Replies to This Discussion

Permalink Reply by Raymond Kennedy on March 14, 2011 at 6:23am

Thom,

How do you handle deals where there is a Contingent on Sale Of Other Real Estate. In other words, back in the 2005 market we would get a lot of buyers that would put an offer on your property contingent on sale of their current property. Did you not have a bump clause in the contract that allowed you to consider non-contingent offers forcing the first buyer to firm up or walk. This is considered a traditional sale and it is handled differently than what we are all used to know with purchase offers that has no sale contingency. 

 

A standard sale does not have the the third party contingency so this changes the contract terms drastically. The contracts have to be followed by terms of the contract as they are written and agreed upon and the bump clause is part of our standard board Short Sale addendum. Unfortunately many of the agents in my area don't fully understand it because it is rarely exercised. In one case I had to explain this clause to the attorney that represented the buyer. That was an interesting conversation. After he read it and I explained it he recognized that it was accurate.

 

There is no standard or one way of handling a deal so long as you follow the terms of the purchase agreement. The problem of it being straight forward as you speak, doesn't remove you from the potential risks of liability from a damaged party regardless solely because your beliefs or intentions. I would guess that you might be able to pass the blame onto your brokerage and/or board since they probably had advised you to handle the deals that way. It also doesn't make you wrong in the way your handling it. It comes down to assessing the risks and from there it's a business decision on you and your companies policy. Again, the chances of that type of backlash is unlikely and may not ever be realized. I would just rather error on the safe side and it has served to help get deals approved faster and easier in the rare cases I had to exercise it. 

 

Thom Colby said:

Raymond - Do you handle Standard Sales in the same way ?  Contractually, a Standard Sale and a Short Sale are no different except for the lender approving teh amount of the loss.

 

So in a Standard Sale, if you receive an offer 3 weeks after you have a signed contract, do you require the buyer to "firm-up" or get "bumped" (Both of these terms I've never heard before this discussion !).  I suspect an Agent or Broker could have much exposure if they interfere with their own contract!

 

Glad I'm licensed in CA & TX where it's much more straight-forward.

 

Thom Colby

Broker / Negotiator

Newport Beach CA

• ▶ Reply

Permalink Reply by Jim Hale on March 14, 2011 at 6:40am

Raymond -

 

I see what you are saying.

But, to me, your analysis of the risk is based on a very theoretical concept of how the market for these properties works.

With an MLS rule like mine - mark the listing "offer submitted to bank" within a few days of submission - the likelihood that the property will even be shown is very low.

Even if it wasn't, the reality of the market - anytime - is that any theoretical future offer is going to be coming from that pool of buyers entering the market place after the first offer is written....next week, next month, three months from now.  That alone means that all those who started looking a year ago, six months ago, three months ago, three weeks ago ...have already been exposed to the subject property.  The overwhelming proportion of the potential demand for the property has come and gone.

 

Buyers don't want to be second banana on an already outside choice.  Banks don't want more than one offer submitted.

 

How likely is it that a second offer is going to be significantly higher - i.e. high enough that it's really in the seller's interest to restart the approval process?  You know the lender is going to make you (and the seller) do so.  Time is itself a risk to the seller. And, in a declining market, time is a risk to the lender as well.

 

If there is really that much MORE value inherent in the property, the BPO is likely to be so high you don't succeed with offer One anyway.

 

The kind of language I am arguing for (see my original comment) is designed to get a buyer "all-in" and maximizing the chance the sale will close after lender approval.

Is that mythical second offer going to match those provisions? Or is it simply going to throw out a price with no commitment?  I would contend that my approach  - used by others, to be sure - does get the seller the "best offer".

As others have argued here, highest is NOT necessarily best.

 

The lenders (behind any FBI activity on this issue) would have some real gall to talk about fiduciary responsibility....for at least two reasons:

1.  They have deemed it in their own interest to NOT provide a process where an equivalent offer can be substituted.

2.  They base their whole process on a cheap BPO instead of a bonafide appraisal.

 

Shades of the boom.

