Ask Kathy: Electronic and Mutually Exclusive Boxes

2015 is ringing in with a number of Questions for Kathy to answer! Here, for your reading pleasure, are a few of the most frequent! Please keep the questions coming. If you have zipForms technical concerns include those questions as well. If I don’t know the answer, I’ll be sure to track it down for you.

Q. My client just asked me this question: “Where in the Residential Purchase Agreement does it authorize electronic signatures?” I am sure it is there somewhere but I couldn’t locate it, can you help?

A. Ten pages of small print is a lot of information to sort through! While it isn’t actually a “permission slip” there is reference to electronic signatures can be found in Paragraph 30. M, which is titled Definitions. The term “Signed” is defined as follows: “Signed means either a handwritten or electronic signature on an original document, Copy or any counterpart.”

The permission or agreement is formed when using Digital Ink or DocuSign. Each transaction includes a formal separate agreement to utilize electronic signatures. If accepted by the Parties permission is thereby granted.

Q. While preparing an Offer on the revised Residential Purchase Agreement my Buyer instructed me to enter a zero in paragraph 3. D (1) in order to limit the Buyer’s obligation to pay points. I tried to do so but could not manage to enter either a zero or N/A (non-applicable). What is the secret?

A. Not really a secret, but it does require the use of specific technique. When you are preparing to enter the information into the field limiting points try this: Hit the space bar twice then enter the zero (0); it should work just fine!

Q. When attending the training that you and Sandra provided I was fairly certain that the revised Residential Purchase Agreement (RPA) would have a new functionality that would prevent the preparer from entering both a date certain and the number of Days from Acceptance for the Close of Escrow. I think you called it “mutually exclusive check boxes.” I just prepared a RPA and tried it out, just to see how it worked and zipForms allowed me to enter both! What’s up?

A. You heard right! Both Sandra and I said just that! However, we have since learned that the zipForms programmers, for reasons of their own, decided not to include that functionality in the November 24 release. I am pleased to report that the mutually exclusive check boxes for the Close OF Escrow are NOW functional!

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Ask Kathy: Perspective on Wood Pest and the RPA

Q. I understand that the revised Residential Purchase Agreement no longer includes pre-printed reference to a Wood Pest Inspection and Report in paragraph 7 A. In addition, the Wood Destroying Pest Inspection and Allocation of Cost Addendum (WPA) has been retired. My question is – why? If you explained the reason it would be easier to communicate the new approach to Buyers and Sellers!

A. Great question! I agree that when we are made aware of the reason for change, it makes it much easier to understand and explain to others. This is the very reason I recently wrote a comprehensive article addressing the background, rationale for making the changes and “talking points” to assist with client communication. I call it “Perspective” and have posted it below. In addition, CLICK HERE to review the C.A.R. Question and Answer titled: Wood Destroying Pest & Organisms Inspections, Reports & Repairs.


Revised Residential Purchase Agreement (RPA) – “Perspective”
Kathy Mehringer – Coldwell Banker Residential Brokerage
RPA Study Group Chairperson

In October 2012 the California Association of Realtors® leadership team appointed a Study Group to assess the current Residential Purchase Agreement and submit recommendations for revisions.

The Study Group was comprised of practitioners, attorneys, brokers and managers with representation from both Southern and Northern California. Over a two year period nearly one thousand comments and suggestions were reviewed and analyzed, dozens of meetings and conference calls were held and then, in 2014, the California Association of Realtors® Standard Forms Advisory Committee approved the implementation of a newly revised Residential Purchase Agreement which was released in November 2014.

In many ways the language in this revised purchase agreement is intended to alter the way real estate sales are negotiated in California, establishing greater consistency throughout the state. For example, all of the Buyer investigations and due diligence are facilitated in the same manner; the appropriate professional is usually selected, hired and paid by the Buyer.

To accommodate this change, the Allocation of Cost provision no longer includes pre-printed reference to: sewage disposal systems, domestic wells, or wood pest inspections. In addition, the Wood Pest Allocation of Cost Addendum was retired; the intent of these changes is to eliminate the practice of pre-allocating costs for Section 1 and 2 corrective work. The Purchase Agreement now intends that these items are to be negotiated after all inspections are ordered by the Buyer (or Seller) and received by all Parties.

