Friday, July 24, 2009

Short Sale options Taint Realtors

Short Sale Options May Taint Realtors®
By JR Hafer
Over the years real estate agents have often been compared to used car salesmen. The comparison has naturally been resented, and on occasion given Realtorsâ reason to fiercely protect their professional reputations.
One of these occasions is happening within today’s trend of “short sales”.

Admittedly, the potential homebuyers can get a fantastic deal on houses tendered as short sales, if the transactions are straight short sales, that is. Offers that are actually negotiated directly by the realtor with the mortgage holder, for a discounted rate.

Where the process gets contaminated and starts to stink is when an investor steps in with an option contract. Although it is not yet illegal for these investor “flippers” to get involved and make large profits on the deal, it sure does give a perception of a “shady deal”… which, in turn, seemingly taints the reputation of Realtor®.

When a homeowner gives an option and a power of attorney to an investor authorizing the investor to negotiate with the mortgage holder in order to settle for a low payoff, the investor offers the same house to the public for a higher price. This cuts out the homeowner and seems somewhat shady. The desperate homeowner gives up his equity in order to get free of the encumbrance and allows someone else to profit on his hard luck, thinking it is his only hope. The investor can walk away from the deal without penalty if it doesn’t close leaving the homeowner holding a bag of hopes in sinking sand. This just doesn’t feel right.

When a buyer agrees to purchase the house, the investor closes at the lower price with the mortgage holder, and at the same time sells to the new purchaser, at the higher figure, thus making a profit without actually holding the title for any time at all. This is called a double closing; from A to B to C type of closing.

In the best-case scenario these double closing transaction are difficult. Only 10% of these option deals ever close without complications. These complications give the new purchaser the perception of Realtors® having questionable ethics and lacking competency. The perception of the Realtors® ability to close the deal is naturally in question when the transaction sours and goes bad regardless of fault… That stinks!

Several years ago the Federal Housing Administration (FHA) made a ruling that investors must actually own a property for 90 days before they could sell it. This is called “seasoning the deed”. This was directly due to some unscrupulous investors buying up distress properties at a very low rate and without much improvement, turning right around selling it at a big profit.

There is sometimes a very vague line between good old capitalism and opportunistic profiteers taking advantage of unknowing consumers who depend upon professional Realtors® to advise and guide them.

The option contracts and double closings cannot be done with FHA financing. The Federal Housing Administration has deemed it unacceptable for a reason. That reason is assumed to be due to the perception and appearance of impropriety.

Realtors® must contend with short sales due to the amount of impending foreclosures. This can be a helpful thing for those who face foreclosure. However, with due diligence we can ascertain the ones that have the aroma of road kill and option contracts and give these shady deals a wide berth so we don’t get the stench on us that will taint our professional reputation.

Realtors® have the responsibility to serve the public and to remain above reproach and fiercely protect themselves from those who would skirt legality and gray areas in the name of greed, under the guise of helping the “poor unfortunate homeowner” who is on the cusp of losing their home.

All Realtors® have a fiduciary responsibility to fully disclose all the factors of a short sale. This includes the option investor and the probable problems contained within these transactions.

Short Sales, by nature, are difficult without other mitigating factors. It is not a breach of the “steering” rule in making it clear to potential buyers why these types of transactions seldom work and some are a waste of time and effort in pursuing these deals.
According to Webster’s New World Dictionary, the definition of taint is: 1- spoil, rot; 2- make morally corrupt, contamination.

1 comment:

  1. You should make sure that everyone understands that short sales are differnt from short sale options. Although, both have their drawbacks the straight short sale's downside is mostly time, for the consumer. There was a confusing report on TV on abc that confused a lot of people.
    I like your blog and will participate in it often. I also will let everybody know about how informative it is. I like your website too.