Alarming News for Short Sale Negotiations
By Ann Bonehttp://blog.metrobrokers.com/2010/03/15/alarming-news-for-short-sale-negotiations/#more-1219
(This is posted with permission from my brokerage, un-edited)
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.
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Granted, this story is about the State of Georgia, but because some of the licensing for lenders has federal connects, it may apply to other states. I did get word this afternoon (after this was written) that State Law Makers addressed this issue early today but an official statement should be released soon. More to come as I get it.
This should not be considered Legal Advice in any form, I only wanted to bring this to people attention as we all may be affected by this. Scary to say the least!
Steve Adkins - REALTOR
Better Homes and Gardens Real Estate Metro Brokers
404-843-2500
Comments
This afternoon Keith Hatcher, Ernie Curtis, and I were accompanied by the Deputy Chief of Staff and Senior Policy Advisor for the Lt. Governor for a meeting with the Commissioner and Deputy Commissioner of the Georgia Banking Department. The purpose of the meeting was to discuss real estate agents involvement in short sale transactions and implications of the SAFE Act. The meeting was very positive with all parties participating in an open dialog lasting over one hour.
Commissioner Braswell does not believe a "major or minor problem" exists with real estate agents participating in short sale transactions. Both the Commissioner and Deputy Commissioner are aware of the carve out for real estate brokerage activities in the SAFE Act and believe REALTORS or real estate agents who are presenting offers and/or counter-offers between parties are not in violation. However, they are concerned that some real estate agents are potentially crossing the line into the legal definition of Mortgage Loan Originators and do believe that an agent asking the bank to hold off on a foreclosure is crossing the line into negotiations. One area we discussed extensively that will require further clarification is REALTOR compensation in a short sale transaction. We were very clear that we believe a commission received by a REALTOR from a short sale is not related to the loan origination, but rather from the sale of the real property.
At our request the Banking Department will look to clarify what actions a real estate agent can or cannot take in a short sale by including a section in the Frequently Asked Questions portion of their web page. We will continue working on hypothetical situations our members may need clarification on and continue the dialog with the Banking Department. We made it clear that GAR reserves the right to address our concerns legislatively, with the understanding that we will continue to work with the Department for a solution that suits both parties.
The Deputy Commissioner pointed out several times that his Department is not looking for additional licensees and is not looking to actively police all short sale transactions. He and the Commissioner did warn against real estate agents stepping outside of the legal boundaries on short sales by not understanding their limitations in these unique transactions. We vowed to help educate our membership on the Banking Departments interpretations and FAQ's once they are provided to us. The bottom line is, real estate agents must be knowledgeable and prudent in their dealings with a short sale. Based on our discussions with the Banking Department, if you are acting within the parameters of real estate brokerage activities and presenting offers and/or counter-offers in a short sale, we believe it is clear you are not in violation of the SAFE Act and we anxiously await further clarification from the Banking Department on their interpretations.
The State and Local Government Committee will continue to address this issue and work for a positive outcome for Georgia REALTORS.
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John Barbour
Manager of Political Affairs
GEORGIA ASSOCIATION OF REALTORS®
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I'm not sure about the rest of you, but comments that start out "I do not believe" by a politician just scares the crap out of me! No one can say for sure if we are or are not breaking any laws!