Consumers and Banks to REALTORS: How Can I Sue Thee? Let Me Count the Ways!
There rhetoric about the housing crisis leading people to think things are getting better. Subprime loans came to a screeching halt. The government is siezing banks. Lending guidelines are increasingly restrictive. There are creative answers to help solve problems.
In the meantime, real estate entrepreneurs are designing more ways to cash in on the backs of distressed homeowners, opening the door to a round of possible lawsuits that will tap brokers’ pockets and drain Errors and Omissions insurance reserves.
Consider the following business practices. Is there a possible cause of action by consumers or banks? Maybe a class action lawsuit in the making?
1. Are you a foreclosure “expert”? “Almost overnight, companies have sprung up offering you the chance to become “certified” as a specialist in short sales or REOs. Although some of the programs might provide good training, you can invite trouble if you go overboard and market yourself as an expert,” said Chuck Kasky, director of legal affairs for the Maryland Assn. of REALTORS at the Mid-Year Meeting of the National Assn. of REALTORS in May.
Certified Distressed Property Experts is a new designation with an educational curriculum focussed on short sales and REO sales. There is scant attention paid to home retention solutions. Are REALTORS with good intentions about helping consumers opening the door to lawsuits for themselves and their brokerages? Mission statement: “To provide education to licensed real estate agents that will allow them to efficiently and effectively help homeowners in distress avoid foreclosure and sell their properties.”
2. Adding loan modification services as ancillary service. “…giving advice to homeowners about seeking a loan modification before they try a short sale … [a] practice that might be challenged as either unauthorized practice of law or otherwise outside the scope of sales associates’ license.” Kasky said.
“If you help home owners navigate a loan modification, be aware that your E&O policy might not cover your actions if you’re sued”, said Michelle Lind, general counsel of the Arizona Assn. of REALTORS. Providing such help is considered the business of housing counseling agencies, not brokerages, she said.
3. Flipping and Double-Dipping. Investors and investor networks are partnering with real estate agents and brokerages. The following scenario was outlined at the RealTown Short Sale Strategies Group by Dr. Keith Allison, a Tennessee real estate licensee:
“The Realtor refers the potential short sale to Quick Cash. Quick Cash arranges the short sale with the lender and pays for the home. (In his example he used a home valued at $200,000 .. .paying the lender 130,000 and the Realtor’s commission for the referral. Next, he turns around and puts the home back on the market listed with the Realtor and sells it for 160,000.) The Realtor never touches the paperwork, yet collects commissions on two transactions.”
Think the bank has a cause of action here? How about the homeowner? Maybe the real double dipping is going to happen in court!
4. Selling Bank Properties (REOs). Lenders are shifting liability of REO (real estate owned) sales to listing and selling agents with addenda that pose greater risk than ever before for buyers of bank owned properties, according to Holly Eslinger (shown at right), broker of Exclusive Homes and Land, and 2009 president-elect of the Arizona Assn. of REALTORS. (Eslinger spoke to REALTORS at the group’s Winter Conference in Prescott in March.)
Lind concurs with Eslinger about REO liability: “If you handle REOs for a lender, be sure your E&O policy covers property management activity,” she said. “Many of your tasks in selling REO properties are property management functions: getting utilities turned on, keeping the property secure if it’s vacant, even evicting people.”
5. Commissions and Antitrust. Real estate agents complain mightily about an ever popular custom of banks cutting commissions, sometimes right before settlement. The discussion raises their ire in online communities and foot-in-mouth pandemic is growing. Consider the following remark from a Massachusetts REALTOR who bills himself as a Loss Mitigation Certified Specialist:
“I always submit for 6% and so far, have always gotten 6%. When the lenders even breathe the notion of cutting the Realtor commission, I tell them that the Realtor commission is non-negotiable. Plus I suggest alternatives as the situation presents.”
The commission is “non-negotiable.” Really? Tell that to the DOJ! (Brokers, Do you know what your agents are saying online?)
7. Does your marketing cost people their homes? Consider the postcard at the right. “Avoid Foreclosure and Save Your Credit. Curious About Short Sales?” There is a web site address on the card, AvoidForeclosureInAustin.com. Is it any surprise that home retention is not a major focus of this agent’s web site?
When a distraught and financially strapped consumer receives a postcard from a certified expert and pursues a short sale option without speaking with an attorney or a HUD Certified Counselor, is the real estate agent and brokerage at risk?
I recently countered this marketing campaign with a series of videos aimed at consumers living in areas where agents are using these cards.
This postcard and web marketing campaign are designed by Pro-Step Marketing. Here is a recent pitch by that company to REALTORS at Facebook:
” .. we are offering a LIVE webinar on “How to Market To Sellers Facing Foreclosure”. Special guests will be attending including the instructors for the National Certification Course for Short Sales (they are speaking on the NAR panel at MidYear conference) as well as agents who have learned how to take a marketing strategy to their market and generate business from this niche … “
The instructors for the National Certification Course for Short Sales had center stage at a conference for the National Assn. for REALTORS in Washington, DC in May. Their consumer facing web site is called America’s Home Rescue. I wonder how Kasky and Lind would weigh in on agents wearing expert status to hawk commissioned short sales.
Is fiduciary served in the absence of HUD Certified counseling and expertise?
Tom Teece, a REALTOR in Florida, weighed in on Facebook:
“Agents should protect themselves by advising the homeowner to get their hardship qualified by a HUD-approved counselor. This should be done before discussing any possible sales transaction. If the homeowner can stay, then the agent is not wasting their time with a listing. If the homeowner must sell, it must be listed with an agent, the hardship … Read Morewill already be qualified, and the bank will accept the 3rd party verification from the HUD-approved counselor.
“Is NAR not encouraging this responsible action?
“Agent don’t need to be foreclosure counselors. They just need to to know how to direct homeowners to the pros. The counserlors become part of the agen’t team. Don’t try to do everything yourself!”
(I have not received any compensation for writing this content and I have no material connection to the brands, topics and/or products that are mentioned herein.)
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Comments
Jennie, I have spoken with many homeowners over many years … this year alone I have personally helped dozens of homeowners obtain long-term, sustainable loan modifications.
Your comments prove my point about homeowners needing HUD Certified Counselors … you have only seen TWO successful attempts in hundreds. Here in Pima County, homeowners reaching out for help have better than a 50% success rate … they are keeping their homes!
Your blog assumes Realtors do not even discuss loan modifications with their clients. How many homeowners have YOU spoken with that have tried to get their bank to work with them on a loan modification? Any of them successful?
Every single homeowner I talk to about alternatives to foreclosure have either tried a loan modification, or wanted to try one before listing their home in an attempted short sale. As a Realtor, I neither encourage or discourage them. I lay out the facts for each alternative, and give them tips on talking to the bank about a modification (e.g., get the name & phone number of the person you speak to), and wait for the inevitable: “Why won’t my bank work with me?”
To date, only two (of hundreds) were ever successful, and then only after the home was listed as a short sale.
Read my blog on the subject:
http://wp.me/pwsca-27
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