Brokers -- Are Your Agents Putting YOU at Risk?

By Mildred Wikins
Trainer, FIS Certification Series

Short sales are becoming much more common than they were only a year ago. Selling "short" means the lender accepts less than the full amount due to satisfy the full mortgage and all associated closing costs. Listing agents who fail to properly disclose any of the following are putting your brokerage firm at risk: Disclosures which are needed almost routinely now include:

"Lender approval may be required for a short sale."
Property sold "as is," no repairs to be made.
Extended period of time may be required for a response to the offer and/or for closing.

Agents should:
Never list a home which might result in a shortage without clearly disclosing that it "may require lender approval of a short sale." This language should be included on the listing contract, the seller disclosure form, as well as the actual MLS sheet. If agents are trained to use words such as "lender approval," "short sale," and "extended response time" on all potential short sales, it would decrease the number of complaints alleging failure to disclose.

Licensees should simultaneously be careful not to violate consumer privacy rights by getting permission, in writing, from all owners of the property to disclose the possibility of a short sale as part of their listing paperwork. If there are co-borrowers, one signature does not suffice.

It is critically important that brokers recognize the amount allowed for the commission will be determined by the lender, may be changed at will and will seldom be full commission. As a broker hopefully you are aware that when a consumer is in default (near foreclosure) and the lender entertains the idea of allowing a short sale they have the legal right to refuse to allow a closing with full commission as an expense. It makes business sense that a lender being `shorted' on their payoff would feel a full commission was excessive.

My recommended solution: disclosure from the onset of marketing that "coop commission will be 50% of amount lender approves." The lender can, and frequently does, change that amount just prior to closing. It does not matter that your listing contract states 6%, nor that the lender agreed to 5.5% two months ago. Today, after reviewing the most recent title work, an updated seller net sheet and preliminary HUD, the lender is stating flatly that they will allow a closing with a maximum TOTAL commission of 4%. It would be unfortunate if your brokerage firm had advertised co-op at 3%. The listing brokerage is now legally and ethically only entitled to a 1% commission. It would be inappropriate and risky to attempt to get the buyer's agent to concede on the commission split.

Likewise, Brokers are vulnerable when listings remain active AFTER the homeowner has either filed bankruptcy or the home has already been lost to foreclosure. In either case the home is not available for sale and a mutual release should be executed as soon as your licensee becomes aware of the change in status. Many agents are not aware of the impact of the bankruptcy stay ( no disposal of any assets). Nor are they familiar enough with the foreclosure proceedings to know what notification a defaulted borrower would have received to alert them to the pending foreclosure. Failure to know what to even ask their client is frequently at the root of listings where the home is already foreclosed, scheduled for auction yet listed for sale. (Risky behavior for the brokerage, your former client no longer owns a house to sell.)

There are numerous other risks associated with selling in today's foreclosure climate. This article focused on listing brokerage risks, but buyers' agent responsibilities have also been altered by the way short sales work. How long should a buyer allow for response to an offer? When should they expect a counter offer? When should they expect to close? Give notice to vacate current housing? When will the offer be pended? What is the impact of multiple offers? These questions are tied to buyer risk: translated means "Broker risk."

If you haven't gauged your liability lately, perhaps you should consider taking a fresh look at how defaulted loans are impacting your licensees. Increased Ethics complaints related to short sales in many parts of the country are a clear indicator that this is an area which needs attention. Your agents need specialized training so they are clear on both the foreclosure and sheriff's sale procedure. Additionally, there are significant differences in protocol for managing an upside down/short sale listing. Professionally, safe is always better than trying to say confidentially, "I didn't know." Perhaps we should review the section on Ethics which discusses "operating outside your area of expertise." Education and best practices could go a long way toward decreasing your risk quotient.

Mildred Wilkins, founder and president of Home Ownership Matters, LLC. She is the trainer for the (FIS) Foreclosure Intervention Specialist certification program. Visit her website at www.HomeOwnershipMatters.com or call toll free (866) 507-5105.

Foreclosure InterventionSpecialist (FIS) Series

Are you interested in becoming more proficient in foreclosure assistance? The FIS Series can help you to do just that. Although Level 1 was offered last month, you can still register for Level II (July 17) and Level III (July 18 & 20).