Homeowners in Foreclosure Should Hire an Attorney

When I teach the Short Sale class, I say many times during the class that homeowners selling short and homeowners in default should always be directed more than one time to seek legal counsel. Sometimes homeowners in financial distress don’t hear you the first time. Just handing them the agency pamphlet isn’t enough. Attorneys can help homeowners in ways that real estate agents cannot. They will know more about their state’s deed of trust laws and any state-specific anti-predatory lending laws as well as federal residential mortgage lending laws than an average real estate agent, and attorneys will have access to recent case law.

justiceStuck with a bad loan, a Staten Island family fights back
Staten Island Advance

David and Karen Shearon were like many other Staten Islanders stuck with bad loans, collapsing financially under the weight of a crushing mortgage less than a year after buying their first home.

But unlike thousands of others who have entered foreclosure as part of the fallout from the subprime lending crisis — homeowners often embarrassed by their situation and unable to afford legal representation — the Shearons fought back.

A judge recently ruled that the owners of this Westport Lane townhouse in New Springville home were victims of predatory lending.They argued through their attorney that brokers aggressively marketed them a high-cost loan and then pressured them to go through with the closing when they could have qualified for a traditional fixed-rate mortgage.

In what is likely to be a precedent-setting decision in New York, state Supreme Court Justice Joseph J. Maltese agreed with the Shearons, recently telling the bank that it could not foreclose on the couple’s New Springville townhouse and that it may have to pay them damages for their troubles and void the $355,000 mortgage on their Westport Lane home…

Judge Maltese determined the original lender violated banking law by failing to check the Shearons’ income and ability to pay the high-cost loan. He said the lender crossed the line again when it financed the home above the $335,000 sale price, using an additional $19,145 to pay the costs and fees associated with securing the high-cost loan. The Shearons’ $5,000 deposit, meanwhile, was never deducted from the ultimate $355,000 in financing.

“This ultimately left Shearon with negative equity in the property,” the judge wrote.

“The mortgage loans may be unenforceable and the homeowner may be entitled to reimbursement of all prior mortgage loan payments, the fees for obtaining the loans and attorney fees,” Maltese added.

At a hearing Feb. 28, the judge is expected to decide whether the mortgage should be voided and damages granted to the Shearons.

Read the entire story here.

I keep reading comments about how there are not enough regulators to adequately oversee state and federal lending laws. With the mortgage lending meltdown continuing into this election year, we are already seeing more proposed state and federal laws.

Question: Would the threat of having the mortgage voided in the courtroom be a more effective way of bringing some rapid order into the mortgage industry?

115 thoughts on “Homeowners in Foreclosure Should Hire an Attorney

  1. “Question: Would the threat of having the mortgage voided in the courtroom be a more effective way of bringing some rapid order into the mortgage industry? ”

    Well, it’s certainly going to lead to an extraordinary tightening of lending standards for new mortgages. Hillary Clinton, et. al., who want to revise existing mortgages to the lenders detriment appear to be ignoring the effect on lenders’ willingness to offer new mortgages. Now lenders are going to have to factor in the risk that the government and courts may change the terms of the mortgage after the fact.

  2. Unfortunately stories with outcomes like this one are few and far between. Most people simply do not have access to quality legal advice.

    Sure, you can get a referral to a legal aid group, but my experience is that these groups are underfunded and are not able to handle any quantity of cases. They’ll typically take a flagrant case of predatory lending to make a point, and because it’s their best shot to win given their limited resources. People who are in plain old financial distress, or where there’s less evidence of flagrant predatory activity are out of luck.

    By the time people most people seek legal help, they will not have a few thousand bucks to hire a competent attorney. They’re also under tremendous stress to do something/anything. Some will go to a bankruptcy attorney, and (surprise) will file BK, whether or not that’s the best option for them or not.

    The legal system is simply not equipped to provide representation for people that are flat broke, with the exception of criminal defense and mental incompetency.

  3. Hi ABR,

    The court made this decision because the lender and its agent, the broker, did not comply with New York’s anti-predatory lending laws. Had the lender and broker chosen to act in a different way, the lender’s risk would be much less.

  4. Hi laxtosnoco,

    Do you believe that when lenders take risks such as the one in this news story, they weigh their risks something like this:

    What are the chances this borrower will sue?
    What are the chances that this file will get pulled for a state audit?
    What are the chances that this homeowner will foreclose?

    Seeing minimal risk, they make their choice.

