Alarming News for Short Sale Negotiations

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I’ve been peppered with questions about a rather alarming article being circulated over the past couple of weeks, written by a well-respected real estate attorney in the Atlanta market area. The thesis of the article is that real estate agents may be committing a felony when assisting sellers seeking short sales by participating in any negotiations with the sellers’ lien holders. This is supposedly because the Georgia Residential Mortgage Act of 2007 requires any person who negotiates mortgage loans to have a mortgage license (which 99% of real estate licensees lack) and that working with the sellers’ lien holders is “negotiating a mortgage”. 

Why raise this alarm now, in 2010? It’s being whispered that some (not all) mortgage brokers and lenders are angry at being required to become licensed in Georgia and are looking to make examples of real estate practitioners who they see as encroaching into lender territory.

March 31, 2010 marks the “drop dead” date by which mortgage brokers, mortgage lenders and the independent contractors working with them who solicit, process, place or negotiate mortgage loans for others or who work on renewing or refinancing mortgage loans for others must be licensed by the state or exit the mortgage business.  The state and federal exams each applicant must pass are onerous, to say the least.  I’m hearing that over 70% of the applicants are not passing either the state or federal exam and having to retest prior to March 31, 2010.  It’s high stress time in the Georgia mortgage business, especially for the less reputable mortgage companies. 

Why would real estate licensees be suddenly singled out for retribution?  Well, could it be that REALTORS, those real estate licensees who join a Board or Association of REALTORS and pledge to adhere to a National Code of Ethics, were supportive of the efforts to force licensure upon the mortgage industry? 

Real estate practitioners have been required to be licensed in Georgia since 1925.  Anyone printing a business card or setting up a web site could call themselves a mortgage lender until the 2007 passage of the Act.  And those active in the mortgage business prior to 2007 were “grandfathered” until the upcoming March 31 deadline.

Coincidental to the 2007 passage of the Act, the mortgage meltdown gained momentum in Georgia.  Reasonable people have discerned that unknowledgeable buyers and homeowners over-borrowed on over-valued properties.  No one wants to allow that to ever happen again and the reins have been tightened by all parties involved in the real estate financing transaction – the real estate licensees, the appraisers, the lenders, the closing attorneys and the title companies.  Please note that all the participants listed were licensed by the state in 2007 except the lenders. 

Please don’t misunderstand me; this is not a blanket criticism of mortgage lenders.  The reputable lenders will survive both the licensing process and the current economic downturn.

Today, though, real estate licensees are being threatened with prosecution for listing properties with outstanding mortgage obligations in excess of the current market value and assisting those owners in the process of proving to their lenders that an offer to partially pay off the total indebtedness may be better than forcing the lender to eventually foreclose on the property. 

Since when is paying off a loan “negotiating”?  And, since most mortgage loans have been packaged, sold and resold, perhaps multiple times, exactly which lender would negotiate with the final mortgage holder of a specific mortgage?  The mortgage lender which originated the loan? And are they still in business? 

Keith Hatcher, the Governmental Affairs Officer for the Georgia Association of REALTORS (GAR) has stated that it is his opinion and the opinion of key elected officials who serve on the Ways and Means and Banking and Finance committees that it would be a stretch to interpret the Act in this fashion and that this is not the intent of the Act.  GAR is, in fact, working with the chairman of the Ways and Means committee to draft an amendment to the Act which would clarify that it is not a violation of the law for real estate licensees to assist in the negotiation of short sales.

Can’t happen soon enough in my opinion.

What are your thoughts?

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11 Responses to “Alarming News for Short Sale Negotiations”

  1. Steve Adkins Says:

    So Ann, what would you recommend agents do, as of right now until this amendment is completed, who may already be in the middle of a short sale?

    And with the Federal Govt pushing the banks to do a short sale instead of foreclosing, short sales are about to become our primary business. This could be very dangerous for agents to even consider taking a potential short sale.

    • ann bone Says:

      Steve,

      No, not dangerous at all. My recomendation is to continue to work on the listings just as you have been. Take the listing, contact the seller’s lender(s) to introduce yourself. Coordinate the short sale package between the lender and the seller if it’s not already done, market the property and keep both the seller and lender updated on activity and any offers. Of course, offers go to the seller first and you would assist the seller in negotiating the BEST price and terms on the deal before presenting the accepted deal to the seller’s lender(s).

