Short Sale Seller You may be in violation of RESPA and not know it!!!
Is your short sale listing agent asking you to sign a listing agreement that has language similar to this:
"Seller instructs listing agent to not present any offer that is incomplete. The listing agent's non-negotiable addendum is a required addendum and if the buyer does not submit that addendum with the offer, the offer is considered incomplete and shall not be presented to the Seller."
While it may seem that this will ease some of the stress from negotiating an offer that is "incomplete", and keep a buyer tied to your house for x number of days, it actually may reduce your chances of selling the home prior to the foreclosure date.
Here's why:
- Knowledgeable short sale buyers agents will advise their clients to not sign a non-negotiable addendum, and most buyers will follow their agents advice.
- It prevents the seller and the buyer from being able to negotiate a mutually agreed contract
- What you as a short sale seller need most, is an offer to accept and submit to your lender
- The lender makes the final decision (must be agreeable to you) and without an offer to submit to the lender, your home will go to foreclosure
- The odds of getting an acceptable offer are greatly reduced. You can pay a small fee to someone with mls access to check the "short sales Sold to Cancelled+Expired ratio" of any listing agent.
The national average ratio of listing agent short sale success is reported to be around 30%. That is low because there are many agents who work short sales without getting sufficient education on all the bank guidelines and without gaining the necessary negotiation skills to negotiate with the banks. The average ratio for listing agents who are knowledgeable, skilled, and work hard for their clients is upwards of 80%. - Some of these addendums require the buyers agent to sign as being in agreement with the terms of the addendum. An experienced short sale buyers agent knows that s/he is not a party to the agreement and will not sign that s/he agrees to the terms. In fact, s/he has may have advised the client to not sign.
However, it's the clients decision to accept or not. If the agent has advised the client to not accept the terms, then the agent cannot sign the addendum because s/he is not in agreement. Since the agent will not sign, the addendum is considered to be not complete, therefore, you, Mr and Mrs Seller, may never see that offer.
How is the Seller in violation of RESPA?
The Real Estate Settlement Procedures Act (RESPA) is a consumer protection law that governs disclosures required at various stages during the home buying process.
That Act gives the Buyer the right to choose their own Closing Agent.
- "Section 9 of RESPA prohibits a seller from requiring the home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale.
- Buyers may sue a seller who violates this provision for an amount equal to three times all charges made for the title insurance."
What does that mean to a Short Sale Seller?
It means that if the non-negotiable addendum the listing agent has drafted requires the Buyer to use the Sellers Title Company, that you, Mr and Mrs Seller, are in violation of Section 9 of RESPA, and that you can be sued by the Buyer for three times all charges made.
It also means that many buyers agents may advise their buyer to not waste their time considering a property that has a non-negotiable addendum unless the listing agents "short sale Sold to Cancelled+Expired" ratio is at least 80%.
Therefore, you may lose many potential buyers and never know it.
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Bill,
I've not seen a Non-Negotiable Addendum in our area.
Section 9 of RESPA applies when the buyer is purchasing the title policy. Locally, the seller usually pays for the policy and chooses the title company although it is negotiable.
If the buyer pays for the policy, they choose the title company.
Tom
Great information!
Hi Tom, thanks for the comment.
This is a subject that I want to get correctly ingrained in my mind. At first the short sale listers were saying
It's gotten out of hand in my opinion.
As I understand it, if the seller chooses the title company, then the seller must pay 100% of all title insurance (including lenders policy) and related title costs. Here's a link to an attorney's site that discusses it. http://www.respalawyer.com/2009/04/respa_section_9_why_was_i_requ.html
You're probably aware that in their 11/30/2009 revision, section 2b, Fannie Mae revised their addendum to state that the Purchaser will select the closing agent.
If the buyer agrees in the contract to allow the seller to use their title company, and the seller does not pay for all the buyers costs, then the buyer can still go after the seller.
If you find some information that shows I'm in error, please share it. I'm planning to advise my buyers to require that they choose the title company, either their own, or mine if they want me to recommend one, and I want to make sure I'm on the right page.
You have definitely opened up a can of worms with this one. It would be interesting for an attorney to chime in on this one as these addendums are quite common.
Bill,
Interesting take. I can count on one hand the number of times a buyer has paid for the title policy and they always chose the title company. So I'm not really worried about the owners policy.
I agree that the buyer the pays for a small policy to protect their lender. I wonder if the buyer can purchase the lender's policy from another source, if desired? This may be an area that needs clarification.
I've passed this along to the lead attorney at a national title company.
Tom
Kathryn, it looks like the language has been drafted to keep attorneys in business :-)
Tom, thanks for following up.
The definition of Federally Related Mortgage is found on this link:
http://definitions.uslegal.com/f/federally-related-mortgage-loan/
It appears to cover just about every loan out there. At first glance it would appear to cover Fannie and Freddie, but it's much wider than that.
Bill,
Like I said, since the seller pays for title 99.9 percent of the time in Texas, the owners policy is not an issue.
Look at HUD Homes. The buyer has to pay for title, yet the seller (HUD) forces the buyer to use a specific title company. They always ask if you want to purchase the title policy elsewhere but good luck finding a title company who will issue a title policy on a deal they're not closing. Can you imagine the people making the rules, breaking them? ;-)
The lenders policy is interesting although I suspect it's the same issue as HUD. The buyer could purchase the policy elsewhere if they could find a title company who would do so.
The title attorney I spoke to will weigh in on this later.
Tom