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Tuesday
Jan182011

Article 9: The Most Commonly Violated Ethical Standard

By:  Stephen J. Nash
Nash Law Firm, PLLC
nash@nash-law.com

   

Do all of your agreements meet the standard set by Article 9?

In my experience, Article 9 is the most frequently violated ethical standard in that almost every transaction I've every reviewed not all of the agreements have been written in a manner that would satisfy Article 9. In some cases, all or parts of the agreement were not in writing.  In other cases, the agreement is in writing but the writing does not clearly set out all of the terms, conditions, obligations and commitments of the parties.

One area in particular concerns me today: the short sale listing agreement.  Does yours comply with Article 9?.

Article 9

REALTORS®, for the protection of all parties, shall assure whenever possible that all agreements related to real estate transactions including, but not limited to, listing and representation agreements, purchase contracts, and leases are in writing in clear and understandable language expressing the specific terms, conditions, obligations and commitments of the parties. A copy of each agreement shall be furnished to each party to such agreements upon their signing or initialing. (Amended 1/04) 

The "Whenever Possible" Defense

Some latch on to the qualifying language "whenever possible" as a defense to failing to meet this standard; however, there are two reasons why you would never want to rely on this defense.  One, it is tough to convince somebody that it was not possible to put the agreement in writing.  No pen?  No paper?  I was lazy?  Two, it is easier to comply with the rule than it is to win based on the rule.

The "Clear and Understandable" Clause

Writing the agreement in Chinese is not going to cut it in Minnesota.  While I have not seen too many agreements in Chinese, I have seen many agreements that simply don't make sense in any language.

The "Specific Terms, Conditions, Obligations and Commitments of the Parties" Requirement

Just touching on an agreement is not enough.  You must spell out the entire agreement.  The test I use is can you give the agreement to a person off the street and can they tell you what the agreement is without you having to explain anything or fill-in the details?  If not, you do not have a clear and complete written agreement.

Applying Article 9 to Your Short Sale Listing

Article 9 applies to all agreements, including your listing agreements and purchase agreements.  Most everyone understands that Article 9 applies to purchase agreements but many are surprised to that it also applies to their listing agreements.  As a result, not enough time and effort is expended amending the listing agreement to apply to the specific listing.

No where is this more evident than in short sale listings.  A short sale listing is very different than a normal listing.  First, many agents perform additional services when listing a short sale.  they may gather and submit the short sale package.  They may negotiate the short sale agreement.  They may do both or neither.  The key is that the short sale listing agreement address what the agent is going to do or not do with respect to the the short sale so that there is no confusion.

A short sale transaction is also different for the seller.  In a normal transaction, the commission is conditioned on obtaining a certain minimum sales price and types of financing that are acceptable.  In the short sale, the terms of the short sale that are acceptable to the seller should be set out.  If the short sale for the first lender does not also satisfy the underlying debt, why would the seller want to accept the short sale agreement?  If there is more than one mortgage, what terms will the seller accept?  Do they require a complete agreement or is something less acceptable?

The problem with short sale listings is that in many cases the listing agreement is no different than the regular listing agreement.  No matter what the listing is, the listing agreement must spell out all of the terms of the agreement.  If the listing involves a short sale, it must address the terms of the agreement that relate to the short sale aspect of the listing or you risk being in violation of Article 9.

Conclusion

Most violations of Article 9 can be easily avoided - just take the time to clearly, completely write out the agreement.  Not taking the time to fully set out the agreement becomes a habit that can be difficult to break.  Likewise, taking the time to clearly, completely set out all agreements become a habit that will protect you from Article 9 ethic complaints and, as a bonus, will better protect you and your clients from lawsuits.