Contact the Lender or a HUD-Approved Housing Counseling Agency
Although a common response to a problem making house payments is to ignore the lender, that is the worse course of action for a homeowner in default. The lender must be contacted as soon as possible.

• To find the lender’s contact information, check the loan billing statement, coupon book,or the list of lender contacts at www.hud.gov/offices/hsg/sfh/econ/smhlend.cfm.
• Ask for the lender’s loss mitigation department (or other department that handles negotiation of loans in default); explain the situation and find out if there are any loan workout options.

If the homeowner does not want to talk to the lender directly, contact a HUD-approved housing counseling agency, who can contact the lender on the homeowner’s behalf.

• To find HUD Approved Housing Counseling Agencies, go to www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm?webListAction=search&searchstate=AZ or call (800) 569-4287 or TDD (800) 877-8339.

These agencies include:

• AZ LawHelp: www.azlawhelp.org/viewresults.cfm?mc=3&sc=20
• Neighborhood Housing Services of Phoenix: www.nhsphoenix.org/
• NID-Housing Counseling Agency: www.nidonline.org/
• The HUD-approved National and Regional Housing Counseling Intermediaries also provides counseling resources: www.hud.gov/offices/hsg/sfh/hcc/nrhci.cfm

Information the Lender or Counselor Will Need

The lender or counselor will need a variety of information to determine the homeowner’s options, such

• Loan information
• Monthly income documentation (pay stubs, tax returns)
• Monthly expense documentation (utilities, child care, car payments, etc.

The lender may also require the homeowner to complete and return a loan workout package, which contains information, forms and instructions, before the lender will discuss the options.

Possible Loan Workout Options

There are a number of loan workout options available that will allow a homeowner to keep their home, such as:

• Reinstatement: Paying the total amount owed in a lump sum by a specific date in exchange for forbearance.
• Forbearance: An agreement to reduce or suspend payments for a short period of time.
• Repayment Plan: An agreement to resume making monthly payments with a portion of the past due payments each month until they are caught up.
• Loan Modification: An agreement to change the terms of the original loan to make the payments more affordable. For example, missed payments can be added to the existing loan balance, the interest rate may be modified or the loan term extended.
• Claim Advance/Partial Claim: If the loan is insured, the homeowner may qualify for an interest-free loan from the mortgage guarantor to bring the account current. If so, the homeowner will be required to sign a promissory note and a lien will be recorded against the home until the loan is paid in full.

The Option to Refinance with Another Lender

If the lender will not agree to a loan workout, the homeowner may be able to refinance the loan with another lender. For information about refinancing, go to

• NAR Home Financing Information: www.realtor.org/home_buyers_and_sellers/smart_home_financing.html
• Arizona Mortgage Advisory Council: www.azmortgageadvice.com/

Sale Options to Avoid Foreclosure

If a loan workout or refinance is not an option, the homeowner’s best course may be to sell the home. The lender may work with the homeowner to enable the homeowner to sell the home and avoid a foreclosure. The lender may agree to a sale on the following terms:

• Work Out Sale: An agreement not to foreclose for a specific amount of time to allow the home to be sold and the loan to be paid off.
• Short Sale: In a situation where there is more debt owing against a property than the property’s value, the lender may agree to allow the property to be sold for less than the loan amount and/or accept less than (or “short”) the amount owed as payment in full. There are tax implications and other issues to consider before entering into a short sale agreement. AAR has developed a short sale addendum to the Listing Agreement, www.aaronline.com/law-ethics/forms/samples/short-sale-addendum-listing.pdf, and a Short Sale Addendum to the Residential Resale Real Estate Purchase Contract, www.aaronline.com/documents/SSARPC.pdf, to assist in a short sale transaction. For more information, see NAR’s Field Guide to Short Sales, www.realtor.org/libweb.nsf/pages/fg335
• Assumption: The lender may allow a buyer to assume the loan and purchase the property even if the loan is non-assumable.

Deed-in-lieu of Foreclosure

The lender may allow a homeowner to “give back” the property. This option may not be available if there are other liens recorded against the property. For more information, go to

• HUD FAQs: www.hud.gov/offices/hsg/sfh/nsc/faqdil.cfm
• HUD Requirements: www.hud.gov/offices/hsg/sfh/nsc/rep/dilfact.pdf

Be Aware of Predatory “Rescue” Scams

Homeowners worried about foreclosure may be susceptible to predatory “rescue” scams such as:

• Loans with high interest rates and unaffordable repayment terms
• Loan assumptions where the homeowner is not released from liability on the loan
• Offers to repay the loan or sell the property if the homeowner signs over the deed
• Counseling agencies that offer counseling for a fee when it is available at no cost.

Remember, if it sounds too good to be true, it probably is. Report suspected scams to the Department of Financial Institutions at fraudline@azdfi.gov .

The information contained above was compiled from the following sources:

• www.realtor.org/home_buyers_and_sellers/protect_your_home.html
• www.hud.gov/offices/hsg/sfh/econ/econ.cfm#1
• www.freddiemac.com/corporate/buyown/english/owning/avoid_foreclosure.html

Tips for Avoiding Foreclosure (HUD):www.hud.gov/foreclosure/index.cfm
The Foreclosure “Rescue” Racket (Business Week): www.businessweek.com/magazine/content/07_26/b4040041.htm
Credit Counseling & Debtor Education (US Department of Justice): www.usdoj.gov/ust/eo/bapcpa/ccde/
Landlord Tenant Assistance: www.az211.gov/index.php?option=content&task=view&id=64
Eviction or mortgage foreclosure assistance: www.housingaz.com/ShowPage.aspx?ID=29
Hope Now: www.hopenow.com
Neighbor Works America: www.nw.org/network/home.asp
Homeownership Preservation Foundation: www.995hope.org
My Money Management: www.MyMoneyManagement.net
AZ Law Help: www.azlawhelp.org

The foregoing is for informational purposes only and is not intended as definitive legal advice. You should not act upon this information without seeking independent legal counsel.