A Buyer may certainly request correction of Section 1 or Section 2 items; the recommended vehicle to make such requests is the C.A.R. Form Request for Repairs which allows both Buyer and Seller to make educated decisions after all inspections and reports are available for review.

Some companies and/or their agents have opted to create their own “homemade” versions of a Wood Pest Allocation of Cost Addendum; that decision may prove to be risky and should be carefully evaluated by management and brokerage counsel.

When representing Sellers it is important that they be advised of the risks associated with agreeing to any repair costs prior to understanding the true financial impact. The Sales Associate has a duty to counsel and advise clients as to the pros and cons of their decisions. Whether a Seller is asked to correct wood pest defects or other property conditions, they should first be aware of the full scope of work and the financial impact of such decisions. This is one of most significant reasons the “pre-allocation” concept was eliminated. Sellers ought to understand that they have the right to “counter out” any terms or addenda that pre-allocate unknown costs. Sellers who are considering accepting responsibility for pre-allocated and unknown expenditures are well served by consulting with legal counsel prior to forming such an agreement.

The talking points below may be useful when discussing any repair requests with Buyers and Sellers:

A pre-allocation of any cost, when an amount has not been specifically determined, amounts to a blank check and could result in an expense far greater than anticipated.

A Seller who commits in advance to correcting Section 1 and/or Section 2 defects may not fully understand the scope of work required including but not limited to fumigation which can entail a double move. For that reason it may better serve the Seller’s interest to wait until the Wood Pest Inspection and Report is received and reviewed PRIOR to making a decision

A Buyer who commits in advance to accepting responsibility for correcting Section 1 and/or Section 2 defects may not fully understand the scope of work required. For that reason, it may better serve the Buyer’s interest to wait until the Wood Pest Inspection and Report is received and reviewed PRIOR to making a decision

A Seller may wish to authorize the Listing Broker to arrange for a Wood Pest Inspection and Report prior to receiving an Offer because they may wish to anticipate what costs would be associated with any subsequent repair request from the Buyer. In that case, the Seller needs to understand that the Inspection Report, regardless of findings, must be provided to the Buyer.

The delivery of any reports, investigations, or other inspections is best documented by using the C.A.R. Receipt for Reports. This form includes language whereby the Buyer acknowledges receipt of report(s), documents(s) or disclosure(s) (“Reports”) while making it clear that the broker has not verified the Reports with respect to their adequacy, completeness, or the performance of the person preparing such inspections or Reports. In addition, paragraph L. states: “These Reports should not be considered as a substitute for obtaining your own inspections and Reports covering the same items and any other matter affecting the value and desirability of the property.” CLICK HERE for SAMPLE FORM

When Buyers select and hire their own qualified inspectors they not only have the benefit of choice but they can act in reliance on those choices.

C.A.R. Form Request for Repairs has been revised and now affords Buyers the opportunity to request correction of Section 1 and/or Section 2 recommendations along with any other corrective action relating to the property.

C.A.R. Form Seller Response and Buyer Reply to Request for Repair provides Seller the options of performing the requested repairs, issuing credits or agreeing to price concessions; remembering that financial credits are to be disclosed to and approved by Buyer’s lender.

When a Buyer is securing FHA or VA financing the contract includes language in paragraph 3 D. (3) that sets forth the process for negotiating Lender required repairs including Wood Destroying Organisms. Briefly, the Buyer has 17 (or___) Days After Acceptance to Deliver to Seller notice (C.A.R. Form FVA – CLICK HERE for SAMPLE FORM) repairs or costs……”

C.A.R. just published a Question and Answer addressing some of the most frequently asked Wood Pest questions; please review and save for reference along with this article! CLICK HERE to DOWNLOAD.

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Ask Kathy: More on the Additional Signature Addendum (ASA)

This past week I received a good deal of spirited input regarding the previous Ask Kathy where I discussed the Additional Signature Addendum (“ASA”).  Today I will dedicate Ask Kathy to addressing some of the issues raised.