• ▶ Reply

Permalink Reply by Lori Young on March 14, 2011 at 6:52am

?  Over 270 approvals and NEVER did I hear of the FBI involved in a transaction?  I have seen the FBI investigating short sale flips where the broker is not disclosing all the facts.  I do know most lenders work with one offer at a time and will only accept one EXECUTED offer at a time.  Is the editor suggesting our sellers sign multiple offers as executed offers and accept escrow on all the executed offers?  Wow, I can't believe any lender would want us to fax multiple contracts in for a short sale file. 

My question is how many short sale files has the author worked on and how many approvals were given?  Only my opinion.

• ▶ Reply

Permalink Reply by Raymond Kennedy on March 14, 2011 at 7:21am

You make very good points and they should all be considered when discussing options with your seller upon a subsequent offer.

 

They theoretical and mythical situation you speak of is a real deal I am in the middle of now. The result is I ended up with a cash offer at $30K higher after significant damage to property due to a burst pipe occured. If I didn't handle the transaction the way I did I would have no buyer at this time with two approvals searching for a new buyer. That would not be good. The property has two liens and because of the higher offer the 2nd lien was easier to negotiate since the first is now getting more money. At least in this specific instance it worked that way. 

 

Our MLS requires disclosure and your are correct, your exposure is reduced substantially after this is entered. In this case there were two subsequent buyers. The 2nd buyer offer was too low so was rejected after the first buyer firmed up twice. The third offer was the one that kept competing to go higher. All three of these buyers saw the property around the same time before the first offer was executed. It just took the 2nd and 3rd buyer a little while to decided to put an offer on the property. So the theoretical situation became a reality. You need to be ready for this when and if it does happen. I will agree that it is not going to be a common occurence. I would prefer to not been in that situation but you have to handle them as they come. Just to cut off comments about pricing it at Market Value. This was priced accurately and not underpriced. The seller had time so there was plenty of market time on this property with small price drop increments. It was just a case of having multiple buyers interest all at the same time. 

 

We can go back and forth on scenarios in regards to the subject of highest and best but I am trying to stay clear of that conversation as it takes us off topic.

 

The topic at hand here is it will be considered fraud if you don't submit multiple offers. My situation is removing that as even a possibility because the bank is always going to get the highest and best or at least my approach will show that I have attempted that.

 

I don't believe that statement of submitting multiple offers in itself could be considered fraud. However, if the third party lien holder can prove you withheld a better offer than the one they accepted than it is very possible although unlikely that they can sue you for damages and it could be considered fraud since your lack of actions caused this. In my case we are talking about $30K so that is a number I would rather not be responsible for. 

 

I get the feeling a lot of people on here don't agree with my statements mostly likely since it is a bit different from what you have been told by others and been trained on. Just know there is a big distinction between who your fiduciary responsibility is to and the position of a damaged third party right to sue you for your actions or lack of actions. We as Realtors are never completely protected and need to consider all scenarios and make an educated decision from that. Sometimes a careless decision because of common beliefs can affect your seller too. Just because a belief is popular doesn't make it right.

 

 

• ▶ Reply

Permalink Reply by Aida Gonzalez on March 14, 2011 at 4:20pm

Ok, after all discusions, i decided to find more information regarding this FBI reserach and the short sales. I found the following articles, and there are related of 'flippoing', some short sales after closed, the property is sold again same day with a profit. You can read the following articles:

http://www.fbi.gov/news/stories/2010/june/mortgage-fraud-sweep

 

http://www.heraldtribune.com/article/20091115/ARTICLE/911151083

 

If we do a good job as a Short Sale Realtor, and we follow states rules under contract, we dont have to be worry about this.

Good luck for all of us.

 

 

 

• ▶ Reply

Permalink Reply by Jim Hale on March 14, 2011 at 5:38pm

The flip-flopers deserve to have the FBI looking into their work.  Most of the discussion here has been about how the rest of us should go about short sales.

• ▶ Reply

Permalink Reply by Kevin Vitali on March 15, 2011 at 8:22am

I really would love to know the source of this article.  There is no reference made to the source of this information.  To me the information does not sit right.  The sellers own the property not the bank.  A short sale is voluntary and they have not agreed to submit all offers to the bank.  The banks have their appraisals and BPO's on the property they can say no to an offer.

