Concern, frustration, and a fair bit of anger were all sentiments that emerged during discussions of short sales that took place during the recent meetings of the California Association of Realtors® (CAR) in San Diego, Calif. These were not just hallway discussions or after-hours conversations. Short sales were the topic of a variety of different committee meetings and were the subject of action items at the business meeting of the full Board of Directors.
The subject, of course, is not new. CAR has been actively involved in support of various legislative measures related to short sales. Members and task forces have met with both state and federal legislators and regulators, as well as with representatives from major lending institutions.
In December, CAR president Beth Peerce wrote on behalf of the 170,000 member organization to the Treasury Secretary, Acting Director of the Federal Housing Finance Agency, and the CEOs of both Fannie Mae and Freddie Mac. In addition to making recommendations about specific aspects of the so-far unsuccessful HAFA program, she also urged that ...Treasury should set forth the underwriting guidelines to which servicers and lenders must adhere. The government's unwillingness to mandate action by lenders to stem the current housing crisis relegates HAFA to yet another well-intentioned voluntary program, which servicers, lenders, and investors are all too happy to ignore, and which C.A.R. fears will fail.
While meetings between CAR officers and representatives from major lenders have been, as they say, both frank and cordial, they have yet to result in significant, discernible improvements to short sale processes. At the San Diego meetings CAR Directors authorized funds for an open letter campaign in major news outlets. Additionally, CAR will be working with NAR to seek federal legislation addressing a variety of short sale issues.
Lending institutions were not the only target of frustration and occasional anger. Many of the Realtors® in attendance also had some venting to do in the direction of certain of their colleagues. The issue du jour was short sale negotiators (SSNs).
Having dealt with the topic of SSNs in earlier columns, it was no surprise to me to see the levels of discontent that were expressed. Many - certainly not all - real estate practitioners around the country are extremely unhappy with the practice of engaging a third-part SSN whose compensation does not solely, if at all, come from the listing agent or the seller. Commonly, it is the buyer who is required to pay for this service. Not infrequently, the buyer's agent winds up sharing the burden.
Now, this is not the time to debate the merits and/or the ethics of using SSNs whose compensation comes from the buyer side of the transaction. Suffice it simply to note that a lot of agents are angered by this practice, or, to say the least, disapprove of it.
Thus it was that the CAR directors voted to seek legislation that will affect the practice of using third-party SSNs. They are seeking to have a provision attached to an existing piece of legislation that affects short sales. CAR will attempt to have California Senate Bill 2 amended to include a requirement that short sale negotiators must be paid by the person hiring them.
As stated, the motion was not artfully worded. It sounds like an unnecessary piece of legislation requiring a certain class of persons to pay their bills. But everyone knows what was meant, and the ultimate wording will no doubt reflect that. Namely, Short sale negotiators may only be compensated by the person who hired them.
This seems a most unusual tack for traditionally free-market Realtor® - sponsored legislation to take. Supporting legislation that disallows certain kinds of otherwise legal business arrangements is somewhat out of character here. What, one wonders, has happened to the belief in the value and ability of people being able to bargain?
In California, Realtors® have for some years been comfortable with the notion that agency relationships are neither determined by, nor determinative of, compensation obligations. It is perfectly ok for a for-sale-by-owner seller to compensate an agent who has fully disclosed that he/she is the exclusive agent of the buyer. It is not clear why the same sort of arrangement should not be allowed in a short sale setting.
The recent action directed at third-party short sale negotiators seems to be born more of emotion than of principle. But, when it comes to the topic of short sales, there is a lot of emotion out there.