Photo courtesy of Flickr user Crashmaster007

This is part four in a four-part series.  See parts one (property management), two (REOs and short sales) and three (improper drafting of documents & advertising issues).

Here is an important risk management issue for brokers and managers: How do you handle agent-to-agent conflicts that arise? You do not want them going throughout the office unresolved.  I am sure you have all seen instances where an agent with an issue starts going around an office trying to garner support or sympathy for “their side” of the conflict.  In-fighting can destroy office morale when left unattended.

Sometimes the only solution is to ask one of the offending agents to leave, or both, but that is probably the worst case scenario.  A good risk management option for a brokerage would be to check your office policies and procedures and try to shore up areas of behavior issues before they begin.

AAR has received many complaints related to in-house referrals.  An agent claims the broker did not want to intercede between the agents disputing the referral or make a decision on the referral for them, and the agent starts seeking outside sources to help them decide what to do next.  Again, it would be good practice to look through your polices on referrals or establish a policy to include verbiage such as, “All referrals between agents must be in writing, acknowledged by both parties, and the dollar amount or percent clearly described.”  The broker or office manager then has a policy to use regarding the referral, thereby eliminating the need for a controversial decision that could be challenged.

One final risk reduction point for brokers and managers: Agents often call AAR with questions that should really be addressed by the agent’s broker or office manager.  When the agent is asked whether or not they have spoken to their broker or manager, the agent responds no.  When it is suggested that the agent contact their broker or office manager, all manner of excuses are offered relative to a broker or manager’s availability, managers not having the knowledge, the agent not understanding when or who to contact at the brokerage, etc.  Implementing communication policies regarding the chain of command in your offices is something that should be researched in every office.  For example, if an agent has a question, who do they go to first: a mentor, the office manager, the broker?  At what point should contact with the broker be made and what form does the contact take?

Photo courtesy of Flickr user Frank3.0

This is part three in a four-part series. See parts one (property management) and two (REOs and short sales).

Improper Drafting of Documents. AAR’s Professional Standards Department is receiving a number of complaints about the improper drafting of forms, such as contracts, counteroffers and addenda.

Although not always a main cause of action, improper drafting can be discovered when a complaint is being reviewed. When reviewing forms, consider: Have the forms been properly filled out? Are there initials and/or signatures on all?  Have the documents been reviewed when returned for changes, additions or deletions?  Do you have a copy of all documents for the transaction?  One missing piece, lack of a signature acknowledgement or an altered document that you cannot defend can lead to a violation.

Recently, one complaint involved a REALTOR® drafting a lease purchase.  If the REALTOR® doesn’t understand the transaction, they certainly are not drafting the paperwork correctly to protect the parties they represent.  Which leads to a question for our broker/manager readers: Do you allow your agents to draft lease options or lease purchases?  Have you reviewed your in-house policies for specialties your agents may offer?  Do you have specific training requirements prior to your agents offering such services?

Advertising Complaints. Here are complaints we are seeing charged frequently under Article 12:

• An MLS picture of a property from the “area” not the actual property with no disclaimer identifying the photo as not the actual site but an area photo
• Agents making claims that they are #1 in a particular market place or area that are false or misleading
• A variety of internet issues such as lack of disclosure (not indicating a licensed REALTOR®, not including the office affiliation)

One issue that comes to mind was that of a community with a lake.  The photo indicated the property as a “lake front” offering when in fact, the property was located a good distance from any lake.

Stay tuned for the next installment of this month-long series. On Monday, November 28, we’ll touch on agent-to-agent conflicts and broker communication policies.

Photo courtesy of Flickr user (and AAR member) Nick Bastian Tempe AZ

This is part two in a four-part series. See part one (property management).

Arizona is one of the hardest hit states for foreclosures and short sales, and this has led to increased complaints around these transactions. The public has complaints that offers are not being submitted. They have a lack of trust for REALTORS®. They feel REALTORS® are not communicating with them regarding their offers, counter offers or escrow.  They feel that they are contacted by their REALTOR® only when the REALTOR® needs something from them.

Here are some examples of complaints we’ve received:

• Agents accepting and communicating verbal offers: leaving the public feeling that they have a contract and then they find out that other offers have come in and the only way to REALLY obtain the property is through a bidding war (or they are told they have lost out entirely)
• Complaints from REALTORS® when co-broking: agents not communicating with them; a lack of trust in their fellow REALTOR® that offers have actually been submitted and/or are submitted on time; complaints about “inside” selling (in-office contracts that only get put together once their offer is submitted and often from the REALTOR® who purchases for themselves)

Good record keeping on behalf of the agent will assist in reducing risk if a complaint is filed against you.  Record keeping should include: keeping text messages; keeping email communications; and sending a follow-up email, if you have a phone discussion, which outlines the conversation.  Protect yourself with the ability to reproduce communication between you, the client and other REALTORS®.

