Hey Short Sale Expert…Do You Have A Good Lawyer?

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  • August 1, 2010

I was reading a post on my favorite real estate social network and the writer was stating something I hear quite often. That you need to be very aggressive in making sure the bank does not reduce your commission. In fact the writer of the post I mentioned said:

“Who do they think they are to cut commissions? Negotiate for this! You work ten times harder on a short sale, so why should we be paid less. Fight for this commission. If you have to, take all listings at 8% and start there. Don’t let them push you around on this issue. They will break when you push!”

Great advice. Too bad it could put you on the other end of a massive lawsuit.

Short sales are not new. We have been doing short sales since before they became cool. We were doing short sales back when Sellers actually had equity. Aah..the good ole days! It’s not the short sale that is new, it’s the opportunistic real estate agent that’s new to the game.

Newly dubbed short sale experts are out there trying to do short sales and obviously the reason why is because the lure of a big payday. Most have found out that short sales are, from their jaded perspective, a lot of work, and have elected to forego short sales.

However some, who have decided to make it a go are learning from “instructors” that they need to watch out for the big bad lender who will try to reduce their commission. There’s a couple of reasons for that.

The first is obvious, they want to net more. The other is you are required to do so.

We have spoken to a number of prominent real estate attorneys. We have also spoken to a number of real estate boards in regards to this. Here’s what it boils down to and you may not like it.

If you are taking on a Seller in foreclosure you do so knowing full well they are in financial distress.You know they are about to lose their home if a short sale is not completed. You freely chose to market to this individual and some even have told the Sellers that they are “short sale experts”. Once you have taken that listing your fiduciary responsibility is magnified.

Not only are you charged with protecting their best interests, you must place their interests ahead of your own.

So let’s say you are “negotiating” with the bank and the bank says they need to reduce the commission in order to make the deal work. At once, the agent is going to do everything necessary to defend their commission. Uh oh…you have just breached your fiduciary responsibility.

In speaking with the attorneys for the State Board of Florida, FREC, we were informed on 3 separate occasions, that if you have to reduce your commission to ZERO to make the deal work then that’s exactly what you must do. YOU MUST TAKE NO COMMISSION IF IT MEANS GETTING THE HOMEOWNER OUT OF FORECLOSURE.

If it means you work for nothing and the Seller gets out of foreclosure, then that’s just the way it is. You chose to take on a client in financial distress and your fiduciary obligation is to protect their best interests ahead of your own.

I am not saying an agent that knows what they are doing should not be compensated. For that matter even the incompetent agent may need to be compensated based upon their listing agreement.

However, that may be a matter for you to collect upon outside the transaction in your own lawsuit. In the short sale transaction you may have to forego getting paid if the bank wants to reduce the commission to make the deal.I know..I know..I have heard it before, most agents will come back to the Buyer and say the bank rejected the offer and wants more money.

So you tell the Buyer they need to increase the offer in order to meet the banks requirements. Then when the Buyer won’t you tell the Seller that the bank and the Buyer are being unreasonable and there is nothing you can do.

Oops..there’s that fiduciary issue rearing it’s ugly head again.Don’t believe me, then call your local board..not your broker, not your friend, not another agent…but the State Board and ask this question exactly.

“Hello, I am working on a short sale. I have an offer and it’s well below what the bank will accept. The deal will close and the homeowner will be saved from a foreclosure if I agree to reduce my commission or eliminate my commission. I have been told that I have an extraordinary fiduciary obligation to a homeowner in distress and that I need to forego my commission if it is in the best interest of the Seller and it will keep him from losing his home. Is this true?”

Make sure you are sitting when you get the answer. One attorney told us that the mere negotiation of a commission and trying to “beat the bank” up over commission could be potentially actionable.

It makes a lot of sense when you think about it. You’re the one who decided to take on this listing, and you have obtained privileged, and confidential financial information that you would not normally have, and by negotiating a commission you are using that privileged information for your benefit. Kind of scary when you think about it.

But don’t worry, no one’s ever going to know about you killing a deal because the bank wanted you to take less commission. No one is going to know that the deal may have been able to be closed but the bank wanted $10,000 or $15,000 more. There is just no way anyone can say it’s your fault. In the end it just did not close and you can tell the homeowner that the Buyer would not go up in price and the bank wanted more than the Buyer was willing to pay.

Well…that’s not exactly true. We have spoken to 4 different attorneys in 3 different states and the next wave of real estate agent lawsuits are on their way.

You see, each and every time you call the bank to “negotiate”, those calls and everything you say on them are recorded. In fact, you AGREE to having those calls recorded as a condition to even being allowed to speak to a lender. Why do you think they record those phone calls? Did you ever think what the phone call waiver statement means and why they state it?

Lender reps are trained as to what they can and can’t say in regards to a client. More than likely in your newly read short sale expert manual, they failed to mention that little bit of information didn’t they.

