Broker/Manager Risk Management Update – March 2013
Posted on March 5, 2013 by Scott M. Drucker
AAR TRANSITIONS TO NEW GENERAL COUNSEL
In 2013 AAR welcomed many changes. One of the most notable has been the change in the position of General Counsel. Following Michelle Lind’s acceptance of the CEO position in December 2012, Scott Drucker assumed the role of AAR General Counsel effective January 2, 2013. Prior to joining AAR, Scott spent over a decade practicing real estate law in Arizona at the law firm of Mack, Drucker & Watson PLC (AAR’s Legal Hotline provider since 2011) and serving the interests of brokers and real estate agents throughout the state. In his capacity as General Counsel, Scott serves as the staff liaison to the Risk Management and Professional Standards committees. Scott will also be the primary contact for real estate legal issues warranting the attention of AAR.
The Consumer Financial Protection Bureau Issues Additional Regulations Pertaining to Seller Carryback Financing
On January 20, 2013, the Consumer Financial Protection Bureau (CFPB) amended Regulation Z of the Truth in Lending Act to implement recent amendments made by the Dodd-Frank Act. This final rule, which is currently set to go into effect on January 10, 2014, incorporates requirements and restrictions imposed by the Dodd-Frank Act in addition to better defining certain prohibited acts and practices.
Of significance to the issue of seller carryback financing are changes made to Regulation Z of the Truth in Lending Act, 12 CFR § 1026. Pursuant to § 1026.36, which includes a definition of the term “loan originator,” certain seller financers are to be exempt from the definition. Specifically, 12 CFR § 1026.36(a)(1)(i)(D) expresses that the term “loan originator” does not include “A seller financer that meets the criteria in paragraph (a)(4) or (a)(5) of this section, as applicable.” Consequently, the following exemptions will result:
Effective January 2014, seller financing for only one property in any 12-month period can be offered if:
1. The seller is a natural person, estate or trust;
2. The seller did not construct the home;
3. The financing does not result in negative amortization; and
4. The financing has a fixed rate or does not adjust for the first five years.
Effective January 2014, seller financing for no more than three properties in any 12-month period can be offered if:
1. The seller is a natural person or organization, i.e. – partnership, corporation, association, trust, estate, etc.
2. The seller did not construct the home;
3. The loan is fully amortizing, no balloon payments permitted;
4. The financing has a fixed rate or does not adjust for the first five years; and
5. The borrower has the reasonable ability to repay the loan.
No exemption yet exists for the financing of four or more properties in any 12-month period, meaning that, as of January 2014, such financing must be offered by a licensed loan originator.
FANNIE MAE’S NEW SHORT SALE ESCALATION TOOL
If you’re a REALTOR® who has experienced difficulties dealing with inflated property valuations in conjunction with Fannie Mae short sales or other issues related to a Fannie Mae short sale, there’s good news. In response to an increased number of consumer complaints, Fannie Mae, based on input from AAR, other Associations and NAR, recently rolled-out a new centralized web-based platform designed to enable agents to escalate short sale issues in a more productive manner. For more information, read the press release Fannie Mae recently issued. Through the new tool, agents will be able to open a case and receive confirmation that Fannie Mae is aware of their issue and is actively working to achieve a mutually beneficial resolution.
To use the escalation tool, visit www.homepathforshortsales.com (or homepath.com and click on the “Short Sale” tab). There, agents will find information regarding the escalation process, along with a tab titled “Get Started Today,” which enables the agent to escalate a variety of issues directly to Fannie Mae’s dedicated short sale team.
According to Fannie Mae’s website, agents should use this tool to contact Fannie Mae about a short sale when:
- You are ready to list a property and need a recommended list price;
- You want to contest a value Fannie Mae has assigned to a listed property;
- You haven’t heard back from the servicer; or
- You have an issue with an offer currently under negotiation.
Revised Vacant Land/Lot Purchase Contract
Thanks to the diligent efforts of the Vacant Land/Lot Purchase contract revision workgroup led by Chairperson Jan Leighton, the Arizona Association of REALTORS® (AAR) Vacant Land/Lot Purchase contract has been revised, effective February 2013. The workgroup additionally revised the following three related forms: (1) Vacant Land/Lot Buyer’s Inspection Notice and Seller’s Response,(now titled Vacant Land/Lot Buyer’s Due Diligence Notice and Seller’s Response); (2) Loan Status Update; and (3) Pre-Qualification form.
This collection of forms is intended to facilitate a wide spectrum of vacant land transactions throughout Arizona and be utilized in conjunction with the purchase and sale of raw land parcels, agricultural land, and parcels of land planned for residential, commercial or industrial development, including, but not limited to, vacant subdivision lots.
