Minimum commission on HUD PFS ??

I'm hearing that HUD will not allow the BUYER to pay part of the commission on a HUD Pre Foreclosure Sale??   Can anyone who knows for sure, confirm or deny this?  

 

Here's the situation, it's a low priced sale and I have a minimum commission on my listing, so the actual commission is ABOVE 6%.    The buyer has agreed to pay the commission amount above the 6% however, my short sale negotiator says HUD will not allow more than a 6% commission..... no matter who pays it.  

 

I can't see any logical reason why this would be true.   I've already read HUD's PFS factsheet which doesn't resolve this specific question.

 

Thanks,

Joe M.

REMAX

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Permalink Reply by Michael Schneider on March 31, 2012 at 4:13am

@Bryant  Logically, a fee or portion thereof should be either "allowed" or "non-allowed".  If so, then by the statement you quote, if a fee is not allowed, then it can be paid by the seller or third party.  But, I'm not sure this logic works here.

In my experience, I find that for the FHA you need a special type of logic, known only to the FHA, which I would call "FHA Logic".

Under "FHA Logic", fees are classified as "Allowable" or "Disallowable", and I don't think this provides complete coverage of all fees. If you read carefully the FHA "Clarification to ML 2008-43" on Allowable vs. Disallowable fees, commission up to 6% is Allowable, but commission over 6% is neither Allowable nor Disallowable.

I think there is a third category here, namely "Ganz Verboten".  Under FHA Logic, I think that Allowable fees can be paid from proceeds, Disallowable fee can be paid from the incentive or by others, and lastly Ganz Verboten fees are just that, Ganz Verboten.  And I'm kinda thinking that commissions over 6% may be in the Ganz Verboten category.

Under FHA Logic, consumers need to be protected from Ganz Verboten fees, even if they are harmed by doing so.

Permalink Reply by Bryant Tutas on March 31, 2012 at 6:42am

Ok so I have no clue what Ganz Verboten means.

I do know that I collect commissions as per my listing agreement. I've had sellers pay me at time of listing, prior to closing. at closing and after closing. I do not let lenders dictate how I get paid and how much I get paid. I ALWAYS assume they mean out of the proceeds of the sale. I abide by Florida real estate laws and doubt very seriously that a lender will ever come after me because my seller decided to pay me after closing for all the hard work I did. It really is none of their business. At least that's my opinion and I'm sticking to it :)

,.

Permalink Reply by Jim Schneider on March 31, 2012 at 4:04pm

okay so I know just enough German to know verboten means forbiden. Care to explain Michael? Ich weiß nicht Deutsch sprechen.

Permalink Reply by Kevin - Greenville, SC on March 31, 2012 at 6:07pm

Think of Mortgagee Letter 2008-43 and the list of allowable PFS Fees as nothing more that what the Servicer/Lender has delegated authority from HUD to do. 

Permalink Reply by Kevin - Greenville, SC on March 31, 2012 at 6:08pm

I'll gladly take on any FHA PFS and close nearly 100% of them all day long...

Permalink Reply by Michael Schneider on April 1, 2012 at 4:03am

I'm working on FHA deal number 23 right now. So, this is based on FHA docs, experience, and inference.

I think that to understand how the FHA handles fees, there are three type of fees:  Allowable, Disallowabe, and Prohibited.

Allowable and Disallowable are defined in a Clarification memo. But, some fees are simply prohibited, they cannot be on the HUD, even though a party may be wiling to pay that fee, and even though it may be standard and compliant.

Generally, Allowable fees can be paid from net-proceeds, Disallowable fees can be paid by other parties or the incentive, but Prohibited fee cannot be on the HUD.

In Joe's case, commission up to 6% is Allowable, but commission beyond 6% is NOT defined as Disallowable.  So, it may be Prohibited, probably is.  Basically, the FHA will step in a tell the parties what they may not pay for on a HUD.  Does not matter whether this makes sense, was agreed to by the parties, is allowable by law, or may cause the deal to collapse.  Investors do mandate some fees that cannot be paid, but the FHA is by far the most illogical IMHO.

The Servicers openly acknowledge that the FHA guidelines "provide additional challenges", professionally stated.

Permalink Reply by Joe Montenigro on April 1, 2012 at 6:36am

Thanks for the clarification Michael.... that makes more sense without the German :-)  hehehe.

I think you hit the nail on head in articulating the question.... and I see your opinion is that the commission beyond 6% is "probably"  prohibited.    I was hoping to find a black and white yes or no..... I'm still in the gray area :-)    I'll keep everyone here posted in the next few weeks to see how this pans out.  

Thanks again for everyone's input.

Joe M

Permalink Reply by Michael Schneider on April 1, 2012 at 11:23am

Probably here means, I think you will need justification for the Servicer to apply on your behalf for a variance from the FHA.

Permalink Reply by Joe Montenigro on April 1, 2012 at 12:59pm

Thanks again Michael, but it's seems that one would ask for a variance on a non-allowable expense.... not a prohibited expense, if there is such a thing as a prohibited expense.  right?

My preliminary HUD has just been approved with the beyond 6% commission on the buyers side.   I think I'll just wait to see if the final HUD gets approved at closing.    If they reject it at closing, I would like to have something in Black and White to argue against it....   I don't want to just take thier "word" for it..... I'd like to see proof that it's prohibited.

 

any other suggestions are welcome... thanks again

Joe

Permalink Reply by James Miner on April 1, 2012 at 12:28pm

I do a lot of PFS files, and FHA is adamant about not paying above 6% and does not want money being exchanged between any of the parties, also I have always had to sign docs stating that to be a fact, fraud is not in my game. 

Permalink Reply by Joe Montenigro on April 1, 2012 at 12:51pm

Thanks for relaying your experience James.... did they ever show you a rule, in black and white, specifically addressing this and can you post it or a link or reference to it?? 

Fraud is not in my game either (and I hope you weren't implying that it was)  but I have yet to see any document or affidavit disallowing what I'm proposing.    That's really why I asked the question in this forum, because I can't find anything specifically prohibiting it.

Permalink Reply by Joe Montenigro on May 6, 2012 at 2:48am

5-6-12 UPDATE....   This transaction settled and the short sale lender DID allow the buyer to pay the portion of commission over 6% on the HUD..... so everyone was happy, including me.    Just as a reminder, the buyer paid cash so there was no issue on that side of it.

Thanks everyone for your input on the discussion and for the several well thought out posts articulating the issue.   I hope this thread helps others with the same question in the future.

 

Joe Montenigro

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