Great link Sylvia, full of good information, much that needs seasoning/revising as the SS process continues to evolve. A few observations... In other than short sales such as FHA PFS where the short sale is really pre-approved,why would a buyer pay so called "market value" for a short sale not knowing if and when the short sale will ever be approved? The reward for the patience and risk associated with purchasing a short sale should come in the form a reduction in purchase price from so called "market value" had the sale/purchase been traditional. I see no problem with a buyer paying or participating in a SS negotiation fee, especally if they are purchasing the property at a significant savings/discount and if they were aware of same BEFORE seeing the propety, and with full disclosure to all involved parties. If required by the listing company/agent/seller, this should be disclosed upfront, in the MLS, not sprung on a buyer AFTER they have seen the property. Bottom line, there is not enough $$$ in real estate commissions or attorney fees for agents and attorneys to absorb the cost of processing short sales. This is an EXTRA service for which compensation should be paid. Worse yet, when the SS involves a transferee and the third party expects a referral...what's next, agents and attorney pay for the right to process short sales...I think not! If there was not so much mortgage fraud on the part of the lenders when they were insisting on and accepting inflated (that's a nice word for fake) appraisals we wouldn't have so many short sales today. Processing short sales is a niche market that will be around for a few years. It creates legitimagte work for which those to are performing the work deserve to be compensated for. The banking industry need to either absorb this cost and allow a reasonable fee on the SELLERS side of the closing statement or expend $$$ upfront to work with sellers to establish reasonable prices and time frames for short sales that will enable them to sell and close within reasonable time frames. That will mean REAL appraisals and working with knowledgable agents in the market, not drive by or "$50.00 BPO's). Certainly knowing that a short sale will close within 60 days for XXX$ would help stabilize market values. I guess we need to consider how government bailouts and mortgage insurance impacts the process...for it often doesn't make a lot of sense at "street level".
The overwhelming legal consensus across the nation, and from the Federal Government itself, takes the position that the California DRE's stance is overreaching, not defensible, and will probably be overturned soon. California has, in its infinite wisdom, said that only real estate agents can negotiate short sales-precicly the wrong group to accomplish this transaction effectively and quite possible legally. I have spent tens of thousands of dollars on legal council to develop my SSN fee agreement, including a DePaul University Law professor. I will refute each point of the DRE's "findings below:
1..."Buyer’s Agents may also be told that their clients’ offer will not be presented if the Buyer does not agree to sign that SSN Addendum and include it with the offer. If the requirement for the Buyer to pay the SSN fee is being driven by the Listing Agent and/or the SSN,The SSN is (or must be), unless exempt under very narrow statutory exemptions, a California licensed real estate broker. See sections 10130 et seq. of the California Business and Professions Code, for the licensing requirements and the exemptions. Also, see the discussion in paragraph (c) below. , and is really not a requirement of the Seller, there is potentially an ethics violation and a breach of the Listing Agent’s fiduciary duty to the Seller by stifling and limiting the presentation of legitimate offers.
Rebuttal: Only California and a few other states require short sales to be negotiated by a CA licensed agent. We do not operate in CA. Our SSN fee is a "requirement of the seller." The seller, not the agent, hires SSN, and the SELLER signs a contract stating that they authorize the use of the SSN and buyer fee agreement. What CA is doing, effectively, is confining the burden of paying any fees or shortfalls to the seller-exactly the people who need protection.