Stay tuned for the next installment of this month-long series. On Friday, November 18, we’ll touch on the improper drafting of documents and advertising issues.

Photo courtesy of Flickr user Fousty

Market conditions have led to an unusual number of ethics complaints being filed at AAR.  By evaluating the complaints filed, we are able to extract data such as: What are the most frequently complained about issues?  What does staff hear from the public and agents as emerging trends? This is part one of a four-part series we’ll be running in November to share a few of our insights with you.

Property management has become an area for numerous complaints.  As the sales market tightened and potential sellers were unwilling or unable to compete with REOs and short sales, they became the newest group of landlords.  With increased demand from the public for property management services, new skills were required of agents who had not previously been involved in the rental market.

So what types of issues relate to property management complaints?

• Account issues; keeping accurate records for both the landlord and tenant
• Order of services, such as repairs; tracking the services for completion and assigning invoices to the correct properties
• Financial accountability; being able to provide itemized records for both landlords and tenants
• The Landlord/Tenant Act itself – knowing it inside and out; understanding the rights of both landlords and tenants
• E&O coverage at the brokerage for property management services

As a reminder, all offices with agents offering property management services should scrutinize their E&O policies and understand what their policies do or do not cover for property management.

A member of the public called AAR questioning how to file a complaint against a property manager whose rents were deposited into the agent’s account and not the landlord’s.  When he asked the agent for reimbursement, the agent said he had spent the funds and was unable to reimburse the client.

This is one example of how a REALTOR® can get into trouble with property management. Brokers/managers must provide oversight to insure that records are properly kept and the agent is providing the service their agreement authorizes.

Stay tuned for the next installment of this month-long series. Next Friday, November 11, we’ll touch on REO and short sale issues.

In an effort to help you reduce your risk, AAR’s Risk Management Committee has put together a new webpage intended to bring possible scams or fraudulent activity to AAR members’ attention. Below is one example of a scam to watch out for. For more information about scams in our marketplace, visit the Scams & Frauds page.

A FOREIGN BUYER TRANSFERRING FUNDS TO U.S.

Submitted by Jerome King, Designated Broker, Long Realty Company – Tucson, Arizona

Agents continue to get inquiries from alleged buyers outside the country with requests to purchase a property. The inquiries often appear, in the words of one agent, “too good to be true.” The alleged buyer often requests the name and email address of an attorney. Please do not provide the name/email of an attorney without that attorney’s expressed permission and understanding. This seems to be a gambit these guys like to use to appear to be legitimate.

James Robertson, Jr., an experienced commercial agent, has helped me understand what information is needed to present to a possible international buyer and what we should require before we begin working on such a buyer’s behalf.

James explains that there are important federal laws to observe, and this buyer is probably in no position to perform. For example, JP Morgan Chase, China Bank in LA, Deutsche Bank, Barkley’s Bank and others have international cash transfer departments.

You should first refer this buyer to one of these institutions to have the currency transferred and converted to US currency. The bank will do the federal notifications and prepare it for transfer to the escrow company when instructed. If there are any taxes due or disclosures needed, the banking institution will do this as part of their fee, which is usually 2 to 5%. There may be a waiting period for seasoning of the funds, which may take as long as 90 days, depending upon what country it is coming from and how much cash is in the transaction.

Some banks were requiring the transferring entity to buy a liability policy on the transfer, covering the banks loss margin, if any, and fraud. This could be as much as 500 basis points.

Bottom line: Only do international deals if you really know what you are doing and always verify that hard funds are in a legitimate escrow account before you start to work with an international buyer. A scammer will disappear when you insist on this process of transferring funds first.

If you are aware of a possible scam, please send it to scamalert@aaronline.com for possible inclusion on the new page.

MARS UPDATE: AAR members may have received a copy of the Combs Law Group email regarding MARS. The information in the email was not based on a formal announcement from NAR or the FTC. Last week, NAR Counsel informed me that the FTC agreed that the “Disclosure to Prospective Customers” and the “Disclosures When Presenting a Short Sale Offer” do not work in the short sale context and could be misleading and confusing to consumers. NAR is hoping the FTC will approve the use of alternative or augmented language that will clarify matters. Although NAR indicated that the FTC stated that these two disclosures need not be given at this point, they continue to work with the FTC on written guidance. Therefore, AAR determined that the best course was to wait until NAR published written guidance sanctioned by the FTC before advising the members further. We anticipate receiving additional guidance from NAR and the FTC shortly and we will distribute it to the members as quickly as possible.

The Risk Management Committee (RMC) will be making a recommendation at the January 21, 2011 Executive Committee meeting for the approval of eight new/revised 2011 forms and request that the release of the all the forms be pushed back to February 28, 2011. The February 28th release date will provide adequate time for our members to familiarize themselves with the changes to forms, including the Residential Purchase Contract (Contract) and new Pre-Qualification (Pre-Qual) and Loan Status Update (LSU) forms. The primary substantive changes to the Contract are concentrated in the financing section.

