The Real Estate Encyclopedia
Watch for legal traps with distressed sales
Category - Mortgage Questions - Foreclosure & REO FAQ's
WASHINGTON – May 18, 2009 – Short sales and bank-owned properties represent one of the best opportunities to grow a real estate business today.

Yet they can expose practitioners to legal liability if they’re not careful, legal experts said Wednesday at the 2009 Realtors® Midyear Legislative Meetings in Washington, D.C. Here are their tips for steering clear of trouble.

• Be wary of calling yourself an expert. Almost overnight, companies have sprung up offering the chance to become “certified” as a specialist in short sales or REOs. Although some programs might provide good training, you invite trouble if you go overboard and market yourself as an expert,” said Chuck Kasky, director of legal affairs for the Maryland Association of Realtors.

• Read the fine print. Some certification companies have an indemnification clause that puts all legal costs on your shoulders if they’re included in any lawsuit against you. “Read their disclaimers,” Kasky said.

• Don’t engage in the unauthorized practice of law. Increasingly common practices – broker price opinions, negotiating with lenders in short sales and advising homeowners about a loan modification they could consider before resorting to a short sale – could be challenged as either unauthorized practice of law or outside the scope of a sales associates’ license. Even accepting a fee for broker price opinions – in states where they’re allowed – might create trouble for sales associates who accept fees directly rather than through their broker, Kasky says.

• Check your E&O coverage. If you help homeowners navigate a loan modification, an E&O policy might not cover your actions if you’re sued, says Michelle Lind, general counsel of the Arizona Association of Realtors. Providing such help is considered the business of housing counseling agencies, not brokerages. Similarly, if you handle REOs for a lender, be sure your E&O policy covers property management activity, she says. Many REO property sales tasks are property management functions – getting utilities turned on, keeping the property secure if it’s vacant and even evicting people.

Watch out for flippers. Be on the lookout for the growing practice of investors buying short sales and then flipping them, Lind adds. Depending on how they’re structured, the transactions might raise legal issues, and sellers might look to you if they’re unhappy with what they got for their property.

Source: Robert Freedman, Realtor® Magazine

Mortgage Questions - Foreclosure & REO FAQ's
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