Legal Fees
Just wondering if anyone has had this situation occur???
List agent e-mails an addendum for buyer to sign (AFTER APPROVAL & CLOSING DATE APPROACHING). No explanation was given. The addendum stated:
SELLERS AGREE TO GIVE BUYERS SELLER CONCESSIONS IN THE AMOUNT OF
$XXXXX WHICH WILL BE APPLIED TOWARD LEGAL FEES.
The short sale was negotiated by a law office. Buyer's never agreed to contribute toward "legal fees" and feels uncomfortable signing said addendum.
Replies to This Discussion
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Permalink Reply by Smitty on
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I agree with Brian. Seems like they got a seller credit approved for the buyer and now want the money OR you could say - HEY THANKS! I'll use it for my title, recording, closing costs, etc. I would want to know EXACTLY how the fees will be used. I would also caution you that if you are a financed buyer, even though they got some fees approved, it doesn't mean your lender will ALLOW you to use those fees.
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Permalink Reply by Wayne Brooks on
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I agree with Bryan and Smitty. This is how the atty is getting paid for the negotiations. Ask for a copy of the approved preliminary HUD. Make sure there are no other, extra buyer fees. If it's a cash deal, the buyer shouldn't care, even though it should have been disclosed/agreed to up front, with purchase agreement/addendum. If it's a financed deal, the buyer lender probably won't approve.
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Permalink Reply by Joseph Alfe on
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This was handled incorrectly by sellers attorney. There should have been a disclosed and signed agreement AT THE TIME OF THE OFFER. What most likely happened is A-the attorney is trying to slip one by, or B-The sellers lender cut out their legal fees at the end.
Also, the buyer's lender will certainly approve of the buyer paying extra fees, but only if it was disclosed during underwriting. To spring it on the buyer now will mean they will have to go back through underwriting.
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Permalink Reply by Carmine R Biello Jr on
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There needs to be full disclosure up front! I would not sign it. Get a copy of the approval in advance just in case the attorney tries something. You can always switch escrow companies. Also, would not hurt for you to have your personal attorney represent you at time of closing. See how it plays out. Best of Luck!
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Permalink Reply by Carol Pease on
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Wow! This seems to be part of the trend to get the buyer to pay the short sale negotiation fee. I've seen it done by agents and by attorneys. What is bad is that it seems to have not been disclosed at the very beginning. It is made even worse when they tried to pass it off as something the buyer asked for.
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Permalink Reply by Diane Wheatley on
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I'm disputing the same issue with another attorney group, Harbin & McCarron, LLC. They had the my buyer sign an addendum stating that they are negotiating the short sale and that my buyer needed to come in with an additional $10,000 over and above the purchase price for potential fees derived from costs that the short sale lender will not approve such as repairs, closing cost credit to the buyer, property liens, fines, termite repairs, administrative costs or legal fees. Of course the entire $10,000 was taken for legal fees. No where on the short sale approval letter from GMAC does it state that they are approving the payment of legal fees in the amount of $10,000. They would not tell me why it was not on the approval letter. I asked for the HUD signed by all parties showing the $10,000 attorney fee but they would only show me a buyer side statement. I don't believe that they turned in the true HUD for final approval, no way. How do I get my hands on the actual HUD that GMAC received to proof this fraud?
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Guys, buyers paying negotiating fees is COMPLETELY acceptable, however, it should have been disclosed before the buyer ever set foot on the property. NOT at approval time.
Buyer paid fees would NOT be seen on an approval letter because GMAC is only listing out the approved costs on the SELLER (borrower) side. They have no way of knowing what fees the buyer is incurring until final approval of the HUD1.
Your buyer will get a copy of the final HUD1 and I'm sure you will see the $10,000 on their side of the HUD - you're confusing the fees GMAC will approve for the seller with what your buyer's are paying.
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We never understood how escrow planned to have the $10,000 shown on the HUD. The $10,000 needed to be disclosed on the HUD "somewhere" in order to funnel the fee to the attorneys. The attorney would not allow us to view the seller side HUD. The purchase price of the home is shown as $260,000. The total amount of funds deposited by buyer is listed as $271,xxx with the $10,000 paid to the attorneys. You are saying that the $10,000 would not be shown on the seller side but wouldn't GMAC question the $10,000 fee being washed through the escrow by the buyer for an all cash transaction? Why not pay the $10,000 directly to the attorney? Who would ever know that the fee has anything to do with this transaction?
I know that lenders want every available cent in addition to the costs they have approved. If there is any money on the table, the short sale lender will want it and not allow additional fees to be paid to anyone but them (typically). And what also frustrated me is that the attorney would not itemize what the $10,000 consisted of. They told us that the $10,000 were derived from legal fees incurred by the seller and that was privileged info. The attorney did not label the $10,000 as a 3rd party negotiation fee.
If someone is charged for legal fees, aren't they entitled to know what the legal fees consist of. And, because they are paying for legal fees doesn't that place them in an attorney/client relationship? Am I off base with this logic? I smell something really stinky with this......
And because all of this was placed upon us right at closing, we had little to no time to investigate before closing. The buyers believed that they would be refunded a good portion of the $10,000 they placed in escrow as it was implied that the fee would cover any unforseen costs that could arise ...... yes, including legal fees....
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As Smitty said, this has been done incorrectly. Any buyer fees are acceptable as long as buyer has been disclosed and agreed in writing AT TIME OF OFFER. The reason why this attorney is not letting you see the HUD is simple: Since they do not have a proper agreement in place, they do not want you to see that , while their fee is disclosed on the buyer side of HUD (seller lender is not paying, therefore does not need to approve) they are probably realizing a matching closing cost credit which is shown on sellers side to buyer. As long as both credit and fee are on HUD, it is properly disclosed to sellers lender. What they may not understand is that unless the 10,000 fee and credit was previously disclosed to the BUYER's lender, it will be denied.
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Permalink Reply by TOP END Properties on
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That wording is to give the BUYERS the money for 'legal' costs.
Is that money going to be deducted from the buyers closing costs? Or is the attorney going to add new fees to eat-it-up? .. that's the big question. Either way its not going to negatively effect the buyers bottom line, so whats the big deal?
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Thanks for all the feedback!
As I previously mentioned, the buyers were very uncomfortable about being asked to sign an addendum for concessions and paying them back as legal fees (that would not be shown on the HUD). Buyers originally asked for concessions and was told the bank would not allow them. Obviously someone "screwed up" and the bank allowed a flat fee concession. The attorneys screamed that was there legal fee. They held up closing for a week trying to figure out a way for the buyer to release their approved concession for legal fees.
End result... Deal Closed and buyer got concession credit toward closing costs, pre-paids & pro-rated taxes.
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This happens to some extent around here (Chicago MSA). As an attorney, I decline representation when this structure is suggested, because, in my opinion, it creates the appearance of a conflict of interest. YMMV.
The Supreme Court and the Attorney Registration and Discipline Commission of my state are evolving to this position as well, or so it seems. Actually, since there are a number of Illinois realtors & attorneys on this board - they may want to take a look at the supreme court's committee on practice hearings from June - they discussed this issue as well as (and this may cause a gasp here) whether in Illinois negotiating a short payoff with a mortgage lender constitutes the practice of law which should be limited to those licensed to practice law. It will take at least the rest of the year for recommendations, if any, to make it to the court for adoption.
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