  5. Well, it’s certainly going to lead to an extraordinary tightening of lending standards for new mortgages. Hillary Clinton, et. al., who want to revise existing mortgages to the lenders detriment appear to be ignoring the effect on lenders’ willingness to offer new mortgages. Now lenders are going to have to factor in the risk that the government and courts may change the terms of the mortgage after the fact.

    No more phone calls, please. We have a winner.

    No kidding. If you want to see 20%+ mortgage rates, try to stick it to the lender by altering his contract. Run that through your amort calculator and see what pops out the other side.

    In that scenario, we would be selling houses for cash, which would bring them down to early 1970s prices.

  6. H Eleua,

    I think banks want to make loans. It’s not in their best interest for us to return to an all cash home market.

    In light of more cases like this, banks would find a way to minimize their risk. At minimum, this court case does not bode well for third party originations. My guess is that mortgage brokers who want to contract with banks will have to elevate their business practices and be able to prove it to the banks.

  7. “Seeing minimal risk, they make their choice.”


    “I am willing to bet that a visit to a competent attorney costs a lot less than most homeowners realize.”

    I agree wholeheartedly, but by the time the homeowner really needs an attorney (missed a couple of payments, racked up some CC debt, fighting with wife/husband) they’re totally spent. Why would they trust another suit that’s asking for cash up front and not really promising anything?

  8. This sounds like it was a stated income loan and that the borrowers could have walked away before it closed yet went forward with the transaction because they did not want to lose their earnest money deposit and they gave notice to their landlord.

    A real estate transaction does not take place overnight…it takes days–typically 30–to come together.

    Did they just learn about their mortgage at closing?

    If they qualifed for a full doc loan (with their modest income), would they have qualifed for less home and if so…is did they make the choice to proceed buying a home they could not afford?

  9. This would be a type of case for an attorney that specializes in such things. Not just a real estate or bankruptcy attorney.

    It’s also the type of case that is somewhat involved because it’s very fact specific, and I think which has some obstacles placed in the way (e.g. to save the house you may be required to continue the mortgage payments).

    Not to discourage anyone from going this route, but I think if you’re talking about widespread relief you’re going to need statutory regulation and remedies.

    But as to the main point, yes people in foreclosure should see an attorney, and they should do it early–as soon as the receive the Notice of Default. Sometimes there are things that need to be done and time those things are critical concern. Delay means certain remedies or options may be completely unavailable.

  10. Jillayne,

    Banks will always want to make loans. The problem comes from them not having the borrowing capability to lend at cheap rates. Should their borrowing costs ramp to 20%+, they would have to charge enough to cover that, plus their operating costs, taxes, and hopefully have enough remaining to show a profit.

    I may have been misunderstood. Should our borrowing costs get into the twenties, home prices will look like they did in the 70s, and it would just be easier for many to buy with cash.

    Even I am not forcasting this scenario – until the gov/courts unilaterally change mortgage contracts to screw over the writer in favor of the borrower (voter).

    Fool me once…fool me twice…

  11. E–I would have said: Even I am not forecasting this scenario – until the gov/courts unilaterally change mortgage contracts to screw over the writer (major campaign contributors) in favor of the borrower (voter).

  12. Rhonda-

    I’m with you. Sounds like there could have been some risk taking on the Shearon’s part. That said, it looks like they could’ve afford a traditional fixed rate loan. This begs the question…should they be allowed to convert to fixed rate or should they be foreclosed?

    A lot of people I talk to feel that the borrowers who took risk should be allowed to foreclosed on, but I think that if we did that with EVERY CASE we may just compound the problem. There’s a lot more to owning a house then just a mortgage and the homeowner that chooses to live in a home should be allowed to get a fixed rate loan instead.

  13. Q-Diddy,
    if the LO pulled a last minute switch-a-roo on the Shearon’s, then they’re guilty…but is it the LO or the lender/bank for having the available program.

    If the Shearon’s could qualify for less home and they opted for something they cannot afford and therefore, they opted for the loan their in, the Shearon’s are guilty IMO.

    What if the Shearon’s made an offer on a home first and then visited the local LO saying, “I just bought this, now I need financing”. If all they qualified for was that mortgage and the Shearon’s told the LO to provide financing…I’m wondering how fair this is to the LO.

    We don’t have all the details to this case…but I’d love to have more info. People who bought over-stating income (and I’m assuming they did) and all of sudden, a light bulb goes off and they realize they can’t afford their home.

