This is a topic that comes up from time to time and I wanted to share with everyone our stance on this important matter, and WHY we insist upon this. If you read our Network Business Agreement, which is a requirement for all of our referral partners to sign, it states "Agent agrees he/she will not refer to a 3rd party mitigation company or processing company. All work with sellers lenders must be done by agents stated brokerage company."
Here are a few reasons why we ask agents NOT use 3rd parties to mitigate short sales for our files.
1.) Regulation - We as brokerage companies are state regulated institutions. 3rd party mitigation companies are NOT. Because of this, there is no standard level or expectations of services, and they have nothing to loose when it comes to licensing. Many also work under the guise of "investors" and they also tend to act on the "liberal" side of real estate law, and can entrap agents in THEIR practices. I've heard literally hundreds of horror stories, CLICK HERE for one I just read on our site literally today. There is also a time factor when it comes to short sales and buyers backing out. When it comes to getting contracts signed or documents back, the processor is just another unneeded party that if anything can ONLY contribute to further delaying the process and of course approval times.
2.) Accountability - While there are short sale processing platforms that attempt to control communication between ALL parties in the transaction, many companies don't use them, and MOST programs are insufficient. This means that when buyers or buyers agents would like an update, they contact a 3rd party, which may not know ALL of the details of the transaction and be able to effectively commucate them to all parties. Things are also lost in communication very frequently. Also, real estate transactions are supposed to be at arms length. Do these negotiation companies and attorneys understand what an arms length transaction is, and who do THEY represent when a buyer or buyers agent contacts them regarding the file? What about when it comes to negotiating a 2nd position lien, who do they ask FIRST for a contribution? Here is a better argument, if the negotiation is a fee charged to the BUYER, it is not possible for a negotiation company to legally represent the sellers best interests in a transaction. Anyone with law experience can then easily argue that the listing broker NO LONGER HAS A LISTING, if they have given away their fiduciary responsibility to the seller by sending the file to a 3rd party that legally MUST represent the buyer in the transaction.
These types of things make arms length transactions virtually impossible when using another party. In addition, when WE assign a listing to an agent, it is important to be able to point the finger at THEM if things do not go well in the transaction. With this level of accountability placed on agents, it is not possible for them to pass the blame on another party.
3.) Fiduciary Responsibilities - Due to the importance of the situation, I believe very strongly that in a short sale transaction especially, it is extremely important for brokerage companies to take their fiduciary responsibilities VERY seriously. For me, this is a pretty simple line to draw in the sand. Either you care about looking out for your customers best interests, or you don't. Telling them that you are there to help them in their time of need and then passing the buck to another company, most of which are not regulated, is certainly irresponsible and careless.
What does this mean for agents? I understand that negotiating short sales is NOT part of your job description and in most situations you should NOT be negotiating them yourself if any way possible. A good short sale team is not a one man/woman show, it takes a team. Mitigating with lenders is not rocket science, and there is no reason an assistant, broker, or designated person in your brokerage office can't help with the negotiations. This way, they can still be under YOUR supervision directly, and you can do what you do best - SELL REAL ESTATE! And if you only have a handful of listings, there is no reason you can't do it yourself, it is NOT as time consuming as many would have you think. Remember, this is coming from somebody who has done a couple hundred.
Closing attorneys and title companies are great to partner with to help with legal matters, advance title work, HUDs, and closings. While they are a valuable part of a short sale team, There is no reason or need to pass the buck and hand off your brokerage companies fiduciary responsibilities and relationships by allowing them to actually work the short sale pfocessing.
Of course, our agents are only required to mitigate in house for the listings we refer them. It is a free country when it comes to their own. Choose wisely. This is also a way for us to help guarantee the sellers we refer out are never charged any money out of pocket, and can also receive a standard level of service. It is also a way we can guarantee any lenders who directly use our services and organization can insure that THEY don't get charged any UNNECESSARY FEES. Yet another reason to stay away from them.
In closing, I'd like it to be known that I COULD stand to capitalize substantially from processing short sales nationally. After all, we have literally thousands of short sale listings around the country we've referred to agents, ALL of which have agreed to not use a 3rd party to negotiate them! If I choose, it would be simple for us to insist that they use US to negotiate all of the listings we refer to them.
That being said, it becomes obvious that I passionately believe short sales should ONLY be
negotiated and worked by licensed brokerage companies. For these reasons, and others, I also believe to do otherwise is completely careless and unethical. Agents in ALL forms of brokerage relationships in our state are required to use "skill, care, and diligence in ALL transactions". Using any 3rd party to negotiate short sales shows a lack of all three of these things.
This was a great article, we still have to send this to agents constantly.