Avoid the inevitable frustration and stress so many real estate agents and buyers are currently experiencing by educating yourself and your buyers about the REO (Real Estate Owned) buying process! Here are 10 REO tips to help you get your offers accepted and closed:

Know the market. Do a thorough comparative market analysis on the subject property prior to writing the offer. Look for trends — is the market steady, declining? Look at the last two to three months’ solds as well as the current pending sales. Many banks are using a tactic that results in a lot of activity and multiple offers. They get two appraisal values (market and liquidation). Then they have the REO listing agent list the property at the lower appraised value which attracts multiple offers and ultimately drives the final sales price up and sometimes over the market value.

Verify availability and multiple offers. Obviously it is important to determine whether or not the property is still available or if there are multiple offers before writing the offer. Counsel the buyer accordingly and let them determine if they want to compete for the sale. Read any agent-to-agent remarks in the MLS for any specific instructions when writing and presenting your offer.

The actual offer package. Legibly write the offer — or better yet, use typed or online forms. Ensure your offer is complete and spells out in clear, concise language the terms and closing costs. Consider scanning and emailing your offer vs. faxing it for the better readability factor.

Seller concessions and closing costs. Encourage the buyer to write his/her best offer first. It really is all about the final net to the bank. If the buyer is requesting closing costs, prepare the buyer that to compete with multiple offers she may need to write an at list price or above offer. Some banks are only willing to pay certain closing costs and are countering with the buyer to pay for what would normally be considered customary seller costs.

Inspections and repair costs. Write the offer with a reasonable due diligence period (five to seven days but no more than 10 days). The bank may limit or counter repair costs. We recommend including this clause or something to the same effect: “Seller to make, at their expense, any lender-required repairs as a result of the inspection or appraisal.”

Earnest money. Have the buyer write the EM check for at least what is requested in the MLS. Ensure you have a current (not stale-dated) check if you have been writing a lot of offers and in the REO game for a while.

Buyer pre-approved for financing. Pre-Approval (not pre-qualification) of the buyer is a must and proof of funds letter can also strengthen your offer. Don’t waste everyone’s time if the buyer is not willing to get the financing in place and approved first.

Seller/bank addendum. REO properties are sold as-is, no warranties or guarantees. You may be able to get the seller to pay for a home warranty — it depends on all other concessions, costs and net to the bank. We are finding many banks will not complete disclosures required by Nevada statutes: Seller’s Real Property Disclosure for example. Be prepared to carefully review all of this with your buyer and other language in the bank’s addendum to the purchase agreement.

Time frames. Allow a minimum of one to two weeks to hear back from the listing agent regarding a response from the bank. If the bank accepts your offer, expect that you may only receive a verbal or email counter and/or acceptance subject to the buyer executing the bank’s addendum and accepting any other terms. Once you have approval, open up the escrow and get the buyer going on their due diligence. Also be prepared for a closing time frame of 45-60 days or more depending on whether or not there are any issues to deal with like liens, judgments, or other clouds on title.

Communication. Saving the best for last! Here is where your patience, tenacity, positive attitude, communication skills, knowledge of the REO process and how well you have educated your buyer will come into play. Communication, or rather the lack there of, is the biggest complaint and issue of everyone diving into the REO market.

The bottom line…

If all of the above statements are true, then in the infamous words of Forrest Gump — “Life (REO) is like a box of chocolates, you never know what you are going to get.” Each REO experience has the potential of being anywhere from a dream to a nightmare. I for one believe we can all make the experience more of a dream by the way we handle ourselves personally and professionally.

Educate yourself and your buyers and, if necessary, the other agent! Set realistic expectations — and focus on what you want, not on what you don’t want.

Some REO agents are overwhelmed and may have bitten off more than they could chew too fast. Some of the seasoned REO veterans are experts on the process and working diligently to improve and expand their services as their business has grown exponentially

• Still other REO agents have broken the code and have excellent systems in place to handle all the additional tasks and requirements for success
• Many agents are aggressively trying to break into the REO market and may be relatively inexperienced – learning as they go or on their first batch of REO listings
• Many buyers agents are not educated to the process and may be writing their first REO deal with an agent who may or may not understand the process themselves
• Not everyone is equally schooled and skilled at educating the buyer on the REO process

We are all doing the best we can with what we know and what we’ve got… practice patience, compassion and focus on solutions.

Jan O’Brien is a broker-salesman in Las Vegas, NV, currently serving as general manager for Prudential Americana Group, REALTORS®.

Solution: There are several possibilities as to why this is happening. Try one or more of the following solutions until the problem is fixed. (These instructions are for Internet Explorer users; for Netscape Navigator or AOL, you may have different names for the buttons/files but the steps should be similar.) You may want to print this page.

Before selecting a solution, follow these steps:

• At the top of the screen, go to “tools.”
• Click on “Internet options.”

After following the instructions in the solution:

• Close your browser window (Internet Explorer, Netscape, etc.) and open a new browser window.
• Go to www.aaronline.com and try logging in again.  If this does not fix the problem then try one of the solutions below.

