Nash Law Firm, PLLC
By: Stephen J. Nash, Esq.
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I. Annotated Wells Fargo Short Sale Purchase Contract Addendum
The following is how the agreement appears except that comments have been added which are in bold. The paragraph numbering is not correct but it is shown as it appears on their document. The most significant problem with this agreement is that it makes the brokers a party to the contract and attempts to create a fiduciary duty to the short sale servicer.
Clean copies of these documents can be download by going to the following link: New Wells Fargo Short Sale Documents
Purchase Contract Addendum
City, State and Zip:
This Addendum to the Purchase Contract representing a short sale agreement (the “Addendum”) entered into and effective as of / / by and between Seller(s) and Buyer(s) the “Purchase Contract, “together with the Addendum, the “Contract”).
“1. The Parties agree that the Seller may cancel this Contract prior to the ending date of the Purchase Contract period without advance notice to the Broker, and without payment of a commission or any other consideration if the property is conveyed to the mortgage insurer or the mortgage holder. The sale completion is subject to approval by the servicer and/or third parties; (emphasis added)
Clause one basically allows the Seller to cancel the purchase agreement at any time without paying a commission if they convey the property to the Short Sale lender or insurer. Since the Brokers are made part of this contract, they effectively would be amending their listing and buyer broker agreements with the buyer and seller.
2. It is the Brokers’ fiduciary responsibility to present the highest and best offer to the servicer. (emphasis added)
The second clause is the killer. This clause creates a “fiduciary duty” between each of the brokers and the Wells Fargo to present the “highest and best” offer to the servicer. To agree to this clause creates a violation of the fiduciary duty already owed to the broker’s respective clients. The bottom line is that to sign this agreement exposes the broker to liability with their clients, creates an ethics violation and a violation of Minnesota Statute 82.
3. The Parties agree that the acceptance of the Short Sale is contingent upon the approval of any mortgage insurer/guarantor, mortgage holder and any subordinate lien holders.
This clause also creates a potential issue by making the purchase agreement subject to the approval of the servicer and /or third parties. Who are these third parties? This is so broad and vague that anyone could be considered a third party who needs to approve the sale.
4. The parties agree that under no circumstances will the Contract be assignable or transferable.”
NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL BENEFITS TO BE DERIVED FROM THIS Addendum and of the representations, warranties, conditions and promises hereinafter acknowledged, the Parties hereby agree as follows:
1. Property is being sold in an “as is” condition.
2. The Seller cannot sell to anyone that the Seller is related to or have a close personal or business relationship with, in legal language, it must be an “arm’s length transaction.” If the Seller has a real estate license the Seller cannot earn a commission by selling their own property. The Seller may not have any agreements to receive a portion of the commission or the sales price after closing. Any buyer of the property must agree to not sell the home within 90 calendar days of the closing date. The Seller may not have any expectation that the Seller will be able to buy or rent the house back after the closing. Any knowing violation of the arm’s length transaction prohibition may be a violation of federal law.
First, sentence – do brokers really know if the seller and buyer have a relationship?
Next two sentences – an agent cannot receive any commission if they are the seller (a referral fee is a commission).
The fourth sentence – how does the seller or the brokers control when the buyer sells the property?
Under penalty of perjury, you certify that:
1. The sale of the property is an “arm’s length transaction,” between parties who are unrelated and unaffiliated by family, marriage, or commercial enterprise;
How do the brokers really know if there is a relationship between the seller and buyer? The seller and listing broker are also required to sign arm’s length agreements in the Short Sale Listing Addendum and the Affidavit of “Arm’s Length Transaction” document but the language is different in each agreement. The buyer and buyer broker must also sign the Affidavit of Arm’s Length Transaction document but the language is not identical.
2. There are no agreements or understandings between the Seller and the Buyer that the Seller will remain in the property as a tenant or later obtain title or ownership of the property;
3. There are no agreements or offers relating to the sale or subsequent sale of the property that have not been disclosed to the servicer; and
4. Neither the Seller nor the Buyer will receive any funds or commissions from the sale of the property unless approved by the service and slated on the HUD-1 Settlement Statement.
1. The Parties agree that the value of the Property has not been misrepresented to the servicer and/or third parties.
For buyer and buyer broker – their goal should be to get the lowest price, not the best price for the servicer and/or third parties.
For the seller and listing agent – in an unstable market, does anyone really know what the value of the property is?
For all of the parties to the contract - Does not appear to be limited to written representations – is everyone liable for the representations made by whoever is negotiating the short sale for the seller (even if they aren’t aware of them?). What if another higher offer is submitted after the purchase agreement has been submitted to the servicer for approval? Who are the “third parties” that all of the parties to the contract are liable to?
2. The Parties agree that this Addendum together with the Purchase Contract shall constitute the entire and sole agreement between the Parties with respect to the sale of the Property and supersede any prior agreements, negotiations, understandings, optional contracts, or other matters whether oral or written, with respect to the subject matter hereof. No alternations, modification s, or waiver of any provision hereof shall be valid unless in writing and signed by Parties, any mortgage insurer/guarantor, mortgage holder and any subordinate lien holders hereto.