    Where is the real estate agent in this mix? I’ve had agents tell me (pre-melt down…I’m sure they wouldn’t say it now!) that it’s my job to find financing not to worry about whether or not someone can afford it or if the loan makes sense (is suitable). I don’t work well with agents (or buyers) like that as I am a worry-wart by nature. 😉 This is where I welcome LO fidiciary duties to the buyer.

  14. “Where is the real estate agent in this mix? I’ve had agents tell me (pre-melt down…I’m sure they wouldn’t say it now!) that it’s my job to find financing not to worry about whether or not someone can afford it or if the loan makes sense (is suitable). I don’t work well with agents (or buyers) like that as I am a worry-wart by nature. This is where I welcome LO fidiciary duties to the buyer.”

    Don’t even get me started with agents! I got a bone to pick with that whole industry as well. I’ve yet to meet a true “professional” and I’ve talked to over a dozen in my short homeownership career.

    This entire industry needs to be retooled, revamped, whatever you want to call it.

  15. Q-Diddy –

    Why should people who cannot afford a home be rescued by tax payers to keep them in it? Isn’t it in the best interest of society to let them get foreclosed so that someone who can actually afford that home can move in? It makes no sense to subsidize houses for people who can afford to rent a similar place perfectly fine and deny the ability for those with means to purchase it properly.

  16. Q-Diddy, that’s an unfair attack on agents. Talking to a dozen people in a single profession comprised of thousands doesn’t give you any indication of the profession as a whole. It would be like looking at 12 houses in King County and claiming you have some special understaning of King County housing.

    On the issue you’re addressing, I find that agents aren’t really the culprits here. It’s hard holding a client back sometimes. They WANT to buy a house! You can find out what they’re prequalified for, suggest to them repeatedly that they don’t want to buy a house at quite that level, but ultimately they make that decision, and many of them go the limit.

  17. Alright, hold on a second Kary.

    For a LONG TIME now, I’ve been saying that the general public will judge an industry by it’s lowest members of the industry, not by the cream of the crop.

    If the real estate industry wants consumers to have a higher opinion of real estate agents, then the industry will come together as a group and elevate minimum standards for all agents.

  18. Or Brokers will draw the line at competent vs. incompetent. That’s the system in place…is it working though? Still the best system, if only the Brokers would apply the principals they are supposed to, and protect the public as they should.

    Minimum standards need to be set by Brokers sending licenses back to the DOL. Nothing wrong with the system. Just the application of the system.

  19. If any industry is viewed by the lowest members, it will be viewed negatively. The lowest member of any industry will probably going to jail, be they a real estate agent, lawyer or doctor. It’s the average you need to raise.

  20. Jillayne-

    Thank you for saying that!! It’s so refreshing to hear someone say that. Thank you for suggesting that this industry needs to raise the bar. Thank you, Thank you, Thank you!


    How many agents does a typical buyer need to talk to before finding the right one? How many opportunities does one has in their lifetime to purchase a home? I don’t expect every agent to be the best, but I expect that after a dozen I would run into a professional one. I admit I don’t have a wealth of experience to rely on, I’ve only purchased 2 homes so far. Maybe I’m in my own little world because obviously everyone else is getting top notch service.

  21. B-

    I agree with you, but I’m not talking about the ones that can’t afford a home. I’m talking about those that could afford a traditional fixed rate loan, but decided to get an ARM or something similar instead. If they can somehow be converted back to a fix they can pay and they want to live in the home, then I say we let them. Again, case by case basis.

  22. Q–I’m not saying the quality of agents is okay or acceptable. Here and elsewhere I’ve complained about the quality of agents. My focus on them is probably a bit different than a consumer’s focus. I’ve seen serious buyers lose out because their agent doesn’t know how to write up a contract. They probably don’t have a clue that’s what happened, so they don’t even realize they have a bad agent. Or agents that don’t follow various rules that consumers probably are not even aware of.

    It’s really hard to tell from the consumer side whether an agent is good or bad. The same was true in my prior profession (attorney). I had a client once who told me how great his divorce attorney was, and how bad the wife’s attorney was. Then I had to go to one of the hearings, review their paperwork, hear their arguments. My client didn’t have a clue how bad his attorney was.

    I’m facing the other side of that now, trying to pick a new doctor. So it’s probably better that I don’t try to think about these things too much right now! 😉

  23. “The lowest member of any industry will probably going to jail”

    Not true.

    There will never be enough government resources to oversee every single real estate agent or mortgage loan originator.