Solution 1 – Clear history

• Select the “General” tab.
• In the middle section, “Temporary Internet Files,” click on “Delete Cookies” and then click OK.
• Click on “Delete Files” and click OK.
• Click OK at the bottom.

Solution 2 – Privacy setting

• Select the “Privacy” tab.
• Under “Settings” you will see a slider that will adjust your privacy setting. Medium should be fine; however, in some instances Low is necessary. Move the slider to change the setting and click OK at the bottom. (If you see the word Custom instead of the slider, click on the “Advanced” button. Make sure both first and third party cookies are set at “accept” and then uncheck the box next to “Override automatic cookie handling” and click OK. Now you will see the slider.)
• Move the slider if necessary
• Click “Apply” and then “OK.”

Solution 3 – Managed websites

• Make sure the “Privacy” tab is selected.
• Under the heading “Web sites” click “edit.”
• Under the box labeled “Managed Web sites,” search for one of the following: http://www.aaronline.com, www.aaronline.com, or aaronline.com.
• Click on it to select it and then click “Allow,” then click “OK” at the bottom.
• Click “Apply” and then “OK.”

Solution 4 – Edit website access

• Make sure the “Privacy” tab is selected.
• Under the heading “Web sites” click the edit button
• Under the box labeled “Address of Web site:” type the following address: http://www.aaronline.com
• Click “Allow,” then click “OK” at the bottom.
• Click “Apply” and then “OK.”

For further assistance please call AAR Support at (602) 248-7787 or (800) 426-7274 weekdays from 8:00 am to 5:00 pm.

Did you miss the last update? View the archives.

What was your answer? Did you think that establishing a buyer agency relationship with Buyer Betty would ensure that you’d get paid because of all the good representation you would give her by writing the contract and seeing her through the escrow? Or were you one of those who said you wouldn’t get a commission from the listing broker as the procuring cause of the sale because you weren’t responsible for Betty’s choosing to write an offer on this property?

This scenario is happening more and more these days. The issue is whether an agency relationship with Betty, in and of itself, would guarantee that you’d be determined to be the procuring cause of the sale of the property Betty mentioned at the party. There are many factors to be considered when the procuring cause of a sale is in dispute. One that should not be the sole determining factor is whether one of the disputing parties is the buyer’s agent. Many other factors should considered, such as:

• Who introduced the buyer to the property?
• Who provided the details about the property to the buyer?
• Which broker began a series of events that led to the sale without a break in continuity?
• Which broker could be left out of the transaction and have it still go together?

Wouldn’t all of the answers to these questions in the example above be the listing broker Betty had talked to before she met you? Hadn’t Betty already decided to write an offer on that property before she met you?

There is rarely just one factor that’s the determining one in a procuring cause case. I think it’s clear, based on the facts in the Betty scenario and absent any new developments, that the first broker — not you — would be the procuring cause of this sale. Representation and entitlement to compensation are separate issues.

You say, “how can that be? I would be the buyer’s exclusive agent and I would write the contract? I would take care of Betty!”

Yes, you would take care of her, but in this scenario, you wouldn’t be responsible for causing Betty to buy that property; she was ready to buy it when she met you. Now, if Betty wanted to pay you to represent her in this transaction, that’s another matter. But that kind of arrangement still wouldn’t make you the procuring cause of this sale and entitle you to be paid the cooperating commission from the listing broker. [Note: The MLS rules state that the listing broker must pay the compensation offered in an MLS listing to the procuring cause of the sale. [See NAR MLS Policy, Part 1, Section 1.2].

Got your interest piqued? Take a look at other potential procuring cause scenarios developed by the NATIONAL ASSOCIATION OF REALTORS® in the Code of Ethics and Arbitration Manual. These examples and other articles are available on the AAR website, #tk, under REALTOR® CENTER, Ethics, Arbitration, & Mediation.

Here’s what’s wrong. Standard of Practice 10-1 states, “. . .

REALTORS® shall not print, display, or circulate any statement or advertisement with respect to the selling or renting of a property that indicates a preference, limitations, or discrimination based on race, color, religion, sex, handicap, familial status, or national origin.”

That sentence is very close to statements in both federal and Arizona fair housing rules regarding advertising. And, in case you didn’t know or you forgot, MLS listings are a form of advertising.

’55 & over to own’

The exemption in the law which allows qualified communities to discriminate against families with children allows them to prohibit only occupancy, not ownership. Read on for more information about the exemptions.

’18 & over to occupy’

In order to legally discriminate against families with children in Arizona, a community must have either 100 percent occupancy over 62 years of age or
- must have at least one person over 55 in 80 percent of the homes, and
- must hold themselves out as a 55-or-over community in their CC&Rs and public statements.

Meaning of ‘senior adult’

Even if the community meets those requirements, the phrase “18 & over to occupy” indicates that the community is not holding itself out as a “senior adult community” in its public statements. And if the community allows occupancy between 18 and 55 years of age, which they can do for 20 percent of the occupants, they must still “hold themselves out” as being housing for older persons, which is 55 and over, not 18, nor 35, nor 40.

Many senior adult communities require 100 percent 55-and-over occupancy, which helps clear up any confusion. But, for those who don’t, such representations in your listing could jeopardize their exemption, if they have one, or could lead to a violation of the law for you and the community.

Lessons

- There are communities in Arizona which discriminate against families with children on a regular basis yet do not meet these requirements. REALTORS® put themselves in serious jeopardy by allowing, and sometimes assisting, these communities to illegally discriminate. And REALTORS® should ask owners questions about whether their community qualifies for the exemption before they tell others otherwise.
- Don’t ever get caught in attempting to prevent someone under 55 to purchase a home in a qualified senior adult community. Make sure they know about the legal prohibitions for occupancy, but don’t prevent them from seeing or purchasing such property if they do so knowingly.
- Know what the REALTOR® Code of Ethics and the law say about fair housing ads and learn about the properties you list before you write things that could get you in trouble.