This clause is a problem if any change is needed since it requires not only the parties to sign the amendment but also numerous non-parties - all mortgage insurer/guarantors, mortgage holders and any subordinate lien holders. Even an extension of the closing date becomes problematic.
3. Should the Broker(s) involved in the transaction fail to act in good faith in selling this Property or should any party engage in misrepresentation; the short sale transaction will be denied or rescinded.
How would the transaction be rescinded after the fact? Does this make the brokers liable to restore the seller and buyer back to their original position (this is impossible)? If they can’t are they responsible for monetary damages? How do you determine whether the brokers acted in good faith? If the buyer’s broker negotiates a great price for the buyer does that constitute not acting in good faith because the servicer didn’t receive top value?
4. Should there be a conflict between the Purchase Contract and this Addendum, the Addendum shall govern.
5. Failure to comply with any of the above conditions or acts of misrepresentation could result in the servicer pursuing any and all available legal remedies.
This clause clearly puts the cross hairs on the brokers and the buyer and seller if the servicer later decides that they don’t like how the short sale worked out, i.e., they should have gotten more money).
IN WITNESS WHEREOF, the Parties have executed this Addendum as of the date first written above.
The form indicates that the broker, not the agent signs this agreement. Is this intended? Other forms created by Wells Fargo state “broker/agent” which would imply that they do actually require the broker’s signature for this agreement.
II. Closing Date Extension
Closing date extension
All parties agree to close within 30 days of written approval from the investors and Wells Fargo. This document also extends the contract acceptance date to within 15 days from the investors’ approval.
Is broker really required to sign this extension? How do the parties ever know when the investors approval was obtained?
III. Affidavit of Arm’s Length Transaction
This Affidavit contains absolute representations by the seller, buyer, the listing agent, the buyers broker and the title company.
AFFIDAVIT OF “ARM’S LENGTH TRANSACTION”
All Parties to the contract dated -
Hereby affirm that this is an “Arm’s Length Transaction” as detailed below;
No party to this contract is a family member, business associate, or shares a business interest with the mortgagor. Furthermore, there are no hidden terms or special understandings between the mortgagor, buyer and/or their respective agents.
Said parties do not have any agreements written or implied that will allow the seller to remain in the property as renters or regain ownership of the property at any time after the execution of this transaction. None of the parties shall receive any proceeds from this transaction except the sales commission as approved by the lender.
(Seller Signature) Date (Seller Signature) Date
(Print Seller Name) (Print Seller Name)
(Buyer Signature) Date (Buyer Signature) Date
(Print Buyer Name) (Print Buyer Name)
(Seller’s Agent) Date (Buyer’s Agent) Date
For agents and title company – the representations are not “to the best of your knowledge” but are absolute representations, yet the agents and title company don’t necessarily know whether there is a secret agreement between the buyer and seller.
For the title company – the title company is made a part of this agreement. In most cases, they know less about the buyer/seller relationship than the agents do. Does this apply to the seller and buyer’s title company?
For sellers and listing agent – this arm’s length language is not the same as the arm’s length transaction clauses in the other documents.
IV. Short Sale Listing Addendum
This is an addendum to the Listing Agreement and is signed by the seller and listing agent.
Short Sale Listing Addendum
(Date) Loan Number)
City, State, Zip Code:
Date of original listing agreement:
Listing Agent/Broker Name:
- Property Condition: Property is being sold in an “as is” condition.
If property was not sold in “as is” condition, buyer does not have to agree to the change. Can’t sell the property totally “as is” since there are numerous statutory representations (i.e., well and septic system disclosures). Does this violate this clause?
- Listing Agreement: “Seller may cancel this Agreement prior to the ending date of the listing period without advance notice to the Broker and without payment of a commission or any other consideration if the property is conveyed to the mortgage insurer or the mortgage holder. The sale completion is subject to approval by the mortgagee.”
If servicers ever decide to go after deed-in-lieu’s, this clause will eliminate any commission due.
- Arms-Length Transaction – Mortgages and mortgagees must adhere to ethical standards of conduct in their dealings with all parties involved in a Short Sale transaction. The Short Sale must be between two unrelated parties and be characterized by selling price and other conditions that would prevail in a typical real estate sales transaction.
This is another attempt to get the listing agent and seller to agree that the ultimate transaction is an arm’s length transaction.
The first issue is what “ethical standards” are being imposed on the listing broker and seller? The Realtors own ethical standards do not impose any ethical duties on the seller.
The second issue is how does the listing agent know whether the buyer is somehow related to the buyer unless the seller or buyer tells the agent?
The third issue is that the “selling price and other conditions” will be measured by the “typical real estate sales transaction”. What is a typical real estate transaction? A short sale is not a typical real estate transaction or are they really trying to refer to a typical short sale real estate transaction? Either way I don’t know how you can meet this standard.
Final issue – the language is not the same as the arm’s length clauses in the other documents.