Q. I read your post regarding the Additional Signature Addendum (“ASA”), and afterwards attempted to prepare a sample on zipForms and I couldn’t even fit two complete form names in the field [ ]Other! So my question is, other than preparing a separate ASA for every transaction document, is there an alternative?

A. You are absolutely correct; the space is limited! What I learned after receiving your email is that the “shrinking font” feature of zipForms is not available in the ASA field [ ]Other! If it were you might be able to insert the full names of additional transaction documents. I did learn that zipForms is considering activating the Text Overflow functionality to line that follows [ ]Other. If that enhancement is added there would be unlimited space as the text would automatically flow into the Text Overflow Addendum (“TOA”)!

In the meantime and as alternative going forward you may reference an Addendum in the [ ]Other field and include the names of specific transaction documents. Remember, transaction documents specified must be provided at the same time as the ASA! Each grouping of transaction documents would require an additional ASA .

Q. In most transactions there are only one or possibly two additional Buyers or Sellers. Isn’t there some way to add one or two additional signature lines without the ASA?

A. Yes, there sure is! If you are using DocuSign or zipLogix Digital Ink® for digital signatures you are able to add at least two additional Buyers or Sellers initials and signatures on most every transaction form! Simply choose the defined task and drag and drop the initial or signature into place as needed.

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Ask Kathy: Additional Signature Addendum

Questions regarding the Additional Signature Addendum (ASA) are pouring in; for that reason this week I will focus on those particular inquiries:

Q. Why didn’t C.A.R. add additional signature lines for Buyer and Sellers? So many of our transactions include three or more clients!

A. The RPA Study Group did consider doing just that! In fact, we instructed C.A.R. to prepare a draft with four signatures for both Buyer and Seller. When we saw the draft we quickly realized it just wouldn’t work. Not only from a spatial perspective but also the appearance of the form “suffered greatly in the translation” – as the saying goes!

In transactions where there are multiple Buyers and Sellers / Lessors and Lessees the Additional Signature Addendum (ASA) is the recommended form (CLICK HERE for SAMPLE). It may be used to add as many as three additional signatures.

Q. When using the Additional Signature Addendum (ASA) in a transaction is it necessary to prepare a separate ASA for each document or can I just use one for the entire transaction?

A. In transactions where there are multiple Parties signing a separate ASA is needed for each document. This includes; contractual forms, advisories, disclosures, addenda etc. It is possible to include multiple file documents on one ASA. This is done by checking the [ ] Other field and inserting the documents names, remember if other documents are referenced they are to be delivered at the same time. You may have noticed that limited characters are permitted which in turn limits the number of documents that may be referenced.

I have requested that the C.A.R. Standard Forms Advisory Committee consider not only expanding that field but also adding the word “additional” – if they agree it would read [ ] Other or Additional. At the very least we should see the field expanded in the near future!

Q. I just completed an Additional Signature Addendum (ASA) and was discouraged to find that I was only able to reference one or two additional documents if I used the full name versus the acronym. What’s up with that?

A. Because of the current spatial constraints, the zipForms library permits as many as five Additional Signature Addendum per transaction. By using the [ ] Other field to reference additional documents five MAY be sufficient to reference all necessary transaction forms. In conjunction with my suggestion regarding increasing the characters permitted to describe other forms I have offered as a possible alternative; increasing the number of ASA forms per transaction!

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Ask Kathy: The “Dotted Line”

Today I respond to three questions I recently received regarding signatures relating to a few of our transactional forms: Representative Capacity Signature Disclosure, Disclosure Regarding Real Estate Agency Relationships, and the Natural Hazards Disclosure Statement.

Q.  I would like to know if a client is permitted to sign the Representative Capacity Signature Disclosure ( C.A.R. RCSD) electronically using docusign or digitalink, will you let me know? 

A.  Yes, it is permitted.  Electronic signatures are valid and binding as described in the Definition Paragraph 30 M:

There are some narrow exceptions with respect to the use of electronic signatures in real estate transactions but those are limited to certain lease documents and forms.