2…”(a) Although the SSN Addendum is a contract document, the primary reason that these terms and conditions are on a separate Addendum may be to better enable the Listing Agent and/or SSN to conceal this information from the Seller’s Lender and, in some instances, the Buyer’s Lender. Based upon anecdotal reports from lawyers and real estate practitioners, it appears that unscrupulous SSNs are purposely not sending these Addenda to the Lenders as part of the package of information requesting Short Sale approval from the Seller’s Lender. This practice of intentional concealment would support and/or may lead to a finding of Lender Fraud. If the SSN Addendum is not sent to the Seller’s Lender, the Lender may not be aware that the Buyer (whether or not they are approved to get the NRCC credit) is being required to direct funds to others in the transaction including, but not limited to, the SSN. It is noted that in addition to paying for the SSN, Buyers may be asked to pay off the Seller’s credit card debt, the Seller’s moving expenses, to buy the Seller’s furniture at an inflated price, and to otherwise provide funds for the direct benefit of the Seller. If those funds/payments are not expressly approved by the Seller’s Lender, those “additional” payments could be extremely problematic from a legal standpoint.”
Rebuttal: My SSN IS NOT A CONTRACT ADDENDUM, and therefore does not need to be disclosed to the sellers lender. IOt is a separate contract between the buyer and SSN. The SSN must be disclosed to the buyer’s lender. It is important to note that the sales credit is NOT PAYABLE to the SSN, but to the buyer. The SSN fee to buyer is disclosed on RESPA as a separate line item, and this RESPA must be disclosed and approved by seller’s lender. This fee is also a separate line item form the commission.
3…”(c) The SSN Addenda may contain provisions which purport to establish that the SSN (who is negotiating with the Seller’s Lender on behalf of the Seller) is also representing the interests of the Buyer in order to support the rationale given as to why the Buyer is to pay the SSN fee. The muddled and unsettled issue of who the SSN is actually representing can be used, depending on the facts and circumstances, as the basis to allege undisclosed dual agency which could lead to a rescission of the transaction, disgorgement of all commissions earned by all Brokers and sales associates involved in the transaction, and ultimately to the revocation or other discipline of some of the real estate licenses.”
Rebuttal: SSN is not bound by a listing agreement, therefore has no agency issue with either buyer or seller. This is only problematic in states that require a licensed agent to negotiate short sales. Our “Short sale consultant contract” is between the seller and SSN. In other words, SSN works for the SELLER, NOT THE AGENT. The Agent has no say in the relationship between SSN and Seller.
4…”(d) While much of the written documentation with reference to the Short Sale transaction will refer to a sale for fair market value (“FMV”), the SSN and Listing Agents may orally emphasize the payment of less than the FMV as part of a scheme to induce the Buyer to want to pay the SSN fee. Unfortunately, if the Buyer acknowledges that he or she is paying less than the actual FMV of the property, then he or she is acting in direct contravention of what Buyers and Sellers may be required to certify to secure the Seller’s Lender’s approval of the Short Sale. In the past, Sellers have been required to certify under penalty of perjury that the property is being sold for FMV. More and more Lenders are now requiring that the Buyers also execute comparable certification documents. Misrepresentations, perjury, and/or the subornation or perjury, have serious legal, criminal and/or disciplinary consequences. Also, any “artificially lowered” purchase price would not prevent the taxing authorities from assessing the taxable value of the property at FMV. If that occurs, additional liability exposure may be created for the Brokers, depending on their involvement in a fraudulent scheme.”
Rebuttal: No SSN language makes any mention of FMV. Indeed, the true negotiation of a short sale is between the price that the market is willing to bear (offer) to what the bank thinks the property is worth. If we agreed with the DRE’s notion that the lender sets FMV, then agents must stop complaining when BPO values are higher than true FMV. Further more, the fiduciary duty of both the SSN and agent is to PLACE THE SELLER IN THE BEST FINANCIAL OUTCOME. Period. Full stop. End of story. SSN and agent and seller are UNDER NO OBLIGATION TO BRING A “HIGHEST PRICE” TO THE LENDER, unless such an affidavit is signed between the seller and lender (that in and of itself may be illegal) Moreover, all offers are presented to the seller’s lender with LEGITIMATE comps and market data, and the lender does it’s own valuation and makes it’s decision based upon this market data, therefore any decision by the lender is it’s own. In other words, the seller can present what ever price they want, but the lender makes it’s own decision using it’s own information, thereby eliminating any basis of “fraud.”