See additional articles on the familial status exemption to the fair housing laws so you’ll be following the law, giving yourself more opportunities to sell, and not limiting families with children from buying the home of their choice.

Revised 8/03

Lease/Purchase Agreements

A lease/purchase agreement is an agreement in which the buyer and seller enter into both a lease agreement and a purchase contract at the same time. The buyer will lease the property, for example, for one year, and at the end of the one-year period the buyer is obligated to purchase the property by closing escrow.

Should the parties execute both a lease agreement and a purchase contract?

Answer: Yes. In a lease/purchase agreement, the parties should enter into a lease agreement for the specified period of time. The AAR Residential Lease Agreement should be used for this purpose. The parties should also enter into an AAR Residential Resale Real Estate Purchase Contract. The lease agreement should reference the purchase contract and vice versa. Additionally, the lease agreement and purchase contract should have cross default clauses; in other words, a breach of one agreement constitutes a breach of both.

During the term of the lease in the lease/purchase agreement, prior to close of escrow, is the relationship between the parties governed by the Arizona Residential Landlord and Tenant Act (“Landlord/ Tenant Act”)?

Answer: Yes. The Landlord/Tenant Act applies during the lease period of a lease/purchase agreement. Although the Landlord/Tenant Act at A.R.S. §33-1308(2) excludes “[o]ccupancy under a contract of sale of a dwelling unit or the property of which it is a part, if the occupant is the purchaser or person who succeeds to his interest,” this provision should be construed to exclude occupancy under an “agreement for sale” (also known as contract for deed, land contract, or installment contract), not a lease/purchase. Thus, the Landlord/Tenant Act should govern the rights of the parties in a lease/purchase agreement prior to close of escrow.

What are the landlord/seller’s rights if the tenant/buyer fails to make the rental payments as required under the lease/purchase agreement?

Answer: If the tenant/buyer fails to make the rental payments as required, such a breach of the lease agreement should also constitute a breach of the purchase contract, if the lease/purchase agreement contains a cross default clause. Therefore, if the tenant fails to pay the rental payments as required, the landlord/seller may institute a special entry and detainer action pursuant to A.R.S. §33-1368(A) to evict the tenant and terminate the purchase contract as a result of the breach.

Lease/Option Agreements

A lease/option agreement differs from a lease/purchase agreement. In a lease/option agreement, the buyer and seller enter into a lease agreement containing a clause that gives the tenant/buyer the right, but not the obligation, to purchase the property under specified conditions. The lease/option should be drafted to provide that a default in the lease agreement results in the termination of the tenant/buyer’s option to purchase.

Should a lease/option require the tenant/buyer to purchase at a fixed price agreed upon at the time the lease/option is entered into?

Answer: An option to purchase may be at a fixed price, based on fair market value established by an appraisal at the time the option is exercised, or the option may be drafted as a “first right of refusal” in which the tenant/buyer has an option to purchase the property on the same terms as an offer from a bona fide third party. There are benefits and risks associated with each method.

What are some other considerations in drafting a lease/option?

Answer: A lease/option should be carefully drawn to document the understanding of the buyer and seller. Since you cannot predict future events or economic conditions, the option should be limited in time and the price should be based on the anticipated fair market value of the property at the time the option is exercised. Additionally, the tenant/buyer should be required to take title to the property in the condition of the property at the time the option is exercised, rather than the condition that existed when the lease/option was executed. The lease/ option should also provide that the option terminates with the expiration of the lease and can only be exercised if the tenant/buyer is not in default.

How should the lease/option agreement provide that the option be exercised?

Answer: The lease/option agreement should set forth (1) the period during which the option can be exercised: i.e., 90 days prior to the expiration of the lease; (2) the manner in which it can be exercised: i.e., written notice; (3) to whom notice must be given, normally the seller; (4) how soon after the option is exercised the closing must occur; and (5) the manner of determining the purchase price: i.e., appraisal or fixed price.

What are some additional considerations if the option is a “first right of refusal”?

Answer: When writing an option as a “first right of refusal,” the agreement should provide that the tenant/buyer must be given written notice of the proposed offer or a copy of the offer, all terms of the proposed sale, and the specific time period and manner in which to respond.

Conclusion

A lease/purchase or lease/option agreement can be complex, and if the parties are entering into such an agreement because of a potential buyer’s inability to obtain financing, the chance for a default or breach of the agreement is increased. However, a carefully drafted agreement in which the rights and obligations of the parties are clearly stated can prevent unnecessary disputes.

Note: This article is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article reflects only the opinion of the author, is not intended as definitive legal advice and you should not act upon it without seeking independent legal counsel.

The property is worth less than is owed.
Establish this by doing a careful CMA or BPO, taking into account that the market may be declining. Pay special attention to similar properties that did not sell. The lender will need to see clearly that there is no chance that the property will sell for enough to cover all liens and closing costs. Short sales are considered by buyers to be distressed properties, and will typically command somewhat less than a non-distressed price. Remember that the lender may be thousands of miles away and not at all familiar with your market. Incorporate local newspaper articles about the local market and MLS statistics to strengthen your analysis.