 

Q.  I am only able to insert one associate-licensee name at the bottom of the Disclosure Regarding Real Estate Agency Relationships (AD)! I thought when the forms were revised they were modified to allow two associate-licensee names in order to accommodate transactions when more than one agent is representing Buyer or Seller?

 

A.  Currently the Disclosure Regarding Real Estate Agency Relationships (AD) does not provide an additional line to add a second independent associate-licensee signature.  The Residential Purchase Agreement (RPA) was revised to permit two selling and/or two listing associate-licensee names to be inserted in the Broker Box on page ten, but the AD was not similarly revised.

 

I have submitted a suggestion to C.A.R. asking that the AD be redesigned to provide an additional line because so many transactions involve two agents representing Buyer or Seller.  In the meantime, the Additional Agent Acknowledgment (AAA) may be used in order to make it clear to your client that when one associate-licensee signs transaction documents the other is deemed to have signed as well

 

Q.  I am hoping you can clear up my confusion regarding the Natural Hazards Disclosure Statement!  As a real estate licensee am I obligated to sign the Statement?  And does it matter if I am the listing or selling agent?

 

A.  The Natural Hazards Disclosure Statement (NHD) is required in accordance with California Civil Code 1103.2 (a) as it serves as a “receipt” to prove that the required disclosures were provided to the Buyer, as referred to in the NHD, the Transferee. The NHD itself is set forth in the Civil Code.

 

The Seller, as referred to in the NHD, the Transferor is required to sign the Statement as is their Agent(s). In reviewing the NHD (CLICK HERE for SAMPLE) you will see that immediately below the Transferors signature there are two signature lines for the Agent(s) of the Transferor.  Moving to the bottom of the page you will see the only signature lines for the Transferee(s).

 

The short answer; the listing agent(s) sign below the Transferor(s).  The selling Agent(s) do NOT sign below the Transferee.
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Ask Kathy: What a Difference a Day Makes!

Q. Why are some of the references to Days, in the Residential Purchase Agreement capitalized and bold while others are not?

A. Whenever you see a reference to Days capitalized and in bold you are alerted to the fact that there is a specific definition associated with the manner in which the Days tracked. The Definition Paragraph 30. Sub-paragraphs: F. “Days”, G. “Days After” and H. “Days Prior” provide specific guidance as to the manner in which each of these Days are tracked:

F. “Days” means calendar days. However, after Acceptance, the last Day for performance of any act required by this Agreement (including Close Of Escrow) shall not include any Saturday, Sunday, or legal holiday and shall instead be the next Day.

G. “Days After” means the specified number of calendar days after the occurrence of the event specified, not counting the calendar date on which the specified event occurs, and ending at 11:59 PM on the final day.

H. “Days Prior” means the specified number of calendar days before the occurrence of the event specified, not counting the calendar date on which the specified event is scheduled to occur.

Q. It is my understanding that weekend days and legal holidays do not count when tracking “Days” for performance under the Residential Purchase Agreement. Can you confirm my understanding?

A. Saturday, Sundays (weekend) and legal holidays DO count as Days UNLESS the LAST Day to perform any act required by the Agreement falls on a weekend or legal holiday. Simply put, the first day can and often will fall on a weekend or legal holiday and it counts! As an example, if a Seller issued a Notice to Buyer to Perform (NBP) on a Thursday; Day One would be Friday and Day Two would be Saturday, Day Three would be Sunday BUT because the last Day to perform an action does not include Saturday, Sunday or a legal holiday the final Day for performance would flow to the next business Day which would be Monday, so long as it is not a legal holiday.

The Residential Purchase Agreement (Definition Paragraph 30 Sub-paragraph F), provides the authority for the explanation above:

F. “Days” means calendar days. However, after Acceptance, the last Day for performance of any act required by this Agreement (including Close Of Escrow) shall not include any Saturday, Sunday, or legal holiday and shall instead be the next Day.

Q. When counting down days after Acceptance for close of escrow, removal of contingencies or contractual actions what is the first day? Is it the day of Acceptance or the following day?

