Nash Law Firm, PLLC
By: Stephen J. Nash, Esq.
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I. Bank of America New Short Sale Purchase Contract Addendum and Realtor/Broker Listing Agent Certification
In the last few weeks we have seen new documentation starting to show up for Wells Fargo and now Bank of America short sales. They don't appear in all short sales for either lender but there is no reason to believe that they are not going to transition into using these forms for all of their short sales.
While the documentation is not identical, there are some disturbing similarities. First, they are making brokers parties to the purchase agreement. Second, they are changing the terms of both the purchase agreement and the brokers' agreements. Third, they are imposing duties on brokers that are in conflict with each brokers duty to their own client, thus violating Minnesota law. And, finally, are requiring brokers to make representations and or agree to things that they have no knowledge or control over.
Wells Fargo goes as far as expressly stating that the duties they want agreed to by brokers would constitute fiduciary duties. Bank of America expressly states that they will not allow dual agency (representing the seller and buyer, they don't mind creating a duty to them that will conflict with the duties owed to your client).
Both of these sets of short sale forms should greatly concern all brokers. Are you going to allow your agents to sign them as-is? Are your agents already signing them without your knowledge? Should you revise your commission agreements, require written representations from the buyer and seller, revise purchase agreements to incorporate the requested changes and/or change how the property is listed on the MLS?
Wells Fargo and Bank of America are demanding changes to contracts that have already been created. If an agent expects that this might be required, does that agent have a duty to disclose this to the buyer and seller? If brokers will not agree to the demands of Wells Fargo and/or Bank of America does this have to be disclosed to sellers before listing the property? Do you have to change your procedure to deal with the dual agency prohibition? Remember, this would mean that if one of your agents has a short sale listing involving BOA, another of your agents could not represent a buyer of that property. Does this have to be disclosed to sellers and buyers?
II. Annotated Bank of America Short Sale Documents
The following link is a PDF that set out the Bank of America Short Sale Purchase Contract Addendum and Realtor/Broker Listing Agent Certification. Comments are inserted into the documents commenting on relevant sections of each document.
Clean Copies of Bank of America New Short Sale Documents
Bank of America
III. Where Are We Heading?
We now have two major lender/servicers who are making additional demands on listing and selling brokers that violate Minnesota law and their fiduciary duties owed to their client. In many ways, they are imposing duties on the brokers to protect the lenders/servicers interests - obtaining the highest price, assuring that there is no fraud, that there are no underlying agreements between the sellers and buyers and that there is no relationship between the seller(s) and buyer(s).
It is one thing to prevent fraud from taking place when you have knowledge of the fraud it is quite another thing to have a duty to find it or to be forced to assert facts that you have no way of knowing whether they are true or not. In other words, if you know that the seller and buyer are related even though they are asserting to the lender/servicer that they are not, you have knowledge of fraud and cannot allow the transaction to go forward without disclosure. On the other hand, it you aren't aware that the seller and buyer are related, how are you supposed to know that the seller and buyers representation to the lender/server was incorrect and constituted fraud?
If the demands of Wells Fargo and Bank of America are not challenged, you can certainly expect that all lenders/servicers will soon follow suit.
Some may take the "I have to agree to their demands or my deals will fall through" approach but it is extremely short sided. When the lender/servicer sues you for breaching these agreements when they later find out that they believe they agreed to a price that was too low or that the seller and buyer were actually related somehow no matter how how tenuously your approach will not provide a valid defense. When your client sues you for breach of your fiduciary duties to them by your agreeing to protect the lender/servicers interest, your approach will not provide a valid defense. When the Minnesota Department of Commerce comes after you for violating your fiduciary duties to your clients, your approach will not provide a valid defense.
In a perfect world, I would like to see the Minnesota Department of Commerce enforce Minnesota laws and not allow lenders/servicers to coerce brokers into violating their fiduciary duties but giving their track record, it is unlikely to happen. They do not look at their role as preventing violations but, instead, enforce rules and laws after a potential violation. In addition, it is much easier to go after individual brokers and agents than after these large corporations.
In a perfect world, I would like to see NAR and MAR stand up to the large lenders to help protect their brokers and agents from the lender/servicer coercion but they have not done so with respect to REO sales which has allowed lenders to sell properties on totally one-sided purchase agreements that put the buyers and the agents at risk so I don't know if they will be more aggressive in this case.