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Short Sales & the “new” Mortgage Fraud
ARDELL on 01 20, 2011
Short Sales continue to be problematic for all concerned. So much so that “right” seems to be the minority “opinion”. At least I think I’m “right”…but apparently so does everyone else with a completely opposite opinion.So you tell me…Am I RIGHT or am I RIGHT?
The pretty simple short of it is: IF you sell your house short…you have to MOVE OUT! While many do not dispute this, I recently commented on this question of a Broker in Florida on this issue. I appear to be the ONLY person in almost 200 comments, most all from agents, who thinks the agent is supposed to check that the seller has moved out on the day of closing, or the day all parties agree that the seller was supposed to move out.
Crazy. Just Crazy!
As my friend in Philly once said to me,
“Ardell, everyone does “the right thing”. We just don’t all agree on what “the right thing” is.
In the post the question is “What is the Penalty for Breaking an Arm’s Length Transaction Notice?”BUT he seems to think his problem is that he drove by months later and the “former owners” waved at him from the front lawn. He thinks he just “found out” the sellers didn’t move out, when in fact he should have been “in charge” of knowing whether or not they DID move out in the first place! I mean…seriously…do agents not accept responsibility for ANYTHING anymore??? …and…wait for it…this guy TEACHES a class on Short Sales. Jillayne’s gonna LOVE that one.
The Buyer, Seller and BOTH AGENTS signed this:
No ambiguity there. Seller is NOT to remain in the property…PERIOD! But apparently “see no evil” is the excuse! Didn’t bother to notice that the seller hadn’t moved out on the day of closing? It’s pretty obvious the agent DID know the seller wasn’t going to move out that day…but “thought” that was a short term thing. BUT didn’t write a short term occupancy agreement to cover that and send it to all parties to sign, and the lienholder, PRIOR to closing!
But…no one except me thinks the agent was supposed to check that the seller in fact…MOVED OUT! Crazy. Just Crazy.
Examples of other responses:
“Well you certainly did not do anything wrong and you have little to worry about. the buyer and seller have to worry unless they can prove that the idea of the sellers regain occupancy came AFTER close of escrow..and the longer after the close, the better.”
A general consensus is all is well as long as they did not “intend” to stay as tenants at the time they signed the Arms Length Agreement and LATER decided not to move out. Even the attorney who responded says it is about “intent” when they signed the Arms Length Agreement, and not whether or not the seller actually moved out!
My response was long and very clear that the agent needs to LOOK IN THE HOUSE on the day of closing and make sure the seller is GONE! If not…I list the steps that need to be followed BEFORE the property closes. YES…STOP the closing!
“You are likely at fault for not providing the necessary paperwork for all to sign at closing to address the property not being vacant on the day of closing. The standard is not what you did know. It is what you should have known. If the contract had no post occupancy terms for the lienholder to review and know about before closing, it is because you did not cause them to be there.So it depends on whether or not they broke an agreement AFTER closing, that you wrote before or at closing. If the contract stated possession day as closing day, then you were aware, or should have been aware, that the possession was not transferring on day of closing in accordance with the contract terms. You should have seen/witnessed a vacant property before closing OR written up a post possession agreement if it were not vacant.If on the day of closing you knew it was not empty (and you should have even if you didn’t) and the loose agreement between buyer and seller was an extra day or more of occupancy, then you should have written up that agreement with an end date. You should then have sent that agreement to all parties, including the lienholder and the buyer’s lender. If the buyer bought it as owner occupied vs an investor loan, there is potentially lender fraud on two counts, but you can probably get concurrent terms of sentence on that.Was the insurance policy at closing for an owner, or a landlord policy? Did it have a vacant property rider? Or was the policy done as an occupied property with a tenant in place? Pretty easy for investigators to note if the buyer’s insurance policy did not note a landlord policy with a vacant property rider, meaning the buyer, buyer’s lender and buyer’s insurance company thought it would be vacant at closing vs occupied.If the agreement had no post occupancy provision (and since you don’t mention one I’ll assume it did not), then it was your obligation to view the property as vacant prior to closing and prior to giving the buyer the keys to the house.There is no excuse for your not knowing the property wasn’t vacant and writing up a post possession agreement once you knew it was not vacant immediately prior to closing.Let’s say you DID write up a 3 day post possession or a 10 day post possession or even a 30 day post possession agreement, and that document was signed by buyer and seller as part of the contract and sent to all parties and lenders/lienholders. If the parties subsequently extended or ignored that agreement, then you “may” not be liable, depending on how that post posession was worded.But if the property was not vacant prior to closing and you did not write that up in a post possession agreement, then you are liable for not having done so.
To which several replied:
“See no evil…hear no evil…speak no evil. i would leave well enough alone.”
Forget “crazy”…this answer is INSANE!:
“There is a legal way to get around these laws because this is the United States and people are free to do as they please.”
Lots of nails in this coffin…where are the agent’s brokers? Don’t they read this stuff?
“Shrewd buyer. Approach the sellers “AFTER” the short sale. Sellers are innocent, and you have an “Avoid Jail Free” card.”
“It appears that no one has done anything wrong…”
“Sounds like an issue for the two lenders involved, not the RE agents.”
“I’m sure the bank is too busy with all the other foreclosures and short sales to really be trying to document all the new tenants in homes that have closed. I’m sure you’ll be fine…”
And a direct response from the agent in the transaction who wrote the blog post:
“ARDELL. I completely disgree that I have an obligation to check whether or not the property is vacant at time of closing.”
Recently my friend Kevin Tomlinson said this about The “new” Mortgage Fraud:
“An example of a non-arms-length transaction would be where a seller “short sells” the house to himself or herself, which most likely involves a corporation, usually one in Delaware, but is still living in the house. That’s the new mortgage fraud.”
Seriously? Am I right or am I right on this one??? If the agent had no duty to check if the seller had moved out, why would the agents have to sign the Arm’s Length Agreement???
About the Author: Ardell DellaLoggia
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Duty of honesty to all parties prevails.