LawsonGroupMediation

I blogged about the need to understand liability. Now I will present the disclosures that should be in your written disclosure that your clients should sign. In future blogs, I will present liability traps even with the disclosures, and finally to understand liability itself.

Let’s take it from the perspective of what clients will claim in order to attempt to hold you liable.

Complaint: “I didn’t know that a loan modification was available. You pressured me to do the short sale. Now, it was rejected and we’ve lost everything! It’s all your fault!

“But”, you say, “I told them all about their alternatives to foreclosure.” It is critical that you have a separate document, entitled Alternatives to Foreclosure, and that you go over each one with them and make certain they understand each item. Then have them sign that they understand and agree that the short sale is the only acceptable alternative for their situation.

Complaint: “You assured me that the short sale would be approved!”

Yes, I know that is a lie. Prove it’s a lie with a disclosure document that says there is not guarantee that the lender will approve the short sale.

Complaint: “You didn’t tell me that after the sale, the IRS will tax me for the dificiency!”

Although there is a current tax act that prevents the taxable event for most homeowners who sell their home in a short sale, some people will still incur a tax liability. Make sure your disclosure document contains a provision that there may be a tax event if they receive forgiveness of the balance of the debt, but only a licensed or certified tax professional can tell them if any such forgiveness will be a taxable event for that seller. It should also include that it is their responsibility to determine how that will affect them, and that they are advised to seek the advice of a tax professional.

Complaint: “I thought you knew the law! You are supposed to protect my legal interests in this sale!”

Make certain your disclosure includes that you are not a tax professional or attorney, and that you cannot give them tax or legal advice. Further that if they should obtain seek and attorney or tax professional if they need that advice.

Complaint: “Hey, there is a judgment on my credit report, and you said that won’t happen!”

First, in a mortgage state, the final court order of judgment is the actual foreclosure. The later sheriff’s sale is seizure of the property. In trust deed states, the trustee sale may be followed by a judgment for deficiency.

Normally, we include in the proposal the request for the lender to dismiss any foreclosure suit, rescind any judgement of foreclosure they may have taken, and dismiss the case. Make certain that you have in your disclosure document that you cannot guarantee that there will be no foreclosure, that there will not be a judgment, nor can you guarantee that the short sale will not negatively impact their credit.

Complaint: “You didn’t tell me that people would find out we’re in financial trouble!”

Listing the property in the MLS is itself an exposure of the sellers’ negative financial condition. Also, at the end, if the lender requires a promissory note, the buyers will likely have to know those conditions.

Make certain your disclosure document provides for their consent to release their negative condition and other information as necessary to complete the short sale.

Complaint: “The buyers backed out? The contract was not binding? That is your responsibility! You should have made sure they could not get out of it!”

There are valid reasons for each side why the purchase contract should be an absolutely binding agreement or not. There is a full discussion of this in our book. Some states even require the contract to be nonbinding. If the purchase contracts will be easy to back out of, then you should have your clients sign a binding contract waiver. We have this agreement in our Short Sale Business Manual.

Complaint: “I showed my clients your listing, and you agreed to pay a 3.5% BAC. Now you are telling me that the lender will only agree to the short sale if we agents accept a broker commission reduction? No way! You will agree to the sale, but you will pay me the full commission!”

Our book outlines how to prevent this from happening while still seeking the maximum commission. We regularly get full commissions for the agents working with us, and we have strategies to prevent the servicing lender from reducing them. However, some SMI’s have written policies and even federal regulations that sometimes will reduce commissions somewhat, although some are relaxing this. However, If you do not ask for the full commission, you cannot get it. Our strategies provide for full commission, and we have a commission modification agreement for both agents to sign to agree in advance to how you will handle any required commission reduction.

Complaint: “My stupid clients! They are turning into monsters! They are so controlling and they will not produce what we need when we need it!” This is driving me crazy!”

This is not a complaint from the clients, but from you! LOL! The reality is that some clients are terrible to work with, with no sign of this when you both signed the contract. We provide a termination agreement that is an addendum to the listing contract. It is written so that when you go over it with them, it will help them to understand their responsibilities, your responsibilities, and their boundaries they must maintain. This agreement helps them to not be a problem in the first place, and if they do violate it, you can walk away. This has worked amazingly well with the agents working with us. It is found in our publications.

Complaint: “Oh, that buyer agent is driving me crazy! Calling me every day, making demands, complaining about how long it’s taking, questioning my competency, I’m getting sick of this!”

Ohhhh, that’s you? I wish had a dollar for each time… The problem? The other agent just does not understand short sales likely. Some people are just plain jerks, but sometimes jerk behavior is brought about by a lack of knowledge or understanding. We provide a buyer packet that explains the process and helps them to understand what is happening. For the cases we mediate, we provide weekly updates that help this as well. The approach we take has been very successful, and has taken a lot of stress out of the process.

Well, I hope that has been helpful. In my next blog, I will go over the liability situations that disclosures will not prevent, but I will help you to understand and solve them effectively.

Need help?

We provide training, coaching, and mediation

Our training is centered around two publications that we published:

Short Sales & Loan Modifications: A Practical Guide For Real Estate Agents and Investors

Short Sale Business Manual

The second publication is a companion to the other book and provides all of the disclosures, forms and guideliness referenced in the book, along with samples of proposals.

If we can be of service to you, please let us know.