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.

You need to be a member of Short Sale Superstars to add comments!

Join Short Sale Superstars

Email me when people reply –

Replies

  • I'm concerned for my brokerage in participating in such a transaction when I believe that deceptive business practices are involved.  My buyers were asked to deposit an additional $10,000 into escrow for potential costs incurred that fell outside the scope of the lender's written approval for costs such as liens, taxes, repairs, processing or legal fees.  The day before closing I requested a estimated closing statement and discovered that escrow was instructed to apply the entire $10,000 towards payment for legal fees.  Legal fees for what?  Isn't my buyer entitled to a breakdown of what these legal fees consisted of and for whom they were rendered?  Obviously it turned out to be ruse to collect $10,000 from the buyer for "whatever they wanted" fees. 

    And I'm supposed to sit back quietly and allow this type of action to take place?  When the pit of my stomach aches when I think about it, it isn't because I'm hungry.  Should I mention the phrase.......a license to steal?........

    • Taxes and liens do not fall outside the scope of written approval, and even some repairs can get covered.  All of these things can be placed ON THE HUD.

       

      Buyers are ABSOLUTELY entitled to an outline of the legal fees.  Like Joseph, we are a 3rd party firm and I too involve lawyers in 99% of the transaction. The lawyers I work with have a fee outline at the ONSET of the transaction so everyone involved, buyers, sellers etc., know what the charges are going to be.

  • 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.

    • Patrick, almost every state has shot down the idea that short sales are the practice of law, HOWEVER (agents take note) that most states also agree that certain parts of the process are indeed the practice of law.  Items such as discussing deficiency, promissory notes, tax liability, etc.  This is why, as a third party negotiator in Illinois (and all states I operate in)  I REQUIRE to seller to have legal representation. Short sale negotiators and attorneys should be leveraging their expertise to get these deals done.

      On to the OP, The law firm had the right idea, they just did it wrong. There is nothing that says you can't charge buyers fees, but if you do, it must be disclosed in writing AT TIME OF OFFER, and all disbursements MUST be on the HUD-1 at close. Period. Full stop. End of story.

      www.ssprocessors.com 

  • 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.

  • 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?

  • 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?

    • 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.

      • 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....

        • 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.

This reply was deleted.
********************************** like buttons ************************