The seller has some hardship that makes it impossible or extremely impractical for the seller to keep the property.
What are hardships as defined by most lenders? Most lenders focus on and require “changed financial circumstances”. Loss of job, unusual medical costs, death of an owner, natural disasters, even extended military service for reservists, can be hardships. There should be a nexus between the hardship and the need to sell. A job loss leading to a problem paying the mortgage is obvious, but an illness might require a family to move closer to specialized medical help, so even without an unbearable financial hardship, the homeowner simply cannot stay. Lenders do not consider a decline in value alone to be a hardship.

The seller is cooperative and willing to work with a real estate broker to package the short sale.
Is the seller cooperative and willing to sell? You will need the seller to help write a narrative of the hardship involved. The seller will be asked by the creditor to reveal all details of the seller’s financial situation. If there is a formal short sale application, the seller will have to complete it. This can be embarrassing, and some sellers simply won’t do it. Prepare them and make sure they are willing to do what is required. If they are uncooperative, you will not be able to help them.

Important Note:  Many troubled loans today are “subprime loans” and/or “stated income loans”. Be especially careful to explain in writing to all sellers that any representations of the seller’s financial status that were made on the initial loan application will be scrutinized in the short sale application process. Sellers may expose themselves to charges of loan fraud if the short sale application information they provide is inconsistent with the material provided on the initial loan application. In other words, if the seller represented on the original loan application that his income was $10,000/month, but on the short sale application represents that his income recently dropped from a high of $5,000/month to $3,000/month, this will raise the question of loan fraud. If the seller is concerned or has questions, it is advisable for the seller to consult with an attorney before completing a short sale application.

The lender is contacted and expresses willingness to entertain a short sale.
Contact the lender’s “loss mitigation” department. Ask for the person who will be responsible for processing the short sale application. Try to speak with the same person each time you call. You will need an authorization letter from the seller verifying that you have permission to speak with the lender on the seller’s behalf. Let the lender know the situation and your proposed short sale solution. Ask for a list of documents that the lender will require. This may vary with each lender. Ask for copies of any proprietary documents the lender specifically wants to see, such as a particular short sale application form or an income and assets sheet. These also will vary by lender. The lender may ask you and other area brokers to do a Broker Price Opinion (BPO) to verify your evaluation. If there is more than one loan subject to a shortfall, you will need to contact multiple lenders and go through the same process. Some lenders are proactive and will immediately send the short sale requirements to you. Others will be non-committal. Even institutions go into denial when faced with bad news. Unless the lender indicates that it will categorically refuse a short sale under any circumstance (a rare occurrence), you can proceed with the next steps.

The property is listed with appropriate caveats and protections for the seller, properly priced, and effectively marketed.

• Seller Protections: When you list the property it is important to have a record of the discussion you have had regarding the short sale with the seller. The listing agreement should state that the seller’s acceptance of any offer will be subject to the lender’s approval of the offer without requiring that the seller bring cash to close escrow, and an agreement by the listing broker to accept the commission as approved by the lender. Offers to purchase the property would need the same caveat regarding lender approval. This protects the seller against agreeing unconditionally to sell the home, only to have the lender disapprove the short sale. In such a case, the seller could be sued for specific performance or damages by a frustrated buyer. The seller should also explicitly acknowledge that the seller will receive no proceeds, that there are significant tax, credit, and legal ramifications to a short sale, and that the seller has been strongly urged to consult with an attorney and a tax advisor before signing the listing.
  AAR produces a Short Sale Addendum to the Listing Contract. For more information regarding this form, go to AARonline. www.aaronline.com/2008/08/short-sales-revised-forms-and-new-resources/
• Pricing: It makes no sense in a short sale setting to start with an unreasonably high price. Some sellers will ask that you price the property at a “break-even” price for them initially. Use your best judgment, and follow your broker’s policies and procedures, but know that a price that attracts no offers will hurt your seller. If the foreclosure clock is already running, you may run out of time. Price the home at a realistic market price today. Adjust the price quickly if you see no activity or if you have no offers. To make the short sale work, you will need to get an offer to the lender quickly.
• Commissions: Short sales present a special problem with conditional compensation being offered to a cooperating broker. As a listing agent, you are not entirely sure what your commission will be until the terms of a short sale are approved by the lender. Your MLS may have adopted NAR-approved language such as the following based upon changes adopted by NAR at the May 2008 meeting:

Lender Approval Listings
Multiple Listing Services must give participants the ability to disclose to other participants any potential for a short sale. As used in these rules, short sales are defined as a transaction where title transfers; where the sale price is insufficient to pay the total of all liens and costs of sale; and where the seller does not bring sufficient liquid assets to the closing to cure all deficiencies. Multiple Listing Services may, as a matter of local discretion, require participants to disclose potential short sales when participants know a transaction is a potential short sale. In any instance where a participant discloses a potential short sale, they must also be permitted to communicate to other participants how any reduction in the gross commission established in the listing contract required by the lender as a condition of approving the sale will be apportioned between listing and cooperating participants. All confidential disclosures and confidential information related to short sales must be communicated through dedicated fields or confidential “remarks” available only to participants and subscribers.

Multiple Listing Services that permit, but do not require participants to disclose potential short sales should adopt the following rule:

Section 5.0.1: Participants may, but are not required to, disclose potential short sales to other participants and subscribers. When disclosed, participants may, at their discretion, advise other participants whether and how any reduction in the gross commission established in the listing contract, required by the lender as a condition of approving the sale, will be apportioned between listing and cooperating participants.

Alternatively, Multiple Listing Services that require participants to disclose potential short sales should adopt the following rule:

Section 5.0.1: Participants must disclose potential short sales when reasonably known to the listing participants. When disclosed, participants may, at their discretion, advise other participants whether and how any reduction in the gross commission established in the listing agreement, required by the lender as a condition of approving the sale, will be apportioned between listing and cooperating participants.

