cannot accept other offers because that would create multiple binding contracts to sell one property outright to several buyers. Obviously that is not possible and no buyer (nor seller) would want to be in that situation.
http://www.californiashortsalelawyer.com/2013/02/bank-of-america-ne...
http://www.californiashortsalelawyer.com/2010/04/thinking-about-dis...
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Permalink Reply by Smitty on
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I can't speak for California law, but we only present one offer at a time to the lender. I may present several to the seller but the seller executes ONE offer and if the investor offer was already signed and lower, then you should have been told you were in back up position. Until that first offer is dead in the water, we are in no obligation to execute another higher offer.
I would also caution that just because your offer wasn't presented doesn't mean anything fishy is going on. Last week I had a multiple offer situation with several investors and the seller took the lowest offer and they were ALL cash. When I asked her why, she said that she accidentally ran into one of the buyers and thought he was, "cute" and wanted to work with him. I of course advised against it, but that's what she was hell bent on doing.
Most lenders in my experience dont' want more than one offer at a time either. Either the offer on hand meets their minimum NET or it doesn't. If it doesn't we go to the backups.
Also, how did the property "sell for $35,000" less" suddenly by the seller siging one peice of paper??? Isn't this a short sale? all offers are contingent upon approval from the lien holder. There are loads of papers to sign before it's actually sold. If it IS sold then it just sounds to me like you were late to the table. It sounds like the investor offer was in for quite some time and being worked on if it truly is sold at this point. If suddenly you presented an offer while the other one was in, IMO the listing agent has no obligation to present your offer to the lender, ESPECIALLY if they were close to approval. It could cause major HAVOC and disrupt the process it was already in. Next thing you know seller sues the listing agent for tortious interference.
You wont' be able to talk to the seller's lender because you are not authorized to do so, which shows me you have limited to no short sale experience. I'm not trying to discourage you and maybe things aren't on the up and up on this deal, but far too often I see sour grapes coming to the short sale boards and the buyers or buyers agent truly have NO idea what went on behind the scenes and are quick to say something on the sellers side is wrong.
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Permalink Reply by Tni LeBlanc (805) 878-9879 on
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Hi Kim,
I'm an attorney in CA and a short sale agent as well. Interesting set of facts. I don't know the answer to your situation but I thought I'd highlight some of the issues I've faced. Just some general thoughts about the practicalities of dealing with short sales -- not legal advice of course. I've struggled with some of these same issues for buyers and short sale sellers and consider myself a very straight shooter.
The seller can only truly sell the property once. What is the seller's obligation to that original buyer? Without reviewing that contract -- we may not know. Of course, they could probably sign a subsequent offer as a back up contract, but are they required to do that by the short sale lender? Probably not. Even when a short sale lender has asked me to get a back up contract and where the contract with the first buyer permits me to present one, in my experience, the short sale lender never wants to look at it until after they have finished negotiating the first offer. I've found that is because often the short sale lender has no mechanism to process the second back up offer. They can only process one at a time. So getting there first matters.
If the offer is sent over unsigned, it will more than probably be put in the garbage. Even if signed as a back up it will often be ignored. That is simply the practical reality. They want to work that first signed contract. The short sale addendum many agents use in CA allows (but does not require) the listing agent to continue to present offers to the lender -- however, having been through the process many times, experienced agents often exclude that provision from their short sale offers. The lender is presented with a copy of the contract so if the buyer's contract specifically states that they are the only offer to be presented -- then the lender is at least arguably aware about how the listing was sold.
There is a big problem with what I will call "late offers" on short sales. Because short sales take so long to get approved, and they are often still advertised during that time, they continue to attract buyers. However, will you ever actually close a short sale if you subject that first buyer to what is essentially a "never ending auction" until the bank gets on the ball and approves the sale? No you won't. So, as a practical matter, if a buyer missed the first round of bidding, they may have missed the boat until/unless that first buyer cancels.
Just because a late offer is higher, does not make it better. In order to submit that new late offer, the lender may require that the entire financial file be updated and the process almost entirely restarted -- something the seller may not be willing to or want to do. And unless that first buyer cancels, why should they? It will effectively drag out the short sale to stop the process to continue to present new offers, which is probably more harmful to the seller's credit, or it will cost them additional payments if they are still making payments. And if the bank is not requiring it and does not want to see those offers, why would you do that? Also, depending on where they are in the foreclosure process, if you cancel one offer and restart with a new buyer you may risk your client falling into foreclosure during the processing period in between. If they have an auction sale date that is getting extended in 21 day increments, if you cancel the process and restart, you now may be too close to the auction date for the investor to consider a short sale. That is why losing a buyer can be so damaging to a short sale and really make them drag or not come together. And to truly present that other offer, you would have to cancel out that first contract in their system and restart to certain degree. So, there are lots of issues at play and the listing agent is there to represent the seller -- not the bank.
In the "never ending auction" type of short sale, some buyers use a "higher offer" as a tactic, increasing their offer past the first buyer until the first buyer folds and walks away, and they then intend to negotiate the price down through appraisal and inspections. Almost all of the time when I have had a buyer come late and essentially cut in line with a higher offer, they try to walk out or renegotiate the deal later on -- which also can cost the seller time in a short sale -- as price changes have to be resubmitted to the lender for re-approval.
As far as short sale lenders, there is very little in terms of written guidance about a particular mandated process. I've personally written Freddie Mac and Fannie Mae about whether they require properties to be open for viewing or whether the practice of coming on market with an offer is permissible (pocket listings). I got no response from Fannie Mae, and a confusing muddle of nothing from Freddie Mac (and that answer did not point me to any official publication I could reference). Personally, I've found that short sale lenders are more concerned right now about flipping (flopping) and secret rent back deals than this issue. They do a valuation of the property, and they have a range of what they will accept as a net on the property, if the offer meets the net and the seller qualifies for a short sale -- that is their analysis. If the offer presented is too low, they counter it. That is my experience.
I have never worked with a short sale lender who was able to work more than one offer at a time. I have informed lenders of subsequent "higher offers" and they are NEVER interested in seeing those offers once they have started to work the first offer. That has been my experience. Hope this helps. These are some of the issues I've faced being very up front with lenders, sellers and buyers.
We know courtroom truth and real world truth are two different things -- so you may be able to get a different answer down the road in a court of law. But in reality, even if the listing agent wanted to help you or work your offer, they may in fact be harming their seller by doing it, and further the short sale lender may still ignore your offer until that other contract is cancelled.
Tni LeBlanc
(805) 878-9879
DRE #01871795
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