5…”(e) As discussed above, the SSN’s fee that is charged to the Buyer might not be part of the “negotiations” between the principals. Rather, it may be a requirement of the sale according to the Listing Agents’ comments in the MLS and/or on any pre-sale “terms of the sale” sheet distributed by the Listing Agent or SSN to prospective Buyers’ Agents. The latter may be effectively told that their clients’ offers will not even be considered (i.e., at times not even presented) unless the offer contains the required terms, including the credit and/or the requirement that the Buyers and their Agents must sign the SSN Addendum. Since the SSN is a service provider that should be paid through escrow, if no real or added services are actually performed for the Buyer, requiring the Buyer to pay that “extra” fee(s) also appears to constitute an unlawful "junk" fee under the federal law known as RESPA.”
Rebuttal: The SSN is a legal agreement between the SSN and the seller, and therefore becomes a requirement to the buyer. Further, the “Short Sale Consultant Contract” has an “Authority to act” clause, which means that the seller allows SSN to make decisions about what offer to present or reject, what vendors to hire, etc. In the event that a seller overrides the SSN decision, both the SSN and the seller have a cancellation clause. If a seller wants SSN to stop representing them, they sign the cancellation and the SSN cancels the short sale and the seller is then free to re start the process any way they like. There is no penalty for cancellation. As far as the SSN “Providing no real service to the buyer” Nothing could be further from the truth. The SSN works to ensure that the buyer’s offer (as long as it is legitimate and supported by market data) is accepted by sellers lender in a timely manner. Campbell surveys state that nationwide 22% of short sales are successful. My SSN ratio is closer to 95%.
6…SSN fees ARE NEVER PAID OUTSIDE OF RESPA
7…”(g) The SSNs may claim that the Buyers are not really paying them a fee because the SSN’s fee is coming out of the 3% credit from the Seller to the Buyer for NRCC. Negotiators are often able to have the Lender approve such a credit on their “Term Sheet”. As discussed above, there may be Lender fraud issues involved in the redirection/misdirection of the credit, and this could also be the basis for a deceptive and unfair business practice lawsuit. If the Buyer is authorized by the Seller’s Lender to receive the credit as specified in the Purchase Contract with the Seller, but the Buyer is compelled to and must give up some or all of the credit to pay the SSN (or others), then the SSNs may be involved in a “shell” game. If that occurs, the Buyers’ interests might not be properly protected by either the SSN who may owe them fiduciary duties (as discussed above) or their own Agent who has those same fiduciary obligations. Breaches of fiduciary duties have consequences in terms of civil liability and license discipline.
Rebuttal: The Buyer is paying SSN a fee. The seller credit is a separate line item on RESPA, Clearly disclosed to all parties. The credit is therefore not “Misdirected.” The purchase contract states that the credit be paid to the buyer, and it is clearly paid to the buyer on RESPA, NOT SSN. The fiduciary duty owed to the buyer by SSN is clearly stated in the fee agreement, which is the delivery of an approved purchase offer in exchange for a fee. Buyer is not responsible to pay SSN if no approval is provided, or if the seller credit is denied the sellers lender.
8…”When dealing with the myriad issues arising with respect to Buyers being compelled to pay a “junk” fee(s) to an SSN, real estate licensees must understand how truly unsafe and problematic this practice is in terms of potential license discipline and civil and criminal liability.”
Rebuttal: “Junk Fee” are when a fee is paid for a service that is never performed. The SSN agreement clearly states that the SSN will deliver a short sale approval in exchange for a fee. No approval, no fee. The seller is never charged a fee.