• Marketing: Both for the seller’s sake and to generate lender confidence, your short sale listings should be aggressively marketed. Whatever you would do for an ordinary listing, you should do for a short sale listing. Use multiple pictures, virtual tours, websites, and advertising as appropriate. You may want to accelerate the marketing if there is a foreclosure deadline looming. The lender will need to understand that you have done everything possible to sell the property at the highest price. The lender is not your client. You represent the seller, but everybody should understand that the lender is the true decision-maker. You will want to include the marketing history in the short sale package. Once again, if you have no offers within a reasonable time, adjust the price.

The lender is presented with an offer, accepted by the seller, along with a completed short sale package, hardship letter, and narrative explaining why the short sale is necessary and desirable.

• The Offer
  1. The ideal offer should be from a prequalified or preapproved buyer, with no unusual contingencies, such as the sale of the buyer’s existing residence. It should be flexible in terms of closing. The ideal offer might provide “The close of escrow to occur 30 days after buyer’s receipt of acceptance of the short sale by the lender”. The ideal buyer is willing to be patient. Of course, not all offers will be ideal. If you receive a very low offer, you may wish to attempt to negotiate it between the seller and the buyer as in an ordinary sale setting. Certainly you should counter terms that affect the seller in a negative way, such as early possession without compensation or inclusion of seller’s personal property. Remember that it is the seller who “accepts” the offer. Once the offer is fully negotiated between buyer and seller, it should be signed by both, subject to the approval by the lender as discussed elsewhere in this document. Recognize that lenders will want to see “as-is” offers without credits for repair or closing costs paid to buyers. Policies regarding short sale counter offers vary widely around the country, and also between brokers. Experience suggests that if you receive an offer on the low side of “reasonable” from a qualified buyer, you may still want to pass the offer along to the lender. In a short sale it is more important to get the lender a bona fide offer than it is to negotiate the perfect sale price. The very fact that an offer is presented to the lender for approval may persuade the lender to put the foreclosure process on hold, at least temporarily. The lender will have every opportunity to disapprove the offer and request a different price. Of course, just as in a traditional sale, all offers you receive must be presented to the seller throughout the course of your agency agreement.
  2. AAR produces a Short Sale Addendum to the Residential Resale Real Estate Purchase Contract. For more information regarding the use of this form, go to AARonline.http://www.aaronline.com/law-ethics/risk-management/Aug08.aspx
  • The Completed Hardship Letter, Short Sale Package, and Narrative
    Every lender is different, and each short sale package can be different as well. You may choose to submit most of the package to the lender when you obtain the listing, and then pass along the offer, or you may wait until you have an offer to submit a complete package. The following are the most common elements. Some will be required, and some are advisable because they help you explain to the lender why the short sale is a good alternative to foreclosure:
    1.  A hardship letter written by the seller describing the seller’s circumstances.
       The seller should be as persuasive as possible in describing why the seller is in no position to continue with his or her financial obligations to the lender. This letter can make or break the short sale. The reasons given by the seller should be compelling and the seller should be both honest and frank in their disclosures to the lender. Include corroborating material. If the seller was fired, include the termination letter. If the seller has medical bills, summarize them. If the seller is ill or disabled, the seller should explain how that has made it impossible for the seller to keep the property. If there are tax problems, the seller should describe and document them. If the property was damaged and not covered by insurance, as in several recent natural disasters, the seller should document the damage and the denial of the claim.
    2. A copy of the purchase contract and all supporting documents signed by both the buyer and seller.
    3. Written proof of the buyer’s ability to purchase the property, i.e., a completed loan application, pre-approval by a lender or evidence of cash on hand (a current bank statement).
    4. A copy of the certified escrow instructions.
    5. A preliminary title report.
    6. An estimated net/closing statement (HUD-1) certified by an escrow officer who is acceptable to the lender. It is very important that this estimate be as complete and accurate as possible.
       Many lenders will reference the closing statement in their acceptance or rejection. You may receive an approval that states “Lender will accept net proceeds of no less than $273,565 no later than November 30, 2009.” If the estimate of net proceeds is wrong for any reason, you may have to attempt to renegotiate with the lender.
    7. A completed and signed IRS Form 4506, “Request for Copy of Tax Form”.
    8. A completed and signed personal financial worksheet. This will include assets such as other real estate, stocks, bonds, 401Ks, etc.
    9. Tax returns for the previous two years.
    10. Employment paycheck stubs for the past two months.
    11. Profit and Loss statement (if the seller is self-employed)
    12. Bank statements for the past two to three months.
    13. A completed Short Sale Application if the lender provides one. Many don’t.
    14. Your CMA/BPO with supporting sales data. You want to show that the offer you are presenting is the best market price offer the lender is likely to receive.
    15. A short narrative, written by you, about the market and market trends in the immediate area of the property being sold. Highlight such data as average time on the market, number of short sale and REO listings in the MLS and price trends. Support your conclusions with material such as recent economic data and newspaper articles. The decision maker may well be in another state and will not necessarily understand why the property is suddenly worth less than the loan.
    16. Your marketing history, showings, and feedback. Here again, you need to show the lender that you have made a real effort to get the highest price. They must understand that you have done a better job than they would have and that you have presented them with a quick and attractive solution to a deteriorating situation.
    17. A formal request signed by the seller that the short sale be approved as submitted.
  • *Important Note: If there are multiple loans, you will repeat this process for each lender. It can be especially difficult to obtain a short sale approval from a second trust deed holder or other junior lienholder that is “wiped out” in a short sale. You will probably need to request that the first trust deed or mortgage holder offer at least a symbolic sum to the second trust deed holder to secure an approval. Anecdotally, second trust deed holders have recently been accepting partial payments as low as $5,000 on trust deeds of $100,000 or more.
  • Following Up. Once you have submitted the short sale package, stay in touch with the lender every day if possible. Make sure they acknowledge that the package is complete. Try to talk to the same person in the Loss Mitigation Department each time and document your conversations. This is not a happy decision for the lender. It will get shoved to the bottom of the to-do list over and over again. Lenders are infamous for “losing” short sale paperwork. Keep the seller and the buyer’s agent up to date. If there is a drop-dead time limit to the offer, remind the lender of it often.
  • Subsequent Offers.
    1. There are different opinions and practices concerning whether to submit all offers received to the lender, or whether to limit the submission to the first offer the seller accepts. Many lenders will require in writing that all offers be submitted, as a condition of reviewing the short sale package. Consult with your broker concerning the broker’s policy regarding subsequent offers. Remember, once again, that all offers must be submitted to the seller, even if they are not then submitted to the lender.
    2. In some areas, agents are simply submitting all offers to the lender without having the seller negotiate or accept any particular offer. Recognize that, without an accepted offer signed by both buyer and seller, you will not have a contract even if the lender approves. This approach presents certain practical and risk management issues. Consult with your broker about this practice if it appears to be common in your area, or if you are inclined to follow the practice.