A. “Days After” is defined in the Residential Purchase Agreement in the Definition Paragraph 30. Sub-paragraph G. wherein we are advised that the when counting Days After we use “the specified number of calendar days NOT COUNTING the date on which the specified event occurs, and ending at 11:59 PM on the final day.”

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Ask Kathy: A New Year and New RPA Questions Answered

Happy New Year to all! Back to work with more Question and Answer posts for your reading pleasure. Please keep them coming. If you have zipForms technical concerns include those questions as well. If I don’t know the answer, I’ll be sure to track it down for you.

Q. My client just asked me this question: “Where in the Residential Purchase Agreement does it authorize electronic signatures?” I am sure it is there somewhere but I couldn’t locate it, can you help?

A. Ten pages of small print is a lot of information to sort through! The authorization for the Parties to utilize electronic signatures can be found in Paragraph 30. M, which is titled Definitions. The term “Signed” is defined as follows: “Signed means either a handwritten or electronic signature on an original document, Copy or any counterpart.”

Q. While preparing an Offer on the revised Residential Purchase Agreement my Buyer instructed me to enter a zero in paragraph 3. D (1) in order to limit the Buyer’s obligation to pay points. I tried to do so but could not manage to enter either a zero or N/A (non-applicable). What is the secret?

A. Not really a secret, but it does require the use of specific technique. When you are preparing to enter the information into the field limiting points try this: Hit the space bar twice then enter the zero (0); it should work just fine!

Q. When attending the training that you and Sandra provided I was fairly certain that the revised Residential Purchase Agreement (RPA) would have a new functionality that would prevent the preparer from entering both a date certain and the number of Days from Acceptance for the Close of Escrow. I think you called it “mutually exclusive check boxes.” I just prepared a RPA and tried it out, just to see how it worked and zipForms allowed me to enter both! What’s up?

A. You heard right! Both Sandra and I said just that! However, we have since learned that the zipForms programmers, for reasons of their own, decided not to include that functionality in the November 24 release. We are hopeful that in the near future the mutually exclusive feature will be “live” for the Close of Escrow.

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Attention California Realtors® – The Revised Residential Purchase Agreement will be published November 24, 2014! Will you be ready for the changes?

kathy-2014-3-31Q:  I just heard a rumor and I was hoping you could set me straight!  Is it true that the Residential Purchase Agreement (“RPA”) will be revised AGAIN?  It seems that it changes every year!  Please let me know.

A:  Simply put; it is no rumor!  The RPA is currently under revision.  The good news is, the last time it was substantially revised was April 2010, nearly four years ago!  I know it seems like just yesterday doesn’t it? The revised RPA is scheduled for release November 2014, it is true!

As the Chairperson of the Study Grou    p, charged with the daunting task of analyzing each and every recommendation and comment as well as suggesting necessary revisions based on feedback from the field,  I can tell you that this is one dedicated and accomplished group of Realtors® and Attorneys!

If you would like to weigh in before it is too late you can view the “most current draft” by logging onto the following link:  http://www.car.org/newsstand/news/rpareview this draft will be posted through March 31, 2014 and reflects proposed modifications as of January 31, 2014.

Happy reading and remember; if you don’t vote you can’t complain about the results of the election – by that I mean make your voices heard.  If you have comments or suggestions you may deliver them to C.A.R via email at carforms@car.org

Knowledge is power – stay informed – continue to be the “best of the best!”

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Solar Panels And Other Systems – Are They Leased or Owned?

Trending indicates that homeowners are opting to lease many of the property systems (water softeners, water purification, property alarms, integrated phones, etc.) rather than purchase them.  For that reason you will find that I have re-posted this message regarding Solar Panels and other leased systems insofar as they impact the real estate transaction!

Whether or not the seller owns or leases all “Property Systems” including energy savings solar panels is an important factor in the contract negotiations between buyers and sellers.  In order to assist in the facilitation of this discussion/negotiation you may wish to review the tips below.

