The lenders made the original loan and now are being asked to discount the amount of the debt rather than foreclose on the property.  Many of the original loans were performed by a mortgage broker who “originated the loan” with the buyer and then “sold the loan” (i.e. transferred the loan to a different loan company — one who “services” the loan; i.e. receives and processes the monthly payments from the borrower).  So, the offer comes to the seller through the listing agent, who has made it known in the MLS that this sale is “contingent on lender approval.”

The next step is the one frustrating the buyer, the seller and both the listing agent (representing the seller) and the buyer-agent (representing the buyer).  It is the long wait for the bank or lender to make a decision.  We have seen banks/lenders take four-to-six weeks normally, and not uncommonly six-to-twelve weeks for a decision to finally be made and often the offer after this long wait is rejected. 

In talking to several escrow officers we hear that most of the cancellations are occurring when the buyer gets tired of waiting and in frustration simply withdraws and cancels the escrow and goes to find a different property to purchase.  No one can truly blame the buyer after a reasonable period of time for cancelling such an escrow.

Other issues facing the seller for an acceptable acceptance by the bank/lender is how much is forgiven?  Will the seller have to pay taxes to the Internal Revenue Service (IRS) for the amount forgiven (which is viewed by the IRS as “ordinary income”)?  (Note:  Talk to your tax advisor regarding the bill signed into law by the President, called “The Debt Forgiveness Act” that applies to homeowners with personal residence.  Namely, no investors need apply for this one.  This forgiveness only applies for personal residence.)

Again, another question for your tax advisor:  the debt forgiveness is for the original “mortgage money loan” (money loaned to the buyer for the original purchase — established by the value of the home at the time of the purchase).  It is my understanding, in discussing this with an attorney with a legal hotline service, that the “Arizona Deficit Disclosure” allows the bank/lender to go ONLY after the property “and NOT the borrower” for any deficency. 

However, be aware that two other issues are not up for discussion:  1) was the house re-financed, and if so, was additional monies received, namely “cash out” to the borrower.  If so, that money may be interpreted as “a personal loan” (debt consolidation, college loan funds, car loan, property modification, etc.).  This opens another discussion of both the “debt forgiveness vs. personal loan)  (Note:  Again, check with your tax advisor), and, 2) was the loan a “Home Equity Line of Credit” (HELOC).  It is not uncommon for the bank/lender to ask the seller to sign an agreement to “repay the amount of funds forgiven” on a HELOC.  This is clearly a personal loan secured by both the property and a “personal guarantee” by the borrower.  Now will the seller sign this to get the property sold and closed or not?  So many questions; so few answers.  As the Designated Broker of a large firm I see various and confused answers given by agents in the industry which frustrate the buyer, the seller, and usually the other agents.

“Game playing” of all sorts is also taking place in the MLS marketing of homes.  Some listing agents hide the fact that they have an accepted offer and continue to market the home as though it were not in escrow.  (A clear violation of the MLS rules.)  Other agents do not have the seller sign the contract and submit the offer to the bank as though it were signed and is truly a contract, when it is not — if not signed.  Some will do other variations to avoid noting in the MLS system that they have an offer to keep the house showing as “active” in the MLS to attract additional offers.  So, the system has been compromised in efforts to get the house sold while “cheating the system” with other buyers and agents in the market place.

Those agents who play-by-the-rules and mark the MLS as “pending” or “AWC” (accepted with contingency) are put into a “waiting game” with the bank/lender keeping the house off the market only to have days go by without an acceptance from the bank/lender and run-the-seller-out-of-days on the forthcoming foreclosure date.  If the agent could find another buyer in time they could perhaps sell the house before the seller goes into foreclosure.  It seems that something needs to be done, but what?  No one has the solution and therein is the problem. 

Actually, we know the solution, but how can we force the banks/lenders to make an immediate answer of yes/no, so the seller could re-enter the property back on the market with an acceptable sales price for the next buyer?  If only the banks/lenders would apply the “Golden Rule” in these sales.  Meanwhile, we will remain frustrated and do the best we can.