I will present a webinar that will review the changes to the Contract and give an overview of the new Pre-Qual and LSU forms. In addition to the webinar, AAR will post accompanying educational information, such as sample forms highlighting the exact changes to the Contract, an article and answers to “Frequently Asked Questions.”

Provided that the RMC recommendations are approved, it is AAR’s intention to have the educational materials available on our website no later than Tuesday, January 25, 2011. We will encourage all educators and brokerages to download and view the webinar as a group to help facilitate the learning process.

For additional information, please contact Christina Smalls or Jan Steward.

Image courtesy of Flickr user Calc-tufa

AAR General Counsel Michelle Lind and Risk Management Specialist Jan Steward have put together an article on the impact of wildfires and floods on transactions in which AAR’s residential resale purchase contract has been executed, but escrow has not closed. Here’s an excerpt for your reading pleasure:

Can either party cancel the Contract if the property is completely destroyed by fire or flood?
Yes.  If the property is completely destroyed by fire or flood, either the seller or buyer may elect to cancel the Contract by written notice delivered to the escrow company. (See Contract, Section 8b, lines 316-319).

What happens if the property is only partially damaged by fire or flood?
Pursuant to the Contract, the seller “warrants that . . . at the earlier of possession or close of escrow, the Premises will be in substantially the same condition as on the date of Contract Acceptance.” (See Contract, Section 5a, lines 163-168). The Risk of Loss provision in the Contract allows for cancellation only if the cost to repair exceeds ten percent (10%) of the purchase price. Therefore, if the cost to repair is less than ten percent (10%) of the purchase price, the Seller is obligated to repair the damage.

What happens if the property is undamaged by the fire or flood but the surrounding area has been destroyed?
After expiration of the inspection period, if the property is undamaged by the fire or flood and is in substantially the same condition, the buyer is obligated to close escrow despite the damage to the surrounding area. However, if the damage to the surrounding area is adversely affected, the buyer may not be able to obtain financing resulting in a failed financing contingency.

If you have not checked out the collection of legal articles on AAROnline.com, you really should. (Note: Most legal articles are password protected and available only to members of the Arizona Association of REALTORS®.)

The following information comes from the California Association of REALTORS® (CAR) legal e-newsletter, Realegal. CAR has given AAR permission to share the information with our members here in Arizona:

Undisclosed payments in short sale transactions, especially those paid outside of escrow, may violate the law, including RESPA, laws against loan fraud, and licensing laws. Short sale agents have increasingly reported to C.A.R. about requests for agents and their clients to pay junior lienholders and others, oftentimes outside of escrow.

One common scenario is when a short sale seller’s senior lender authorizes a payment of $3,000, for example, to extinguish a junior lien, but the junior lender demands that the buyer pays an additional $9,000 outside of escrow. Not only would it be risky for a buyer to pay outside of escrow, but concealing this additional payment from a federally-insured senior lender may constitute loan fraud, which is a crime punishable by 30 years imprisonment plus a $1 million fine (18 U.S.C. section 1014). Furthermore, omitting from the HUD-1 Statement any charges paid at settlement by either a buyer or seller may violate the Real Estate Settlement Procedures Act (RESPA) (Appendix A to 24 C.F.R. Part 3500). Depending on the specific circumstances, carrying out these payment requests may also violate other laws and regulations, and an agent’s participation in the scheme may be subject to license revocation by the Department of Real Estate or other disciplinary action.

Agents and their clients are encouraged to file any complaints regarding fraudulent activities to the proper authorities, including the following agencies:

*Arizona Attorney General’s Office
Maricopa Co. 602-542-5025 | Pima Co. 520-628-6504 | Other Areas 800-352-8431 http://www.azag.gov/consumer/MailInInstructionsEng.html

Department of Housing and Urban Development (HUD)
HUD Office of Inspector General Hotline (GFI)
800-347-3735

http://www.hud.gov/offices/oig/hotline

Federal Bureau of Investigation (FBI)
202-324-3000
https://tips.fbi.gov

This information was reprinted with permission from CAR. (* The California Attorney General’s contact information was replaced with Arizona’s.) It was originally published in CAR’s Realegal email on March 16, 2010. All rights reserved.

Have you reviewed AAR and the Arizona Department of Real Estate’s Short Sale Seller Advisory yet? This valuable resource for homeowners considering a short sale has received a good deal of attention since it was introduced in February. 

In the video below, AAR General Counsel Michelle Lind discusses the advisory on Horizon, KAET Channel 8′s local public affairs program, on March 25, 2010:

Launch in external player

The advisory was also mentioned in a recent Arizona Republic article, “New Short-Sale Advisory Can Help Homeowners.”

Be sure to share the Short Sale Seller Advisory with your clients who are considering a short sale!