While you will note that the example below is geared toward solar panels the discussion points are similar irrespective of the type of “Property System.”  What is most important is communication, whether the brokerage firm represents buyer, seller or is acting as  dual agent, engaging in frank and open discussion regarding any and all matters affecting the property is a wise course of action.  Enjoy the read!

As always, feel free to send requests to kathy.mehringer@nrtsouthwest.com if you would like specific subjects addressed in future editions of insideCBNOW.

1)  Listing agents:  When listing a property with solar panels (or other systems) ASK the seller if they are owned or leased.

a. If these systems are leased request a copy of the lease agreement.

b. Provide the lease agreement and the terms of the agreement to the buyer by way of an attachment to a counter offer or contract addendum.

c. Amend Paragraph 8 “Items Included In And Excluded From Purchase Price” of the Residential Purchase Agreement to state that the seller does not own the solar panels or other leased systems.

d. In addition, include verbiage that requires the buyer to both qualify for (within the timeframe specified in paragraph 14B of the Residential Purchase Agreement) and to assume the existing lease agreement(s) unless otherwise agreed in writing between the parties.

e. Advise the seller that the buyer may ask for a price concession equaling the remaining balance on the lease OR ask that the lease be paid off.

f. Bear in mind the buyer’s lender will factor in any solar panel lease agreement obligations when calculating ratios.

2)  Buyer’s agents:  When selling a property with solar panels or other systems, ASK the listing agent if they are owned or leased.

a. If the agent says they are owned include language in the purchase agreement requesting proof of ownership.

b. If the agent says they are leased include a request for a copy of the lease agreement as a term/condition of the purchase agreement.

c. If leased the buyer should provide the lender with a copy of the lease to determine whether or not the payments will affect the buyer’s debt/income ratio.

d. Buyer should be advised to contact the leasing company to determine what, if any, steps need to be taken in order to qualify for the lease.

e. Buyers may wish to negotiate a lease pay-off as a condition of the purchase agreement or some other concession.

f. Buyer should consult with their lender with respect their obligations under an assumed lease agreement.

3)  The buyer should contact the leasing company directly for additional information.  For example: (i) “In the event wood pest fumigation is required and should the integrity of the solar panels be compromised would warranty be negatively impacted?”  (ii) “Will the leasing company inspect the panels prior to close and after the fumigation to insure everything is in good working order?” (iii) “If there is damage to the solar panels, which party is to be deemed responsible for any necessary repairs/replacement?”

Asking questions gets to the truth, getting to the truth makes for a smoother transaction; smoother transactions mean happier clients and agents!

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Nationstar Servicing A Much Larger Portfolio of Short Sales

In the first quarter of 2013 Nationstar acquired Mortgage Service Release Agreements valued at 200 billion dollars. Bank of America formerly serviced these assets.  For this reason short sale transactions will, in many cases, involve Nationstar as the Servicer.

In order to facilitate short sales effectively and efficiently, it is important that real estate practitioners gain a thorough understanding of the processes that will be implemented.  If we are to serve the needs of distressed homeowners, information and knowledge are prerequisites.

Let’s get to it!  For the record this post is not intended to offer personal opinions as to the processes that will be discussed, rather it is an effort to provide information to the real estate industry.   You have most likely heard about Nationstar’s Market Validation Program (MVP). This online auction platform is currently being utilized as a “offer validation” tool.

Without a doubt, short sale transactions have been the subject of fraud and abuse as it relates to undervaluing short sale properties. This sad fact has lead to the implementation of a variety of “offer validation” processes. Servicers and Investors have adopted tools and systems to mitigate loss and ensure they fully maximize the sales price.  As an example you may recall that the US Department of Housing and Urban Development (HUD) was recently considering a ban on brokerage dual agency on FHA short sales.  That decision is on hold for now.  In an attempt to be abundantly clear that fraud and abuse will not be tolerated, the auction platform for market validation is being implemented by some Servicers to insure open market and competitive bidding.

In those circumstances where the servicer is not contacted until after a purchase contract is formed and the offer on the table meets the Fair Market Value (FMV) threshold; it is unlikely to be overbid during the online auction.  Remember, the successful bidder at auction will pay a five (5) percent buyer premium unless the successful bidder was the original buyer currently under contract.