C Dale Hillard

In 1991 in Arizona the Arizona Association of REALTORS (AAR) drafted a contract (2 pages in legal length; front and back) that stated, “Agency Confirmation” for the first time.  Ironically enough, the AAR committee followed the 80-20 rule of what is happening in the real estate industry as a guide.  At that time sub-agency was still holding approximately 80% of the contracts as sub-agency.  By 1993 the pendulum was at a ration of approximately 50-50.  Thus a major revision was made to the AAR residential purchase contract with a clear view toward “equating the terms of the contract” to remove the seller bias that was the direction of sub-agency.  (”Caveat Emptor” — Latin:  “Let the buyer beware.”)  The re-addressing of this issue focused on the fact that the contract should no longer favor the seller.  Rather, the contract should protect both the seller and the buyer.  Equally of concern was the fact that the contract should not show bias toward the listing agent; but, also level the playing field for both the listing agent and the selling agent.  If the seller has a right to an agent, shouldn’t the buyer have the same right?  Therefore, the seller has a listing agent representing them and the buyer has a selling (buyer-agent) representing them.  Equality for all.

From this time forth the overwhelming percentage of agents began representing the buyer and almost completely abandoned the sub-agent position.  Companies started drafting office policies and establishing their way of doing business — some elected to “force” buyer brokerage on all transactions when their agent wrote an offer for a buyer.  Other companies allowed sub-agency to remain.  There were two other alternatives that I experienced:  Sub-agency was allowed on properties where the company already had a listing and the “old guard” refused to shift from sub-agency and did NOT allow any buyer-brokerage.  (This latter group faded away very quickly in almost all cases.)  Why did they disappear?  Because most consumers who were slowly behind the curve, when asked by an agent if they preferred to have the agent represent them in a transaction almost always said yes.

 Today, I would tend to believe there are two general policies among companies:  1) you must be a buyer-agent if you represent the buyer in all cases;  even those where the company already has the listing.  (This creates what is generally termed a “Dual Agency.”)  Across time the language has become more sophisticated and is called now (at least on the AAR form) “Consent to Limited Agency” with the terms spelled out to clarify what is “limited” in this agency relationship, and 2) the agency is given the option by the company to elect to remain a representative for the existing listing (representing the seller) and when the buyer appears to clarify that the agent will represent the seller only and serve the buyer as a sub-agent only. 

Documentation is signed to clarify either position.  This form is widely used in Arizona and is called the “Agency Election” form.  Most companies require this form be used so the consumer is informed how agency works in the state.  Most companies require the agent to submit this signed form into the Designated Broker.  The agency relationship is further clarified on the contract with a statement of “Agency Confirmation” so each party will see and sign acknowledgment of knowing the real estate agent representation in the transaction.

Various attempts were made across the years to regulate and later to legislate a mandatory agency disclosure in Arizona.  Each of these various attempts was thwarted — first, by the Attorney General, and later by the legislature itself.  The real estate community has done a superb job of disclosure from the onset of the discussion and today has a nearly perfect record of satisfying the respective consumers about the agency representation issue.

To my knowledge there has been no lawsuits ruled on by the courts on this full disclosure of agency.  That is not to say that threats of lawsuit and various mediations and/or arbitrations have not addressed the respective concerns of “was I represented” or “was I represented fairly” (an Arizona term in the commissioner’s rules — A.A.C. — R4-28-1101(A).)  (NOTE:  The REALTOR Code of Ethics calls this “honest dealings.”)

So, in conclusion, having served on many of the early AAR committees and task force groups, President of the AAR in 1991, and through the changing of several real estate commissioners, including one temporary commissioner (who prompted the AAR to draft an “emergency measure” of change on agency), we came through the growth process with a very workable solution — namely, full disclosure with well prepared documentation for the mutual benefit of consumers and agents alike.

– C Dale Hillard

Chances are you have someone to whom you can go with real estate questions, but it is extremely helpful to have someone who has “been down that road before” to assist you and help you avoid the pitfalls.

Rely on the experience of your Broker.  This is the reason the Arizona Department of Real Estate placed a Designated Broker in place over the licensed agent — to provide supervision of agents to avoid problems with sellers and buyers.  CDH

We are holding one agent’s commission until we get the form signed — it has now being in excess of three years.  The fines can be as high as $11,000 per line.  We take the form seriously.  CDH

The modern agent still needs to stay in touch with other agents in the office and get the feel of what is happening in the market place.  With the vast available information on the Internet, the forms available on Zip Form, the home office, e-mail, the fax machine, it is easy to be deluded to think that you can do it all from home — and miss out on the human element of real estate.

So, please take a look at attending your office sales meeting — It is a MYTH to think that you will gain time by missing a sales meeting.  Be one of the informed and share with your agents at the sales meeting.  You’ll be glad you did.  CDH