 

In most circumstances, my clients are under contract with a buyer as well.  I think it would be very scary for banks to be bumping buyers that are under contract.

 

Definitely very curious.

• ▶ Reply

Permalink Reply by Bill Travis on March 15, 2011 at 1:29pm

Here is a legal opinion:

• It is the seller who determines what offer to accept.  The seller, and not the broker, has the option at any time to accept or reject an offer, including any offer after a short sale contract has already been sent to the lender.

That tells us that we do not have to send all offers to the lender. We only send the offer(s) that the seller elects to accept.

Our obligation is to submit all offers to the seller.

• ▶ Reply

Permalink Reply by Jim Hale on March 15, 2011 at 3:57pm

Here is a non-legal opinion on the legal opinion:

 

The seller certainly determines what offer to accept.

Once the seller has accepted an offer, the seller can accept a later offer only with language that makes clear it's a back-up offer.  That back-up offer has no bearing on the property unless the first offer somehow goes away.

The seller has no way to make the first offer go away unless there are provisions within the first agreement that specifically allows them to do so.  Our local agreement forms, including our state-wide short sale addenda, have no provision allowing the seller to jettison a first agreement via a first right of refusal.  You would have to write a provision or include a separate form to accommodate that action.  

I am advocating almost the reverse - adding an addendum that assures the buyer that only one offer is going forward to the lender.

Bill Travis said:

Here is a legal opinion:

• It is the seller who determines what offer to accept.  The seller, and not the broker, has the option at any time to accept or reject an offer, including any offer after a short sale contract has already been sent to the lender.

That tells us that we do not have to send all offers to the lender. We only send the offer(s) that the seller elects to accept.

Our obligation is to submit all offers to the seller.

• ▶ Reply

Permalink Reply by John Bacon on March 15, 2011 at 6:08pm

I would add that our seller has asked us to advise them on these matters and that our goal is to close a short sale so they are able to avoid a foreclosure.  If our No 1 goal is to facilitate our sellers wishes, I would at least try to obtain higher offers.  No one knows exactly when their market will hit bottom and starts to appreciate.. we all know what goes down will go up and all real estate is local.  Things are now appreciating in certain markets and if a new BPO is done by a lender which suggests the current offer is to low, I'd hope as realtor I have a higher offer (even if it's just sitting in a folder that wasn't responded to by the seller) to look at if the buyer in 1st position will not agree to the lenders price.

 

I love higher offers because it gives me leverage with the offer in 1st position, should they try to change terms or not accept a lenders counter offer.  None of us want to keep submitting new offers and wait for 2 more months to see if a lender will accept it and then another 45 days to close.  By the time you do all that, the market could have changed again.  Just remember, when things turn around and prices increase, we are all going to be dealing with the same thing we did in declining market, just the other way around.

• ▶ Reply

Permalink Reply by Raymond Kennedy on March 15, 2011 at 9:18pm

I don't think there is any argument from anyone that we are acting on our sellers behalf and the sellers makes the end decision. I think there maybe a mix up on what the original post said and what it could really mean to professionals handling Short Sales, meaning us. The post was about FBI targeting Brokers who were not submitting all offers to the bank. Well I think there are a number of people in agreement this was originally more geared to the flippers who were purposely negotiating very low and than finding a buyer so they can than make a profit. I do however believe this could be a future warning for us as we continue to do Short Sales.

 

I believe the FBI, if in fact they are searching for these types of actions, would more likely be looking for professionals who through their own actions are holding back information that could negatively affect the lien holders loss and in this case it would be higher offers, not necessarily multiple offers. Knowing what I know about fraud that would be the only logical explanation.

 

If the seller tells you not to submit other offers than based off our duties to our seller I would believe we have to follow their instructions. However, the question now remains is as a professional did you advise them that if you don't let the bank know that their as a stronger offer than they could hold them liable for not disclosing this information if they found out later. The question needs to be discussed and since this is all relatively new to us as agents, attorneys and consumers there really isn't much case law on this to my knowledge.

