Don’t Practice Law, Unless You’re a Lawyer

scales-of-justiceThe relationship between Realtors and Lawyers is interesting. Lawyers do not want Realtors intruding on their turf. When a foreclosure proceeding is filed, it may be considered a lawsuit depending on the foreclosure procedures in your state. Many foreclosures are done by a power of sale in the deed of trust, so it is just a series of notices and other requirements leading to a non-judicial foreclosure. In other words, it is not a court proceeding. However, in many states a foreclosure is a filing with the court, so it can be considered a legal proceeding or lawsuit.

In North Carolina, the Short Sale Addendum to the Listing Agreement says “If a foreclosure or other judicial proceeding is filed with respect to the Property, although Firm may continue to solicit and negotiate offers to purchase and contact, communicate with, obtain information from and supply information to Lienholders, Firm may no longer negotiate the terms and conditions of a Short Sale with Lienholders, as such negotation would constitute the practice of law.” This did not come from a determination by the North Carolina State Bar, as they have no official opinion issued on this issue. What that means to you is that the bar association has not agreed on where the line is between the practice of real estate and the practice of law. This wording came from the North Carolina Association of Realtors. I talked to an attorney at the North Carolina Real Estate Commission who felt it would take an extreme situation of negotiating with a lender for the Realtor’s activity to be ruled to be the unauthorized practice of law, as he felt that presenting an offer to a lender and encouraging the lender to take the short sale is a permissable activity for a Realtor.

Other states have similar interpretations of the line between what a Realtor can do and the practice of law. For example, click on this determination by the Florida Bar’s Standing Committee on the Unauthorized Practice of Law.

Luck for me, I am an attorney. How about you?

If you are not licenced as a lawyer in the state where the property is located and where the client lives, you need to know about the rulings that may restrict what you do in negotiations when a foreclosure has been filed. For states like California, where nearly all the foreclosures are non-judicial in nature, the line may be drawn in one location. For states like North Carolina, where the foreclosures involve a court filing, the line may be in a different location.

One other pitfall to avoid is the regulations on debt counseling. If you charge the seller a fee that is not contingent on the closing of the sale, it can be argued that you are doing debt counseling. So, do not charge any up front fees, just collect commissions if the sale closes.

How do you stay out of trouble? Follow the wording in your forms. For example, in North Carolina, you contact, communicate with, obtain information from and supply information to the lender. You do not use words like negotiate or advocate in any correspondence. Be sure to phrase everything, particularly everything in writing, in terms of contacting, communicating, obtaining and supplying information. You are just communicating, you are not advocating.

How do you find the line? Talk to your broker in charge. You may also want to talk to an attorney, particularly if your firm has one on retainer. Just know where the line is so that you will not have problems. Some of your communication with a lien holder that are in writing might be lasting proof that you are engaged in the unauthorized practice of law, so stay away from the line.

The BPO is Critical to a Short Sale

March 9, 2009 by  
Filed under Short Sale How To

bpo-house-70x70A short sale is a way for a bank to minimize its loss and get as much as possible for their loan. To judge whether the proposed sale is reasonable, the bank wants to know what the market value of the property is. Most banks will accept an offer that is around 90% of the market value of the property, some will go as low as 80% under exceptional circumstances. To get a market value, some banks hire appraisers for a full appraisal. Most ask for a Broker Price Opinion, commonly called a BPO.

BPOs are done by Realtors, typically ones who sell the properties that banks foreclose on, commonly called REOs (for Real Estate Owned, a category on the bank’s books to show the foreclosed properties they own). The bank contacts the REO broker with an order for a BPO. Typically, the Realtor has a series of instructions from the bank that have to be carefully followed. The BPO form is just a few pages long, asking for a comparison of the short sale property to three properties that are for sale and three recent sales.

The standards for the properties to be compared are set down by the bank, and the reviewers for the BPO company are meticulous in enforcing these standards. Most of the forms are extremely inflexible, with little room for comments or description of any issue that does not fit into a box on the form. In other words, you need to be aware that the form does not normally allow for any unusual information, and most of them only allow a limited number of pictures. Imagine trying to get the information for the house in the picture on this post into a BPO form. So, you could have a serious ideosyncracy for the property with no place to put it in the BPO form. However, the banks process thousands of these forms, and standardization makes them much easier to review.

There are interior BPOs and exterior BPOs, commonly called drive bys. Both involve taking pictures of the property and the neighborhood. The interior provides much more information, the exterior just looks at the outside. The pay for an exterior BPO is around $40 to $60. The pay for an interior BPO is higher, typically around $100. Some companies get the BPOs done for free with the promise that Realtors who do enough BPOs will get the REO listings. You have to get used to the alphabet soup, if you are talking to a bank, you need to know the acronyms.

You can tell from the pay, or lack of pay, the BPOs cannot take too much of the Realtor’s time. Many of the Realtors who do BPOs have a staff to do the administrative tasks, so the agent gets involved only on evaluating the information to give the price range. In short, they are mass produced.

Most of the people who teach about short sales want the Realtors to try to influence the BPO. You want to provide accurate information about the market, the repair issues in the house, the features that will make it hard to sell and other factors that affect the value. Some seminars say to take the lock box off the door to the house, so the BPO agent has to meet the listing agent to get into the property. That is difficult to do if the house is still on the market and being shown by Realtors. The idea is to give the listing agent an opportunity to provide information about how the sales price is close to the market value, such as handing the BPO agent three listings that are for sale and three that have recently sold. Some instructors say to fill out a sample BPO form and give it to the BPO agent. There are a great deal of new regulations prohibiting Realtors from trying to influence appraisers, so if you are dealing with an appraiser, be sure you know the rules for your area.

A good idea is to furnish the bank with pictures of any repair issues or damage, along with bids for the cost of repairing those items. These pictures and bids should be sent to the loss mitigation negotiator, as the BPO agent may not be able to put them into the form. Ask the negotiator whether the BPO discusses these issues and adjusts the price accordingly.

It is prefectly appropriate to try to get accurate information of the value of the property into the BPO. The whole process depends on comparing the offer to the market value. A high BPO does no one any good, except for the people who make money off of foreclosures. There is a new state law in California that prohibits an unfairly high BPO price by an agent who may get the listing on the property if there is a foreclosure. The California legislature found there were agents who gave a high BPO value to prevent a short sale from being accepted so they could list and sell the property after a foreclosure. I am skeptical that agents would do that, because it is extremely hard to predict who will get the foreclosure listing. It is the law in California none the less.

If you get a BPO that is out of line, it is difficult to correct. Many loss mitigation negotiators will not tell the agent what the BPO value is, which makes little sense because the listing agent could provide great insight into any mistake in the BPO.

I had one short sale where the propety was appraised at a value of $520,000 while the sales price in the contract was $420,000. The property had been for sale for over a year, with the highest asking price being $475,000. I had to drop the price several times to get other agents to show the property, which indicates the $475,000 asking price was too high. When the bank started foreclosure proceedings, the price was dropped to $400,000 to get a quick sale. The low price resulted in three offers, and buyers who bid the price up to $420,000. If the property was worth anywhere near $520,000, there would have been dozens of buyers much earlier.

The bank would not disput the appraisal, and ignored the comparable values I sent. Radian Guaranty, the mortgage insurance guarantor, would listen to me, and reviewed an extensive market analysis that I sent. As a result, they overturned the decision to reject the short sale and the sale closed gracefully. The lender, the guarantor and the investor will be skeptical of your figures, feeling that the Realtor is just trying to get the sale approved to make the commission.

In short, the secret to success in short sales is to get a good BPO that allows the sale to be approved by the lender.

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