Regardless of the DRE’s short sighted and misguided attempt to manage fraud (and punishing sellers in the process) The Federal Government, under the direction of FNMA (Fannie Mae) and HUD, both agree and clearly state in their lending guidelines that
“ (page 9) "*Fees and Payments for the Purchase of Preforeclosure or Short Sale
Borrowers may pay additional fees or payments in connection with
acquiring a property that is a preforeclosure or short sale that are
typically the responsibility of the seller or another party. Examples of
additional fees or payments include, but are not limited to, the following:
short sale processing fees (also referred to as short sale
negotiation fees, buyer discount fees, short sale buyer fees);
Note: this fee does not represent a common and customary charge
and therefore must be treated as a sales concession if any portion
is reimbursed by an interested party to the transaction"
FNMA therefore CLEARLY ALLOWS THE PRACTICE OF CHARGING BUYERS THIRD PARTY NEGOTIATING FEES AND REIMBURSING THEM VIA SELLER CREDIT.
FNMA guidelines: https://www.efanniemae.com/sf/guides/ssg/sg/pdf/sel012711.pdf
(sect B-2 1.4 01)
"If they are negotiating on behalf of the seller than same should be paid by the seller or from the seller's side of the transaction and not hidden in "code" and put ont he buyer's side of the RESPA form. "
Here is where we disagree. As long as it is disclosed to the buyer, and they understand and agree, what is the problem. Any REO contract and disclosure makes the buyer pay for all fees and costs, why are short sales any different? In fact, I do not think sellers should pay any fees at all. As far as figures "hidden" in RESPA, why even have a RESPA? The law is clear, if it is disclosed on RESPA, then it is disclosed to all parties. Period. The sellers lender carefully inspects and must approve of all RESPA terms before funding. They know exactly what they are paying, and their guidelines clearly state that short sale fees be paid by the buyer. Their guidelines also state that seller credits of 3%-6% are REASONABLE AND CUSTOMARY. The argument that by approving sales credit defrauds the bank from receiving a higher net price holds no water. This indicates a lack of understanding of how lenders/investors work. Each lender/investor have different guidelines on what % of the purchase price that seller costs, including credits, are acceptable. As long as those fees and costs fall below this amount, they are approved. So long as you do not charge seller fees and costs that are higher than reasonable and customary, you should not have a problem. This is why you do not see attorney's fees of more than 5,000 approved, you do not see commissions of more than 7%, and you do not see exorbitant title fees. Once a lender receives a HUD, as long as total costs fall under their % guidelines, they are approved, regardless of whether you think that the lender is getting less net. They understand and accept this.
I have a short sale going with GMAC. I was contacted by a negotiator with REDC. They have reduced my commission to 5% from 6% and I see on the HUD the negotiator is being paid $2500. I am going to call the Oregon Attorney General on Monday to see if this company is licensed as a third party negotiator? Has anyone come across this scenario? I would appreciate any advice. Thank You.
Ok people, hang on to your hat..... Regarding the GMAC commission reduction from 6% to 5% and the mandatory 1% fee due the 3rd party which GMAC hired............. I called the customer service phone number and asked to be connected to someone who could help me out with an issue I had regarding the commission ding the 3rd party (REDC) negotiator hit us with. I specifically asked to NOT be connected to the short sale department. I spoke with two customer service managers explaining we work hard for our commissions and we would remember GMAC when this market turned around and that Bank of America and Chase didn't cut our commissions. My complaint must have gotten back to the 3rd party negotiator because the next day I received an email from the REDC 3rd party negotiator stating the commission was 6%, because I got 5% and he got 1%. What a joke! Anyhow, I politely sent him an email back and said if the commission was 6%, that is what I would be getting. I told him that his pay structure from GMAC was between him and GMAC and they didn't have a right to take part of my commission. I went on to tell him that I was not going to hold up the short sale for the 1% BUT that I was not done making calls to GMAC. I told him I was going to make it my priortiy for the day toGoogle GMAC board members and let them know that I would have to think twice about helping another homeowner with a GMAC short sale. Guess what...... I shortly received this email from the negotiator:
"Let me review the offer and if I have all the documents I need I will submit for investor approval. Also, GMAC has allowed an exception in this case to allocate 6% commission on this transaction. If I need anything prior to submitting I'll contact you directly".