Attorney’s that will be suing real estate agents can subpoena those phone records and in doing so can make a very compelling case for negligence. They can subpoena all of your notes, your short sale package…even your preliminary HUD-1 Statement showing your big fat commission on it. Yes, everything!

If that’s not bad enough, too many agents and brokers are chummy with their own title company or title agent and try and get “creative” with the paperwork. Unfortunately they used a title agent instead of a real estate attorney.

You see, that information can be brought in against the inexperienced, short sale expert as well. For if they used a real estate attorney, it’s possible another layer of protection would have been put in place per the attorney client privelege.

The two hour short sale expert class left out that tidbit of information as well.

Well, who knows, maybe the homeowner will just accept that he lost his home to foreclosure and believe that you did the best that you could. He probably will.

Here’s hoping for you that his attorney will too.

Check out this update to this post regarding the prospect of real estate agents being sued for misrepresenting themselves as short sale experts to vulnerable homeowners.

About Barry Cunningham

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  • Claudia depending upon what state you are in, that fee based contract may be illegal..especially if the real estate agent presented it. He is not an attorney and that alone is a red flag and should be cause for great concern. Tread carefully here and ask an attorney you trust to review everything before singing ANYTHING.

  • Caludia, Ask your agent. I know when we do short sales the homeowner is never ever responsible for paying any fees. What state are you in?

  • I do not think the Realtor’s commission should be reduced since it is negotiated between the owner and the Realtor.The banks loss mitigator will not reduce his salary to help out the negotiations. Realtors need to remember that Being A REALTOR is a profession not a hobby. That being said, I commend those who are willing to take a hit on their commission in the name of securing a short sale…

    As to the comment on law suits and being sued I think when and if the law suits come down, those who worked haphazardly will have to account for their activities… I see it almost everyday… I always state to everyone I work with that I will demand, disclosure, disclosure and more disclosure. Short sale negotiators may be running afoul of the law on issues that come to negotiating contract terms and drafting documents even when they are just dictating terms to mortgage brokers, other attorneys or loss mitigators over the phone.

    I write this hoping that you are either negotiating your own short sale or are using a lawyer, the scenario above may be compounded if you are using a so called negotiator.

    Realtors and principals my not be informed or apprised of what is going on between the negotiator and the loss mitigator.

    When a negotiator is not disclosing information or is making arbitrary decision I would say get rid of them, you need to be assured that you are working above board and they are not putting the home owner or you, the Realtor at risk.

  • […] Hey Short Sale Expert…Do You Have A Good Lawyer? I was reading a post on my favorite real estate social network and the writer was stating something I hear quite often. That you need to be very aggressive in making sure the bank does not reduce your commission. In fact the writer of the post I mentioned said: […]

  • […] Hey Short Sale Expert…Do You Have A Good Lawyer?  … However, that may be a matter for you to collect upon outside the transaction in your own lawsuit. In the short sale transaction you may … […]

  • […] For some reason, these are the types of properties that Realtors gravitate to. So they list that pretty 3/2 short sale for $200,000.00 and the bank approves the short sale at $185,000.00 and everyone walks away happy and the listing agent takes home a check for a whopping $5,500 bucks and tells everyone that she’s a short sale expert. […]

  • bpowell says:

    Barry C. – In Virginia we do not have a fiduciary responsibility to the Seller

  • Hi Brigitte, it’s the same here in Florida. But the problem is that most agents don’t tell the client or if they do, they don’t tell them what it actually means.

    Thanks for your comment and thanks for stopping by.

  • bpowell says:

    Barry, Very true. I make it very clear when I get a buyer/broker agreement signed, AND i tell them to take it home, read it and call me with questions. I also tell them that if they do not want to work with me after they have read it, I will release them…..and I will do this after I have taken them out once. Some times I feel like I should have fired them after the first appointment :-) BUT, sometimes bad judgement gets in the way of GUT feeling/first impression. I actually had a couple who tried to tell me I had a fiduciary responsibility to them after they decided they didn’t want the house. Thank god I had everything I advised in emails :-) (that can be good or bad) lol!! This time it was good and their attorney advised them that I had done my job and had disclosed all pertinent info to them in order for them to make an informed decision. Whew! :-) ……Have a great week. I will keep following your site. Brigitte Powell,GRI,SFR
    Montague Miller and Co. REALTORS
    500 Westfield Road
    Charlottesville, VA. 22901

  • Hello, I am considering selling not listing. Would you represent me in any shortsale or foreclosure? If so what is your fee? Thank you for your consideration.

  • George says:

    I think agents are at great risk from selling not only short sales but also bank owned homes. There is a big problem now with robo signing, Mers etc, All across the Country there are former owners fighting and winning in getting there original foreclosure and sheriff sale vacated, just google it. Find out from your Broker or Attorney how to protect yourself, does E&O insurance cover this? How are you protected if you sold one of these homes and the new buyer sues you.

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