    I offer a quote that a reader just shared with me:

    “It is difficult to get a man to understand something when his salary depends on his not understanding it”

    -Upton Sinclair

    thanks Lance in Virginia. This would support Ardell’s comment #22

  24. Jillayne, true on the resources issue, but the public won’t judge based on what they don’t know about.

    I’ve seen the bar association take years to discipline someone for something that is seemingly open and shut (client funds issue). That person didn’t adversely affect the public’s impression of attorneys, except for his clients and the few people they possibly told, until he was disciplined.

  25. I have something to ask of agents then.

    In a paragraph or 2, describe what is the role of an agent to a buyer/seller then. A top 10, top 5 list will do. Tell me why I would want to pay for your services, besides having the keys to the house or giving me a tour.

    I also question the manner in which agents get their licenses. Help me understand why more schooling or certification, experience, etc isn’t required. Tell me that you learned more than what is it? A 2 month course? Tell me how you can have a “professional” designation on your business card if you’ve never worked in the industry before? Tell me why it’s so easy to obtain a license.

    If I’m off the mark on this stuff please educate me.

  26. Q-Diddy,

    Can you give us an example of your definition of “a professional one”? What did those dozen agents do or not do that caused you to come to the conclusion that not a one was “a professional”?

    That’s something we can all learn from, and I’d very much appreciate as long a response as you have time for.

  27. Ardell-

    Here’s the quick list:

    1. Lack of credible background, degree or experience

    2. No connection/explanation/justification between the fee they charge and the service they provide

    3. No value analysis, ie, is this a good/bad price

    4. Not listening to what I’m looking for

    5. No prior assessment of the home itself prior to showing.

    6. No general guideline on mortgage costs, expenses, etc.

    7. No follow up after purchase

  28. Q-Diddy,

    Thank you so much. I really appreciate it.

    I’ve been doing some training classes that involve those issues recently. Particularly #2, #3, #5, #6 and #8. It is clearly the first time agents had someone address some of these items in a training class.

    Unfortunately the industry is about “risk reduction” and “getting more leads”. Agents have traditionally had to learn the REAL business from experienced agents. That system used to work fairly well, but is no longer the case.

    1) Because many get into the business just wanting to slam dunk some easy and big money. They don’t even come to the training classes if it’s “too much work”. They like it to be easy, and during the seller’s market of the last few years, it was. Times are changing though.

    2) Because new agents don’t want to share the commission on their first transactions with an experienced agent while they are learning.

    3) Because experienced agents find it more productive to work from home, with bunches of newer agents trying to pick their brains for free in the office.

    When new agents started walking up to experienced agents and asking, “Can you tell me how to price this house so I can list it?” instead of asking the experienced agent to share the listing, all hell broke lose. Experienced agents come in when no one is around or not at all. The slam dunk easy money crowd was expecting all the expertise for free, and successful and experienced agents aren’t that dumb.

  29. “1) Because many get into the business just wanting to slam dunk some easy and big money. They don’t even come to the training classes if it’s “too much work

  30. Does a contractor having a license # make him a good contractor. Does having a driver’s license make you a good driver.

    Actually driver’s license is an excellent example.

    Why do people think that licensing has anything to do with being good at something? Where does that expectation come from. Most licenses give you the right to start learning, and in no way suggests true competency in any licensing activity.

  31. @Q-Diddy,

    A more motivated and educated group of agents would demand more from their broker, which has the potential to reduce profit margins for the brokers.

    It would be difficult to get a broker/owner to agree to something that may end up making less profits for the company.

    This is an old mindset.

    You can see changes taking place within SMALLER, upstart brokerages. I met a broker recently, Edward. Can’t remember his last name, starts with a K. Let me go find him. He was good example of a broker that decided to start a different kind of firm. Here you go:


    I spent four hours with him in the classroom. Het gets it.

  32. Jillayne,

    Ahhh, the team approach. Got time for coffee? LOL

    The best laid plans of mice and men…what’s the rest of that quote? I’ll go Google it. I love Google and YouTube. How did we survive before having those two things in life.

  33. Q–First the licensing. It is relatively simple, and the problem is most agents don’t remember what they learned. So I’m not sure making it tougher is the solution. I think some of the required post-licensing courses (e.g. the Practices and ethics coures) are far more useful than the licensing courses. But the Practices course you don’t need to take for upto two years.

    As to the buyer and seller the roles are somewhat different (e.g. staging isn’t that important whenn you represent the buyer), but there are some similarities.