  2. Lloyd Carver, Loan Officer Says:

    As a Metro Brokers Financial Loan Officer who has been involved in his fair share of short-sale transactions, I don’t see how any of these deals would have ever closed without the assistance of a real estate agent who was familiar with the short-sale process. IMO, the average homeowner would never be able to make any headway with the banks (hence the failure of the Treasury Department’s Home Affordable Loan Modification Program).

  3. Short Sale Artisan Says:

    Great article, it’s always interesting to hear how specific states are handling the housing mess within their own borders. All these intersecting laws and regulations all colliding in 2010, gonna be a helluva interesting year!

  4. Sandi Rodrick Says:

    Excellent article, Ann, proving that a successful, professional REALTOR can’t ever be too well-informed or stop learning on a daily basis in this ever-changing market. What was the norm yesterday, may be totaly different the next morning as we all- government officials, bank executives, real estate professionals and even regular citizens- try to correct the economy and the effects it has had on all phases of our lives and chosen professions. Lloyd Carver went right to the heart of the matter stating how important a real estate agent’s assistance is in the closing of Short Sale. Homeowners, and even their potential buyers, are so emotionally involved in these transactions that those emotions sometimes paralyze them from being the clear, big-picture thinker they may usually be. Their real estate agent helps keep them calm, translates their information and their feelings to the lender in a much less emotional and concise manner which faciliates the process. The Georgia Association of REALTORS and National Association of REALTORS are working on these issues in these uncertain times. Your RPAC dollars are at work in your best interests. The Boards/Associations of REALTORS have the agents back just as Metro Brokers’ Broker Support does. If you’re not in good standing with a Board, correct that and know that as a Better Homes and Gardens Metro Brokers agent, you’ve got friends in high places that are knowledgeable about the long and the “short” of real estate transactions.

  5. Susan Adams Says:

    Thanks for posting this blog, Ann. When I first read the article about a week ago, my first reaction was NOT warm and fuzzy about taking new “short sale” listings and it also made me a bit nervous about one I am currently working for a buyer client. I feel a little better now and look forward to an update from Keith Hatcher – and the amendment to clarify the act!

  6. Deborah Gaither Realtor Delivering On The Promise Says:

    I recently received approvals from lenders for short sales listings for my seller clients. There is a lot of time and specialized work that goes into getting the lender to approve the short sales package. It would be a disservice to the seller to hinder the efforts that the realtors put into making the transaction successful for all parties involved.
    I appreciate Keith Hatcher and the other elected officials for working to amend the Act on behalf of the realtors in the state of Georgia.
    Thank you Ann for sharing this important news.

  7. Daphene R Norwood Says:

    Thank you much for this information, Ann. I have been a realtor for two years and all of my business has been short sale listings. I would probably be forced to leave the business if I were required to obtain additional licensing. In addition, this regulation could really hamper realtors in assisting distressed homeowners who really need our expertise.

  8. Lisa Says:

    Thanks Ann for the valuable insight. With all the changes and challenges facing the Real Estate Professional your articles are both informative and appreciated.

  9. Bo Krejci Says:

    Wow, very good article and thanks for the follow-up w Steve Adkins on what we should do as an agent. I love having Broker Support one phone call away.. The Good Lord knows you have kept me on the straight and narrow. 7yrs experience now and still counting on Broker Support, no shame in my game and a BIG THANK YOU.

  10. Joi Bostic Says:

    When I first received the “article” accusing agents of commiting a crime by assisting clients in short sales, I thought, “What a ridiculous accusation!” If we take this a step further, are lender going to market the homes, attract buyers and work with clients throughout the deal to the closing table? I think not. If a seller needs to sell for whatever reason and it ends up that the market will not support the amount needed to pay off the loan, then what? Should the seller be forced into foreclosure? I think this is partly what got us into the mess we are experiencing now. On the issue of negotiating the loan: I have never changed the terms of the loan; I have never drawn up paperwork to provide a new loan; I have never called several mortgage companies to get the best deal for anyone. So exactly what am I negotiating. Instead, the seller has given me authorization to speak to the holder of the lien about their current account. The seller has provided me with a bundle of documentation concerning their current position which has been forwarded on to the lender along with market data and proof of the listing. Where’s the negotiating? Once everything is submitted including an offer on the property, the lender assigns a negotiator to the file and all the parties to the contract must wait until the lender makes a decision. Where’s the negotiating?

    I see all of this as posturing. It’s a sad attempt to bring attention to a group in the population who have been regulated for a very long time. Recently, the Georgia Real Estate Commission sent out notices as to which real estate and appraisal license holders had been revoked. If we were doing anything inappropriate, it will come to the light. I will continue to assist sellers in selling their properties if that’s their desire.

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