Reprinted with permission from Realtor.org.

In the event clients of REALTORS® wish to mediate or arbitrate contractual disputes
arising out of real estate transactions, REALTORS® shall mediate or arbitrate those
disputes in accordance with the regulations policies of their the Board, provided the
clients agree to be bound by any resulting agreement or award the decision.

The obligation to participate in mediation and arbitration contemplated by this Article
includes the obligation of REALTORS® (principals) to cause their firms to mediate and
arbitrate and be bound by any resulting agreement or award.
AAR made this mandatory mediation recommendation to NAR in 2008 and will consider implementing the option in 2012.
ADDITIONAL PROFESSIONAL STANDARDS CHANGES

• The board also adopted a new Standard of Practice to prohibit REALTORS® from accessing or using, or permitting or enabling others to access or use, listed or managed property on terms or conditions other than those authorized by the owner or seller. The new Standard of Practice, which is based on the existing Standard of Practice 3.9, goes into effect January 1.
• In the Delegate Body meeting, delegates changed the word “competitors” to “other real estate professionals” in a provision in Article 15 of the Code that prohibits the making of false or misleading statements about others.

To read all the key decisions from the November 2011 NAR Board of Directors Meeting go to:
http://www.realtor.org/association_executives/bod_meeting_112011?cid=WR11172011:34815&ed_rid=407361

NEW ETHICS CITATION PROGRAM
The AAR Executive Committee will consider a recommendation to adopt an Ethics Citation Program at its meeting in January.  In short, when the Grievance Committee receives a complaint alleging violations of Articles 3, 4, 5, 6, 12, 14, or 16 and determines there isa potential violation of the Code of Ethics, it will have the option toissue a citation to the respondent.  The citation will be sent to the respondent, as well as to the REALTOR® principal of the respondent’s office.  The respondent will have fifteen days to decide to accept the citation and pay the fine, or request a full hearing on the ethics complaint. The fine for the first violation will be $250, plus education commensurate with the Article violated.
A Citation Program can streamline the complaint process in the applicable cases while fulfilling the purpose of Code of Ethics enforcement – educating members about their professional obligations and serving as a meaningful deterrent to future violations.  Complaints processed through the Program (if ultimately adopted) should be resolved more quickly, which benefits the parties.  The advantages of resolving a complaint without a hearing include being less burdensome on the complainant and more cost effective in terms of volunteer time and actual expenses.  Several other associations have adopted a Citation Program, such as Texas, California, Pennsylvania and Fredericksburg, Virginia.
REQUIRED CODE OF ETHICS TRAINING
Between January 1, 2009 and December 31, 2012, every member of the National Association of REALTORS® is required to complete 2½ hours of Code of Ethics training. For your convenience, you may take the Code of Ethics course free at:
http://www.realtor.org/library/virtual_library/coetips
NAR CODE OF ETHICS VIDEOS
There are fifteen short video segments covering the Preamble, Articles, and Standards of Practice. Included are support material and questions to stimulate discussion. Each segment is five to seven minutes long, available 24/7, and free of charge.
http://www.realtor.org/law_and_policy/code_of_ethics/code_of_ethics
ATTEND THE 2012 PS WORKSHOP!
Join us at our 2012 workshop where we’ll put professional standards success within reach! Discussions at this year’s workshop will cover changes to the NAR Code of Ethics, issues around procuring cause and more.
When: Wednesday, January 18, 2012 | 9:00am – 3:00pm
Where: Black Canyon Conference Center
C/E: 3 hours
This program is free for AAR Grievance Committee and Professional Standards Committee members, who will be required to take an online exam on the Code of Ethics. And in thanks for their service, AAR had decided to “comp” all AAR ombudsmen and mediators so they too can attend for free. Members at large may attend for $75.00.
Register Online: http://www.regonline.com/Register/Checkin.aspx?EventID=1029659

PROFESSIONAL STANDARDS TIPS
Remember:

• Be sensitive to conflicts of interest and circumstances where you should disqualify yourself from a review, hearing, mediation, or ombudsman effort.

