ARE YOU TAKING THE RIGHT PATH WHEN IT COMES TO NEGOTIATING DEFICIENCIES IN SHORT SALES?

REAL ESTATE AGENTS AND DEBT NEGOTIATION

With the large increase in the number of foreclosures in North Carolina and the increased number of properties being listed and sold as “Short Sales”, questions have been raised about the appropriateness and legality of real estate agents negotiating debt on behalf of their seller clients.

In looking at what real estate agents are not permitted to do in other areas, most, if not all, real estate agents know that under the rules of NCREC, an individual is permitted to purchase or sell a house for themselves, but if they engage in bringing buyers and sellers together for a fee, they must be licensed.

Similarly, if a real estate agent is performing BPO’s for lenders or mortgage companies, and being compensated for those opinions, and are not licensed appraisers, NCREC is turning these agents over to the North Carolina Appraisal Board for discipline.

It is also a clear and established rule that a real estate agent is not permitted to charge a fee to help a buyer obtain financing for the purchase of their new home, unless they are licensed by the North Carolina Banking Commission. To engage in this activity could constitute a criminal offense.

The same is true for persons, other than licensed attorney’s, to negotiate debt settlement on behalf of other individuals. North Carolina has codified the Unauthorized Practice of Law in N.C.G.S. 84, which prohibits individuals that are not licensed to practice law in North Carolina to represent others or to give legal advice. In addition to this statute, the Short Sale Addendum to the North Carolina Offer to Purchase and Contract states that “if a foreclosure or other judicial proceeding if filed with respect to the property, although the firm may continue to solicit and negotiate offers to purchase and contract, communicate with, obtain information and supply information to lien holder, firm may no longer negotiate the terms and conditions of a short sale with lien holder, as such negotiations would constitute the practice of law”.

In addition to the unauthorized practice violation, a real estate agent should be mindful of potential liability they create by negotiating debt on behalf of a client, especially if they have not been properly trained or have the necessary experience with short sales. Short Sales include having to have an understanding of liens and lien priority, Credit Reporting issues, and Tax Liability for their seller, any of which, if not handled properly can create liability for the real estate agent.

There is little doubt that real estate agents engaging in debt negotiations of behalf of seller clients are doing so with the best intentions of helping their seller. However, with the risk of both potential liability for negotiating debt, and the potential violation of the unauthorized practice statute, these activities can and should be handled by North Carolina licensed attorney.

If you are a listing agent that is involved with Short Sale transactions, please give Shara Caggiano a shout to explain how Law Avania can help alleviate the liability and often times time consuming process.