I, like some of you, have just received the AAR’s May newsletter, in which Christopher A. Combs, AAR’s “legal hotline” counsel, provides a legal treatise on a contractual issue regarding short sales in Arizona. I direct your attention to Exhibit A (page 11, dab-smack in the middle of the page).
In this article, Mr. Combs Esq. indicates that a “short seller” can accept as many offers as they can possibly get for their home, but that only the first one is “active,” will all subsequent offers being in a “back-up” position.
Now, to me, what this means is that the first offer I get is the “active offer,” and only that offer can be sent to the lender. Any subsequent offers will be on hold, unless, and until, something goes wrong with the first offer. If the buyer flakes out, or the lender rejects the first offer, we then send them our “next in line,” and hope for the best.
The way I see it, this is a clear breach of my fiduciary duty to my client. My duty is to sell the client’s property. Now, because of the nature of a short sale, my client, in fact, has very little to do with the process. He could care less how much I sell his property for, as he really has no control over whether it sells or not. Is it not in the best interest of my client to “accept” any and all offers, as they come in, and submit them to the lender, and let the lender decide which one, if any, they will accept? By dragging out the process of “oh. . .you don’t like that one? Let me send you this one. . .,” am I not doing even more damage to my client’s credit? Am I not to act in a timely manner, and get the most money for my client’s property as I can, so that we have a greater chance of getting the deal done?
This nonsense from the legal hotline seems to hamstring me while trying to perform my fiduciary duty to my client. The only remedy I can see is to have each and every potential buyer sign an addendum to the contract which essentially states:
“You do not have a legally binding contract with the seller, contrary to you or your realtor’s opinion. Any and all offers will be submitted to the lender, in the order in which they arrive. Your offer will not be assigned priority or legal positional standing. The lender(s) and the lender(s) alone will determine which, if any, offer they will accept and take to closing.”
See any other way around this impediment?
Allen
Bob says:
I doubt AAR’s position would protect an agent in court. There are more than a few ways to get around this anyways.
May 5, 2008 — 9:11 pm
Thomas Johnson says:
Allen: Then add on the unconditional offer of compensation you made in the MLS which the lender will ignore, causing you to be liable for the full offer of compensation, even if you do not as listing agent receive it, and I wonder why any sane person deals in short sales. Let the bank have the house.
May 5, 2008 — 9:13 pm
Allen Butler says:
Hello Tom,
I have not had a lender try to remove the commissions from a deal. They have tried to lower the commission, but not get rid of it. They always try to lower the commission. That’s their job. However, they are not a party to the contract between myself and the seller, so commission is not negotiable.
May 5, 2008 — 10:09 pm
Broker Bryant says:
Allen, It’s simple. Only one accepted and signed purchase contract should be submitted to the lender. The lender approval for the short sale is nothing more than a contingency to the contract. Have the seller negotiate the best deal possible, place the property pending and submit to the lender for approval.
The attorney for the AAR hotline is just wrong in my opinion.
May 6, 2008 — 5:40 am
Cheryl Johnson says:
Recently we were working with a buyer interested in making an offer on a short sale property.
The listing agent told us “Yes, we have an accepted offer, and we have an open escrow which is scheduled to close in about two weeks. However, go ahead and submit your offer, and if it’s significantly better, the lender will simply withdraw their approval of the previous offer, and accept yours instead.”
Something about that just doesn’t sit right with me.
May 6, 2008 — 6:24 am
Christina Ethridge says:
We do it a bit differently. Buyer’s submit offers – they also sign an addendum stating that the offer will not be signed by the seller until the seller receives approval of the offer from their lender, in writing. It also states that any offer submitted during the lenders approval period (we require 30-45 acceptance period on the offers) is open for action and will be submitted to the lender (as long as it is better than the 1st offer – per the lenders specific instructions).
We will not subject our sellers to any offer without the lenders approval in writing, period. We also will get the best offer possible to the lender so that the home will sell in short sale, in our sellers best interest.
Frankly, I don’t care what some AZ attorney says because the fact is, what he said is NOT fiduciary duty to the seller, it sounds more like fiduciary to the buyer and the buyer isn’t under contract with me as my client.
May 6, 2008 — 6:42 am
Thomas Johnson says:
Allen: Understood. I just do not find it a worth while expenditure of time and resources to foll with shorties. In ERAHouston, we never had the bubble, so our market is still in equilibrium. Here the shorties I have found typically are exploding ARMs which were done with out of town “investors” who bought as owner occupied or folks who bought the monthly payment.
May 6, 2008 — 8:31 am
Thomas Johnson says:
Fool with shorties,, spell check is your friend..
May 6, 2008 — 8:32 am
Steve Nicks says:
I would have to agree with you Allen. As a seller’s agent I would advice my client not to sign any offer prior to sending it to the bank for approval. That way there is no binding contract, and should you receive a better offer prior to the lender approving the initial offer, you are still able to negotiate with that buyer instead.
On the other hand, as a buyers agent, I’m doing everything within my power to convince the seller to sign our offer prior to sending it to the bank. And if they won’t, I make it very clear to my buyer clients, that they are at risk of losing position should another, better offer present itself.
May 6, 2008 — 8:55 am
Smithers says:
“However, they are not a party to the contract between myself and the seller, so commission is not negotiable”
Allen,
You are in the business, I am not. But, you and the seller are collectively asking the lender to modify their contract and accept some amount of money less than the loan balance. I don’t see any reason why the lender cannot “negotiate” how much your commission is by simply making a counter-offer to the seller saying “what they will accept. At that point, you and the seller can decide whether or not to modify your listing agreement and accept the bank’s counter-offer. It seems to me (an outsider) to be a risky way for you to do business, unless you have some idea in advance of what the lender is willing to accept commission-wise. Probably too much to ask, but if the short-sellers are really living in the home for several months “rent-free”, maybe they can figure out how to make up the difference ….
May 6, 2008 — 1:58 pm
Glenn says:
Allen – you might be raising more questions with this post. The big question is the lender is the one incurring the loss, so are we really working for both the seller and the lender and need to work in the best interest of both parties?
June 21, 2008 — 6:06 am