GRIEVANCE COMMITTEE TIPS
Remember:

• Do not engage in conjecture and to look closely at the facts as it is presented.
• A member of the Grievance Committee can be assigned to assist a complainant in presenting their complaint and will be excused from review of that case.
• Look at case interpretations to assist in your review of an ethics complaint.

HEARING PANEL TIPS
Remember:

• Attorney’s fees, punitive damages, and interests are not generally part of any arbitration award unless it is expressly provided for in the agreement giving rise to the dispute.
• Present your questions to the Hearing Panel at the pre-hearing meeting to help determine if the question may be leading.

HEARING CHAIR PANEL TIPS
Remember:

• Even if the facts are clear, strong, and convincing, play the devil’s advocate and engage the panel into discussion so that the non-prevailing party’s issues are discussed and considered.
• Do not voice your opinion during the Executive Session unless your vote breaks a tie or until after the Hearing Panel has reached their decision.

MEDIATOR TIPS

• Mediation is a blend of counseling skills and knowledge – each party in a mediation has an emotional need to be met: a) the desire to be heard; b) the need to have their underlying concerns and feelings acknowledged;  c) to have those concerns and feelings validated.
• The mediator needs to employ active listening skills such as focusing eye contact (no distractions), to paraphrase, summarize, reflect, parrot and/or reframe questions for clarity.
• Ask open ended questions – What is this about for you?  What was the impact of this on you?  How do you feel about what happened?  In a perfect world, what outcome would you like? What is important to you?

THANK YOU TO ALL VOLUNTEERS

Professional Standards and Grievance Committee Members
Thank you for dedicating your time, your knowledge, and your energy to participate with Grievance Committee Meetings and Hearing Panels! We proudly tout to the parties, and to whoever gives us the floor, that you are passionate volunteers willing to watch over your profession and the word REALTOR® and its reputation to provide the real estate industry with high standards and professional conduct.

2011 Grievance Committee
John Barile, David Brashear, Debra Coste, Sharon Ellsworth, Sue Flucke, Eileen Greene, Leslie Hammond, Jo Hannifan, Bob Kaczmarek, Carol Lewis, Marion McGuire, Michael Mulvena, Michael Tiers, Chris K. Warren, Dori Wittrig, Sandy Young.

2011 Professional Standards Committee
James Amdahl, Charlene Anderson, Gary Ando, Martha Appel, Kristin Armbruster, Viva Ashcroft, Jennifer Aubrey, William Barnes, Carla Bowen, Janine Brown, Tom Clancy, Janet Clark, Mary Frances Coleman, Karen Cyga, Flo Day, Alice DeShane, Frank Dickens, Larry Dignan, Chad Dixon, Lori Doerfler, Sandra Durazo, Jane Dutra, Tomyal Emptage, Holly Eslinger, Ruth Fairbanks, Gary Fenton, Kyle Fouts, Duane Fouts, Robert Gaudette, Kathleen Gimenez, Judith Grammond, Mary Lee Greason, Jon Hammond, Kerry Hannifan, Michelle Hartley, Barrie Herr, Larry Hibler, Ed Hume, Pat Jessup, Bill Johnson, Karen Jones, Clark Jones, Rosemary Keely, Dee Kepp, Jon Kichen, Jill Knox, Dick Krause, Fred LaBell, Kathleen Landis, Pat Leach, Leah Lichter-Roedig, Marge Lindsay, Holly Mabery, James Marian, Tim Massingale, Kathy Mayus, Todd Menard, Karen Miller, Trudy Moore, Paul Olson, Carol Pinciaro, Janet Quackenbush, Robert Quackenbush, Peggy Rauch, Nancy Rea, Jill Remington, Bridget Reynolds, Tina Robbins, Ronald Roberts, Catherine J. Rose, Sharon Rundle, Ken Ryan, Rick Sack, Dan Santa Maria, Richard Schneiter, Nancy Smith, David Stephens, Michael Steward, Lisa Suarez, Yvonne Taylor, Becky Taylor, Gillean Terry, Steven Urie, Carole Vaughn, Denise Venturelli, Mike Waling, Carol Anne Warren, Michael Warren, George Watrous, William Whetten, Suzanne White.

Mediators and Ombudsmen
Whether the conflict stems from the public or between members, your contribution to AAR’s Mediation and Ombudsman programs are making an impressive difference in complaints being filed, hearing reduction, and satisfaction in the dispute outcome:

2011 Mediators
Gary Best, Frank Dickens, Thomas Fannin, William Farretta, Charles Fraas, Lucille Fraas, Evan Fuchs, Mary Lee Greason, Dick Krause, Marge Lindsay, Carol Pinciaro, Tina Robbins, Ron Roberts,  Carol Anne Warren, George Watrous, Thomas Weddingfeld.

2011 Ombudsmen
Alice DeShane, Chad Dixon, Bob Herd, Kirsten Hill, Clark Jones, Dick Krause, Kathleen Landis, Marge Lindsay, James Marian, Kathy Mayus, Beth Morton, Carol Pinciaro, Tina Robbins, Nancy Smith, April Starr, David Stephens, Lisa Suarez, Tom Tischer, Mike Waling, Duane Washkowiak, Jacqueline Weems.

Association Executives and Staff
Your assistance, courtesy, and general helpfulness throughout the year makes it possible to schedule and hold hearings or meetings at the member’s local facility.

Here’s wishing you all a Healthy, Happy, and Prosperous 2012!!!
Michelle Lind, Carole Ridley, Jan Steward, Kimberly Franzen and Christina Smalls.

HAPPY HOLIDAYS FROM AAR!!!

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