Real Estate Investor · Craigmont, ID · Member since 2009 · 564 posts · 239 votes
16y
Everyone and their puppet quotes the case in Connecticut. A buyer's agent not disclosing that he is a principle in the transaction (he is the buyer) is clearly fraudulent along with telling the banks that his offer was the highest?????
This case is so overly quoted to "prove" reselling a short sale is "illegal"
Real Estate Investor · Craigmont, ID · Member since 2009 · 564 posts · 239 votes
16y
Everyone and their puppet quotes the case in Connecticut. A buyer's agent not disclosing that he is a principle in the transaction (he is the buyer) is clearly fraudulent along with telling the banks that his offer was the highest?????
This case is so overly quoted to "prove" reselling a short sale is "illegal"
Mobile Home Investor · Spanaway, WA · Member since 2008 · 1k+ posts · 578 votes
16y
While a realtor, I bought several properties. By disclosing there were no problems and a FSBO were happy to pay me a 3% commission back on the purchase instead of the standard 7% larger companies mandate to be charged.
Real Estate Investor · Portage, MI · Member since 2010 · 470 posts · 315 votes
16y
It's like getting a ticket for driving 75 in a 50 mph zone.....must be driving is illegal! No, I think driving by the rules is legal but breaking the rules by speeding is illegal.
Why can't the people that throw around the CT case understand what the Realtors were charged with and why that made the short sale transaction a problem?
Real Estate Investor · Ocala, FL · Member since 2008 · 742 posts · 463 votes
16y
Bill,
The answer to your question is easy. It is due to the lack of common sense. Most people will not ever actually take the time to read the article. Instead, they will regurgatate what others have expressed. And then you will have those that just simple do not understand and since they do nto understand, it must be illegal.
Real Estate Investor · Los Angeles, CA · Member since 2009 · 37 posts · 9 votes
16y
I went to the seminar from attorney Ron Ballard on Sat. He discussed this case.
The big issue:
These agents took the listing.
In one example they received an offer at $150K
They did not tell the lender OR THE SELLER about the offer.
They set up another buyer to make an offer below the initial $150K offer.
They purchased and sold to the buyer with the original offer.
Ron called it "frontrunning" because they stole the initial offer from the seller.
They also failed to disclose and committed fraud.
The lesson?
Don't lie, cheat, and steal. Especially from distressed sellers.
This case should have no impact on the short sale business other than scaring agents.
Learn how to address each of the points in that case and how your business is different.
Involved In Real Estate · Paramus, NJ · Member since 2009 · 95 posts · 40 votes
16y
My broker just used this case in his short sale workshop as an example to prove that realtors should not be a principal to buy or flip short sales, but to act as an agent only. He said the only legal way is to do it with option contract or assignment. I need to know what is actually "legal" because it seems every day someone comes up with a new advice against realtors investing in short sales apart from becoming the listing agent. I am all confused. Do I need to give up my license in order to invest in short sales? Is it possible to do it while licensed and avoid potential legal problems? I'm a new investor but I don't want to get cut off at the knees before I even have a chance to begin. Someone point me to the right direction please.
Real Estate Investor · Craigmont, ID · Member since 2009 · 564 posts · 239 votes
16y
Lily,
I defiantly wouldn't do it without disclosure.
It would be interesting to see the details of the transaction and how much information was not disclosed or intentionally misrepresented. I doubt the issue is being an agent and the principle except maybe collecting a commission on your purchase!!!!
Real Estate Investor · Portage, MI · Member since 2010 · 470 posts · 315 votes
16y
Hi Lily,
Sam is right about full disclosure! That is a must in these types of transactions if you are a Realtor or not.
As far as being a Realtor buying and selling short sales....no problem! My wife Jackie (also a BP member) and I are both Realtors and we do it. As far as using an option contract or assignment in your transaction structure, option contracts are being denied by lenders more and more now and I am told that assignments are not being accepted by title companies and lenders. We use a sales contract that is full of complete disclosure. If there is an issue with you getting a commission on the sale, maybe it would be possible for you to refer it to another agent? I'd check with your broker on that one if I were you.