Note: Clearly it can be very frustrating when agents, after working diligently have an offer only to learn that the property must go to auction to validate the offer. The question often asked is: “Why?”

Servicers and Investors contend:

  • The validation program has been instituted as a result of the abundance of dual representation in those transactions where negotiated sales price was less than the FMV
  • The use of the MVP program has  shown a 13% -15% increase from the original offer
  • When using the on-line auction concerns regarding dual representation are mitigated 

Here are a number of tips every real estate practitioner should consider:

1)  The duty to ensure that the seller receives highest price / best terms is of paramount importance in short sales as in any other transaction.  All too often I’ve heard statements like this:  “What difference does it make to the seller they aren’t making any money on the sale, so what’s the big deal?”  The big deal is our duty to ensure highest price / best terms which does not carry a stipulation that says:  “Unless it is a short sale!”

2)  FMV is what Servicers and the underlying investor expect to receive.  FMV is based on the property location, amenities and benefits.  Keep in mind that in a short sale the value may be slightly skewed because many buyers anticipate some sort of price concession due to the uncertainty and time constraints these challenging transactions entail.

3)  Once a homeowner, after exploring all other options, determines that a short sale is best for him/her it is prudent to contact the servicer prior to or at the time of the listing. That initial you, the agent, to assess procedural requirements, qualification for consideration, reserve pricing, list price guidance policy, relocation incentives and special programs,  including the utilization of the auction platform.  If the Servicer is contacted at the time the listing is taken the property may be entered into the auction platform upfront.

4)  Often the short sale can be initiated at the time of listing under the “marketing status” category.

5)  Delaying initiation with the Servicer until a purchase contract is executed is often problematic, in particular when the auction “bomb” is dropped on unsuspecting parties, including the real estate practitioner.  When this happens buyers feel disenfranchised and sellers are frustrated and confused. Some servicers have teams set-up to begin discussions as soon as the property is listed. In fact, most Servicers would prefer to know about the Short Sale request at the time the listing is taken. They may be able to provide you with pertinent information as to their specific processes so that when you do obtain an offer, the buyer and their agent can be informed as the sale is negotiated.

6)  Always check the foreclosure sale status at the onset.  Securing a postponement is not always a simple matter.  Additionally, it is important to note that the only way to document the postponement is through the trustee.

7)  Document marketing efforts by using a Market Activity report.  Include MLS data sheets including broker and public remarks as well as accurate relevant comparable sales.  Do your homework – make no assumptions when it comes to establishing value!

8)  If repairs are needed to enhance the value of the property or seller disclosures indicate serious material defects, provide the servicer with estimates from reputable licensed contractors along with the disclosure documents. Photographs speak a thousand words – use them as needed to document property condition or neighborhood deficiencies.

9)  When an offer is received review the terms with the seller and issue counter offers as needed in order to negotiate a sales price that reflects FMV.

Note: Sellers should be made aware that a short sale involves additional steps and processes to be taken with the servicer. While there is an executed purchase contract the agreed upon sales price does not fulfill the full amount of the borrower’s debt.  The responsibility to ensure that the loss is minimized falls upon the servicer.  

10) As mentioned above Servicer concerns regarding dual brokerage/agent representation may be eliminated in the auction process.  The auction platform requires open marketing for a set number of days and affords all interested buyers the opportunity to compete regardless of representation.

11) The Equator system tasks and deadlines must be adhered to. Failure to do so may result in the file being terminated causing unnecessary delays.

Final notes:

Whether or not the auction platform is successful in securing higher net proceeds for investors remains to be seen.  However, because a short sale is a debt settlement the Investor has the right and the Servicer acting on behalf of the Investor has the duty to act in a manner that ensures losses are mitigated.

Short sales are complicated.  Preparation and knowledge are the keys to success.  Always request that sellers aggregate financial documentation early on.  Setting the expectations of both buyers and sellers will ensure that short sale navigation is as smooth as possible.

This brief post in no way addresses each and every challenge faced in short sale transactions; but is an overview of one of the recent developments – the auction platform.

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