Real estate attorneys alerted local realtors to trends and troubles regarding new laws, multiple offers and disclosure at a legal update in Los Altos recently.
Attorneys Dave Hamerslough and Vickie Naidorf informed members of the Silicon Valley Association of Realtors that two laws – SB 931 and SB 458 – may cause a backlash. Although well-intentioned efforts to protect sellers from lenders going after them for loan deficiencies after a short sale, according to the legal experts, the laws may place some short sales in jeopardy.
SB 458, passed this year, extends the protections of SB 931 to junior lien holders. Hamerslough, a partner in Rossi, Hamerslough, Reischl & Chuck in San Jose and a Silicon Valley Association of Realtors board attorney, said a consequence of the law is that more junior lien holders are holding back on approving short sales because the law has limited their ability to go after the borrower for the deficiency. If the deficiency of the second loan is more than $40,000, it may be difficult to get a short sale approved, he said.
Even with the protection of both laws, it is important in a short sale to gain a release of liability from the lender in writing, Hamerslough said. He recommended sending a letter to the lender confirming that the lender would not be seeking more money from the seller after the short sale, that the seller has no further obligation to the lender of any kind and that this would be the seller’s understanding, unless the lender replies otherwise in writing within a prescribed period of time.
The good news is that multiple offers are back; the bad news is that claims can arise from them. Naidorf, in-house counsel for Coldwell Banker Residential Brokerage, said buyers have been known to get emotionally caught up in multiple-offer situations, waive the seller’s disclosures and agree to purchase the property as-is. Realtors should instead present buyers with a market conditions advisory.
The real estate attorneys said they see a trend regarding the quality of disclosures. While sellers realize that they need to fill out the disclosure form, they are not explaining their disclosures thoroughly, and some disclosures are designed to confuse.
Hamerslough and Naidorf cautioned realtors to be on the lookout for lender fraud. Always document your communications and actions, they advised. There is a sharp uptick in internal investigations and criminal prosecutions of agents and their clients, the attorneys reported.
The Silicon Valley Association of Realtors provided information for this article. For more information, visit www.silvar.org.