    First, I’d stress knowing the paperwork, but that’s my legal background speaking. Most deals the buyer wants to buy and the seller wants to sell, and so the paperwork doesn’t really matter that much–the deal will happen. It’s the odd deal where the paperwork is important.

    Second, it’s understanding pricing. Pricing really isn’t that tough, but for some reason some agents never do seem to get it. What it is more than anything is experience and knowing what factors are important. The example I like to give in that area is understanding that a 1 bathroom home built on a slab will be less valable than a one bathroom home with a crawlspace.

    Third, it’s realizing that you represent the party. That means a couple of things:

    1. The final decision is theirs. You’re only there to advise.

    2. Advising them is more important than putting a deal together.

    As an example, we had some buyer clients who wanted to pay more than what we felt the property was worth. In the going back and forth I think they made two offers that were higher than we advised. That was their decision. Ultimately the deal didn’t come together because they were listening to us somewhat. They then decided to invest their money in their business rather than a new house, so we lost a sale. Do we regret that? No. Having someone pay too much when I represent the buyer is not a good thing.

    I’m sure I could come up with other things, but those are my top three.

  34. Q wrote: “8. Always stressing the upside instead of the downside.”

    I really hate agents (or anyone else) trying to predict the future. You can point out things that will improve the chance of a resale (which presumably would affect price both ways–lower downside–greater upside), but houses should be bought more on features and current price than as an investment with an expected return.

    That’s not to say you can’t point out things, like perhaps Ardell’s situation with a run down house about to be renovated. I’m speaking for of the arguments that real estate never goes down, or this area will always be popular, etc.

  35. Kary,

    1) But sometimes an agent has to draw the line for the sake of their own reputation, and say if you really want to make that huge of a mistake, you need to find another agent to do that with.

    2) If their primary goal is to put a deal together, and they are fully advised of the consequences, and are fully agreeable to accepting those consequences, then my primary goal is to put the deal together.

    I’d say

    #1) Giving them the answers to the questions they didn’t know enough to ask 🙂

  36. BTW,

    I’ve been polling consumers for a couple of months and many truly believe that real estate DOES always go up and that no home in the Puget Sound has EVER gone down in value in the history of the Puget Sound.


  37. Ardell wrote: “I’ve been polling consumers for a couple of months and many truly believe that real estate DOES always go up and that no home in the Puget Sound has EVER gone down in value in the history of the Puget Sound.”

    There’s a term for such people right now. They’re called buyers. 😀

    BTW, I’d disagree with your number 1 above on the listing side. If an offer comes in, and they want to take it, I don’t care about my reputation.

  38. The problem is that a buyers agent should be a non-commissioned, flat or hourly fee service. As long as buyers agents get their cut of the pie based on the sales price, nobody is going to trust their realtor more than they would trust a car salesman (unless they are foolish or know them personally).

  39. b, on a lot of things the compensation is variable. Your attorney makes more money generally, the more you fight. What they tell you determines how much you fight. Your doctor makes more money the more tests you have done. What they tell you determines the tests run.

    I don’t think most buyers have an interest in paying agents hourly.

  40. KLK –

    The difference being you can sue both of those for malpractice if they are running up unnecessary items to charge you extra for.

    Does a buyers agent for a $300k home require half as much time as for a $600k home? A quarter as much as a $1.2m home? Reason says that there would be much more difference between the buyers situation themselves and not the price of the home they were buying.

    There is no objective reason a buyers agent should get a commission of the sales price, this creates a disincentive for them to do one of the primary things they are hired for: get you the best house for the price.

    An hourly or flat rate fee is much better for the buyer, the get someone who is agnostic about the sales price and therefore can more truthfully tell them the value they are getting and the market conditions (no more BUY NOW OR BE PRICED OUT FOREVER). The buyer knows that their agent is not inventing “phantom bids”, driving up the price of the home (this was rampant in speculative areas, I do not know about Seattle specifically). And the price you pay is determined by the time you are using up on their end, rather than the sales price of the house.

  41. Ardell-

    “Licensing has little to do with agent training, Q-Diddy. Anymore than passing the Bar Exam prepares you to be a successful litigator.”

    You can make this argument to any profession. The difference is you don’t get to practice law just cause you pass the Bar Exam. Whereas with agents, you get to practice and collect fees as soon as you pass. Also, compare the rigors, they don’t even compare. Why not make it a 4 year degree? What I am saying is by making it tougher, you weed out more of the flakes

  42. KLK-

    I can tell you that 4 years of college, 3 years of law school and the bar exam doesn’t weed out a lot of the flakes!