Good luck and have a great 4th of July weekend!
Bill
Specialist · MA · Member since 2009 · 858 posts · 306 votes
16y
My partner is an agent an we tell the homeowners he is not acting as their agent, just as a buyer. We have a completely different agency handle the listing and resale. I think it's safer. I'm sure at some point my partner may want his agents to potentially list or sell the properties, but we will be drawing up a disclosure to have the homeowners sign if ever it happens.
Involved In Real Estate · Paramus, NJ · Member since 2009 · 95 posts · 40 votes
16y
Happy 4th of July! USA rocks! Thanks for all your input. According to my broker, the issue seems to be how you as B investor present your lowball offer to the bank while trying to market the same property to a C buyer at a higher price. He said it's fraud if we don't report the higher price offer to the bank, and as Realtors we are held to higher standards and scrutiny, and that even if we're not the listing agent or principal, as long as someone out there is willing to pay more for the property, we have a duty to "disclose" -- tell the bank; failure to do so is fraud. This flies in the face of common sense and agency rules. I can't wrap my head around this. I agree on full disclosure, but I think this is going too far.
Real Estate Investor · Chattanooga, TN · Member since 2010 · 151 posts · 59 votes
16y
Originally posted by Lily Chen:
Happy 4th of July! USA rocks! Thanks for all your input. According to my broker, the issue seems to be how you as B investor present your lowball offer to the bank while trying to market the same property to a C buyer at a higher price. He said it's fraud if we don't report the higher price offer to the bank, and as Realtors we are held to higher standards and scrutiny, and that even if we're not the listing agent or principal, as long as someone out there is willing to pay more for the property, we have a duty to "disclose" -- tell the bank; failure to do so is fraud. This flies in the face of common sense and agency rules. I can't wrap my head around this. I agree on full disclosure, but I think this is going too far.
It does make you wonder if they are going to come back on us when times are better and say we were fraudulent in our purchases. They sure appreciate it now.
Real Estate Investor · Craigmont, ID · Member since 2009 · 564 posts · 239 votes
16y
Where are the short sale rules found with regard to presenting offers to the lender? Obviously if the bank asks if there are any higher offers and there were it would be fraudulent not to disclose. But I disclose up front that resale for a profit is indeed my intention as well as throughout the negotiations and a final disclosure on the final HUD1…..
This is one thing I don't get about traditional short sales. If I have an offer in and accepted by the seller is this contract not binding because the bank can accept a higher offer even after I have waited for months in first offer position? A “backup offer can bump me out without me rescinding my offer? If this is true it is no wonder traditional short sales don't happen.
Involved In Real Estate · Paramus, NJ · Member since 2009 · 95 posts · 40 votes
16y
You're right Sam, in numerous short sale courses I have taken, they all warn against submitting multiple offers to the bank on a short sale, so obviously agents have been doing it this way that screw up the deals so bad that they are now telling us NOT to do it but submit one signed offer until it gets approved and hold any other offers as backups only. That's why I'm confused on this so-called disclosure thing (where you "have to" proactively tell the bank about every offer or you're being unethical/illegal) because why go stir the pot with the lender? If you got 3 backup offers and they're higher, wouldn't that just kill your chances with the bank thinking maybe more better offers would come up if they wait long enough? And if agents are advised to submit only one offer by these short sale trainers/gurus, what difference does it make if an investor is involved in the deal and they're getting buyers who's willing to pay the higher price? I think someone is making up these so-called rules to keep us from making money! :P
Real Estate Investor · Kalamazoo, MI · Member since 2010 · 681 posts · 241 votes
16y
The agent has no fiduciary responsibility to submit all offers to the lender. They are not representing the lender, they are representing the home owner. Sam is correct. We also disclose upfront our intention to resell for a profit. The Connecticut case is a whole other story as K John and others ably pointed out.
Real Estate Investor · Craigmont, ID · Member since 2009 · 564 posts · 239 votes
16y
Lily, According to my broker (agent/broker who sold me my house years ago) I need a license if I am going to buy/sell more than a few homes a year. Otherwise I would be "practicing real estate without a license"
This is a prominent broker in the area.....also believes they must present all ss offers to the lender.