New Buyer Pre-closing Walkthrough form
The Arizona Association of REALTORS®, by way of a workgroup chaired by Martha Appel, drafted a Buyer Pre-Closing Walkthrough form, effective February 2013. The form is intended to encourage buyers to conduct a pre-closing walkthrough of the premises to be purchased and document their findings in a manner easily conveyed to the seller. Should the buyer conduct a pre-closing walkthrough, the new form enables them to inform the seller that the premises is in acceptable condition, or give evidence that the agreed upon corrections or repairs to the premises have not been completed or the premises is not in substantially the same condition. Should a buyer mark box two, delivery of the form serves as the issuance of a cure period notice providing the seller with three days after delivery to cure their non-compliance.
LEGAL RISKS TO THE REALTOR®
In NAR’s podcast titled “Legal Risks to the REALTOR®” (http://www.realtor.org/audio/legal-podcast-deed-in-lieu-transactions), Finley Maxson and Charlie Dawson discuss REALTOR® involvement in the facilitation of Deed in Lieu (DIL) transactions. According to Mr. Dawson, the Government-Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, have been looking at ways to facilitate DILs in a more streamlined approach, and have reached out to NAR to discuss REALTOR® involvement. Some servicers have been requesting REALTOR® assistance on DILs when they make contact on behalf of a client. On the podcast the following legal risks are identified:
- Negotiating a loan (contractual negotiation between consumer and lender): unauthorized practice of law
- E&O coverage: may be excluded if unauthorized practice
- MARS Disclosures: a licensee may need to comply with MARS regulations and State regulations for disclosure
- Licensee’s ability to act in light of applicable state licensing requirements.
For additional information FAQs may be found at:
ARIZONA REAL ESTATE: A PROFESSIONAL’S GUIDE TO LAW AND PRACTICE
Searchable Electronic Format
The Second Edition Arizona Real Estate: A Professional’s Guide to Law & Practice is available in a searchable electronic format. Just type in the term or phrase you are seeking in the search engine and find the answer. Download the electronic book for $9.99 at: http://www.aaronline.com/azre-book. Traditional books are also available at aaronline.com or at most local associations and some real estate schools. For bulk orders (25 books or more) please contact Christina Smalls at firstname.lastname@example.org.
The AAR Legal Hotline is a valuable member benefit for brokers needing legal information. In January of this year, following Scott Drucker’s move to AAR, the name of the law firm servicing the hotline was changed to Mack, Watson & Stratman. Despite the name change, the firm remains committed to providing excellent representation to its clients in real estate, professional liability, construction, and business matters. To sign up for the Hotline, go to: http://www.aaronline.com/documents/hotline_access.pdf
In 2012, the hotline fielded a total of 4,021 phone calls and an additional 404 email/fax inquiries. The majority of questions received pertained to contract law, followed by landlord/tenant issues. Short sale transactions were also frequently discussed, although the number of calls on this issue declined toward the end of the year.
In 2012, a total of 96 ethics complaints were received by AAR, 74 of which were filed by members of the public and 22 of which were asserted by other AAR members. Of those 96 complaints, 63 were forwarded along by the grievance committee. Ultimately, 23 proceeded to an ethics hearing.
Last year, 24 arbitration requests were filed, 17 of which were forwarded along by the grievance committee. Of those 17, 13 resulted in hearings.
Finally, AAR received a total of 35 ombudsman requests in 2012, 22 of which were resolved through the ombudsman program.
For a complete review of the professional standards statistics for 2012, go to: http://www.aaronline.com/wp-content/uploads/2013/02/AAR-2012-4th-Qtr-YTD-Stats-PS.pdf
SCAMS & FRAUDS
In January, NAR spearheaded an effort to shut down a bogus website posting false complaints against REALTORS®. The website, www.Realtor-complaints.com, listed fake complaints about real estate practitioners, followed by a demand for money to have the complaints removed from the site. Following pressure from NAR regarding misuse of the REALTOR® trademark, the site was shut down. Currently, the webpage consists of nothing more than a page of links operated by an advertising site.
If you are aware of a possible scam, please send the information to us at: email@example.com and do not forget to check AAR’s website: http://www.aaronline.com/legal/scams-frauds.aspx for a list of alerts.
A January 2013 RealtyTrac report has revealed that foreclosure activity in 2012 decreased from 2011 in 12 of the nation’s 20 largest metro areas, led by Phoenix, which was down 37 percent. To read this report, go to: http://www.realtytrac.com/content/foreclosure-market-report/2012-metro-foreclosure-report-7575.
Broker Management Clinic
March 29, 2013 – Bullhead City/Mohave Valley Association of REALTORS
Effective January 1, 2013 all designated brokers, self-employed brokers, and associate brokers who have been delegated authority (in writing) to review contracts and similar instruments on behalf of the designated broker/self-employed broker will be required to take three 3-hour broker management clinics.
9:00 am – Noon: Statutes & Rules / 1:30 pm – 4:30 pm: Broker Policies
Register today: http://www.regonline.com/Register/Checkin.aspx?EventID=1197771
$29 per class – $50 for both
AAR Spring Convention
April 7-11, 2013 / Casino del Sol – Tucson, AZ
This convention provides timely risk management and other sessions on topics that affect your business. This is also one of the best opportunities to network with your peers statewide.