 

Banks by their own nature are consistently trying to find ways to get more money and this in itself may give them a reason to go back after some consumers or Realtors if they feel they have a chance to get more money down the road. It's the same thinking on why they put blanket boilerplate language on deficiency judgments in some of their approvals and why this is so hard to get off in some cases. The banks want to leave the door open for them to possibly sue them down the road if the smell money. If not suing them they may just want the opportunity to sell the remaining debt off to a third party collection company for pennies on the dollar. I have even heard of them doing this in non-recourse states. This maybe so that someday down the road they may find a reason that would allow them to exercise that. It's all theory on what the banks may or may not do down the road but they are leaving the door open for the possibility on some files.

 

So what we as agents need to be concerned about is if they do start looking closer at how these are being handled. It's easy to say that if the seller says jump than jump. If the seller tells me to jump on thin ice I am not doing it. It's the same as if the seller told you not to disclose a latent defect of the property. You know that's wrong because that is how we were all trained. Guess what, these haven't been around long enough for the case law to develop yet. It's up to you if you want to be the Realtor that is involved in the case in the future that does make this a rule. There are ways to handle your Short Sales and reduce the risk on both ends. As a courtesy I put the basic verbiage of one of my board approved Short Sale addendums. This is copyrighted so you really can't use it but give it to your attorney to draft specific to your area and state laws if you are ever considering using this in your Short Sales.

 

Before you read this I know I am going to get a slew of comments about MLS rules etc. We still put the property in the MLS as contingent on Short Sale approval so we are disclosing to the public as well as other agents it is under contract. Trust me, we all have to follow the same basic rules and principals, some areas are more strict as I have noticed and some areas are more relaxed about their contracts but Illinois is pretty strict which is why I pay very close attention to the details of the contract.

 

Buyer acknowledges and agrees that, prior to obtaining all necessary short sale payoffs and consents from third parties, Seller may continue to offer the Property for sale and, in the event Seller receives a bona fide offer to purchase the Property from another prospective purchaser with terms more favorable to Seller than those contained in the Contract, Seller shall first offer to Buyer the right to purchase the Property on the new terms and conditions. In the event Buyer does not agree to same within three (3) Business Days after the effective date of Seller’s notice, Seller shall have the right to terminate the Contract, in which case all earnest money shall be refunded to Buyer. 

 

Hope this gives you some insight on this subject. So in summary, it's not fraud for not submitting multiple offers but it could be argued that if you hold back a stronger offer and by doing so, the lien holders loss is increased, I can see where that could be fraud. They pretty much would only have to prove that you were the reason it wasn't submitted and if you blame it on your seller, you are now implicating them. So was that in your sellers best interest? 

 

 

 

 

 

 

John Bacon said:

I would add that our seller has asked us to advise them on these matters and that our goal is to close a short sale so they are able to avoid a foreclosure.  If our No 1 goal is to facilitate our sellers wishes, I would at least try to obtain higher offers.  No one knows exactly when their market will hit bottom and starts to appreciate.. we all know what goes down will go up and all real estate is local.  Things are now appreciating in certain markets and if a new BPO is done by a lender which suggests the current offer is to low, I'd hope as realtor I have a higher offer (even if it's just sitting in a folder that wasn't responded to by the seller) to look at if the buyer in 1st position will not agree to the lenders price.

 

I love higher offers because it gives me leverage with the offer in 1st position, should they try to change terms or not accept a lenders counter offer.  None of us want to keep submitting new offers and wait for 2 more months to see if a lender will accept it and then another 45 days to close.  By the time you do all that, the market could have changed again.  Just remember, when things turn around and prices increase, we are all going to be dealing with the same thing we did in declining market, just the other way around.

• ▶ Reply

Permalink Reply by Kevin Vitali on March 16, 2011 at 12:58am

Out of some concern I called my attorney that handles all of my short sales.  He said not to lose sleep over this.  At the end of the day the bank is setting the values, they can say no.

 

Also, my initial reaction like Raymond pointed out, is this might be targeted at flippers that are negotiating their own short sales and may be misrepresenting their intent to the bank.

• ▶ Reply

• ‹ Previous
• 1
• …
• 4
• 5
• 6
• 7
• 8
• 9
• Next ›
• Page