Accountant · greenwell springs, LA · Member since 2009 · 177 posts · 43 votes
16y
Originally posted by Sam M.:
Lily, According to my broker (agent/broker who sold me my house years ago) I need a license if I am going to buy/sell more than a few homes a year. Otherwise I would be "practicing real estate without a license"
This is a prominent broker in the area.....also believes they must present all ss offers to the lender.
Your broker, like 90% of all brokers/agents I've ever met, is a complete moron.
Real Estate Investor · Portage, MI · Member since 2010 · 470 posts · 315 votes
16y
Stephen,
Lily's Broker just is misinformed, like many other brokers. Moron is a strong word and I don't think it is warranted! There is a lot of misinformation floating around that influences everyone involved in short sales. As a Realtor & Broker, I know well Lily's Broker's fears of violating any of the confusing rules of agency, disclosure, etc. A common sense, non confrontational, explanation of why what we are doing is proper will probably take care of the Broker's objections. I find that about 50% can be convinced. Most of the rest just don't want to get involved because they trust other sources more than us. There are a few that are so convinced that they are correct that they won't listen to anything.
Bill
Real Estate Investor · Portage, MI · Member since 2010 · 470 posts · 315 votes
16y
James & Sam,
It involves being classified as a "dealer". I can check the details here in Michigan under our Real Estate Code. It has been a long time since I took that RE course!
Bill
Real Estate Investor · Craigmont, ID · Member since 2009 · 564 posts · 239 votes
16y
Originally posted by Bill Patterson:
James & Sam,
It involves being classified as a "dealer". I can check the details here in Michigan under our Real Estate Code. It has been a long time since I took that RE course!
Bill
While I have seen this with vehicles and mobile homes I have yet to hear of a real estate dealer license. I have been wrong before so don't think I'm not teachable.
Google won't even pull up "real estate dealer license" So it must not exist ; } lol
Real Estate Investor · Portage, MI · Member since 2010 · 470 posts · 315 votes
16y
It's not like a car or boat dealer license. It's a regular real estate license. The difference is that as an individual, you can buy and sell your own property. Where the problem comes in (as I remember) is when you do so many (5 if I remember correctly) purchases and sales in a year, Michigan classifies it as a business and to conduct a real estate business (market, sell, buy, manage, etc.) in Michigan, you need to be a licensed real estate person. Like I said earlier, I will dig into this a little more when I get to my home office and I can check my real estate books. It's been a long time since I have thought about this and I can't remember what exceptions there may be or what the details are.
One thing to remember.....you can buy and sell as much as you want as long as you use a broker. I can't think of a case that we are not using a broker on the short sales that we are doing now.
Bill
Real Estate Agent · North Jersey, NJ · Member since 2008 · 287 posts · 51 votes
16y
Since Lily and I have the same broker I think I should say something regarding this post.
First off, I don't think he's a moron, in fact unlike many brokers we were actually able to sit down together to discuss my business plan and how I am flipping short sales. He did not say it was illegal, or wrong or unethical, he just had a ton of questions that he did not have a lot of experience in. The contract he presented in that class were mine. As a licensed realtor who practices investing all I do is present the homeowner with a separate document that states I am licensed in New Jersey but not acting as one in this transaction and that pretty much handles the disclosure.
He aslo presented that same case to me when I first mentioned to him what I was doing and my attorney discredited it pretty quickly.
The only issue I have with him is what he says about listings. Basically the only problem he says is that the actual brokerage should not be involved in both A-B and B-C transactions(this includes 2 different agents). So if you get a short sale, negotiate it on your own then list it B-C with the office they will do it. Or, if you make an offer with an agent A-B, than you cannot list it on the MLS and must find your own buyer.
I don't think doing that is actually illegal but again he has to protect the office's interest and since there are no case studies proving him otherwise, he just says don't do it. Now if I can find a way to prove to him that it is not wrong and the agents can be involved in both transactions, than I can really start doing some volume. Unfortunately I don't really have anything that I can show him so I'm just going to keep doing these deals the old fashioned way!