    So in your honest opinion, raising the bar to becoming an agent would do nothing for the industry? Bold statement my friend.

  43. B-

    “There is no objective reason a buyers agent should get a commission of the sales price, this creates a disincentive for them to do one of the primary things they are hired for: get you the best house for the price.”

    I agree, conflict of interest.

  44. I think it would help more to make brokers more responsible for agents. Some of the paperwork I see is so bad, from long time agents, that I assume no one is reviewing their work.

    It’s interesting comparing the two professions. In the legal area, the continuing eduction is mainly a failed attempt at PR. In the real estate area it really does help. So different things for different fields.

  45. QDiddy, you sort of referenced something like 12 agents you’ve talked to and didn’t want to hire. Your list isn’t difficult, nor out of line. I wonder why on your list you simply didn’t add: Real estate agent should have 20 or more transactions each year in resales (not new construction).
    Real estate agent should be seasoned, with more than 10 years of experience in the Puget Sound Region.

    And, for those who don’t want to have their agent be paid a commission. Fine, hire a fee-based agent, and decide if they are simply a consultant or will represent you and your best interests.

    And, if you don’t believe you’ve found someone who will represent your best interests, you need to keep looking for the right someone. You didn’t fall for the first girl you ever dated and marry her did you?

    Experienced agents are out there, hidden from view perhaps because many of us don’t advertise for new clients. We work the best way any business person can: via word of mouth.

  46. Q-Diddy,

    I switched to mostly flat fees on both sides of the equation. Even if that flat fee equals a percentage rounded to an even figure, it takes the conflict as to price out of the picture.

    Say someone wants to buy at $600,000. If you state your fee at $12,000 instead of 2% of the asking price, it doesn’t matter if the buyer pays $580,000 or $620,000.

    Does that make sense to you? It has worked out fairly well for me and my clients so far.

  47. Ardell –

    Why is it based on purchase price at all? I am curious as to how purchase price effects the work you must do as a buyers agent. Is there more paperwork or something involved in buying a $600k home that justifies doubling your price as for a $300k home purchase? Or is it more of a progressive scale of payment just based on the buyers ability?

  48. Leanne-

    “Real estate agent should have 20 or more transactions each year in resales (not new construction). Real estate agent should be seasoned, with more than 10 years of experience in the Puget Sound Region.

    I like both of these actually, I just fired off some quick ones earlier, but I like something more inline with what you’ve suggested.

    In my imaginary world this is how I see it.

    Step 1. You take the exam and you pass (the exam is given only 3 times a year and there are a number of required courses). We can talk curriculum later.

    Step 2. You get hired on by a realestate house (Windermere, Banker Baine, etc.).

    Step 3. You must acquire the equivalent of 2 years of on the job training with an Agent who has at least 5 years of experience. In the mean time you get paid a minimum salary by the house.

    Step 4. Once you’ve acquired the hours and pass a second exam you become a certified agent

    Step 5. You may now practice.

    Obviously, I can go on and on, but my point is, don’t give these new agents a chance to make a fast buck. Raise the bar. The industry needs to change IMHO.

  49. A few more things I’d like to say about Agents.

    I think it’s a privilage to be an agent, not a right. I’d like to respect the agents I’ve ran into, but I simply can’t. Until the bar has been raised and someone can wow me with their knowledge I just can’t respect this industry. Just my 2 cents.

  50. HI Q-Diddy, actually, I think if you thought about it, you do respect at least a few in the industry, but most certainly not all. Maybe the 80/20 rule fits your thinking about agents …

    I like your suggestions, but the 2 years of on job training with minimum salary is a toughie, since from a brokers perspective it’s really difficult to figure out which agents are going to “make it” as an agent. To invest 2 years of salary is very, very expensive, and risky, and I can see why many real estate companies won’t choose this method. It’s been quite surprising in my career to guess which of the new agents who come into an office will make it or not make it. Often the ones we think will be good, just can’t get themselves off the ground (or out the front door as it were).

    I used to tell people the reason that I went to a desk fee office was to get away from the agents who “were just there for coffee”. It’s a sad analysis, but many offices had or do have those same people sitting around drinking coffee and never getting out the front door.

    You’ve got to be a self-starter, with the right amount of drive to really make it as an agent. The current process weeds out an awful lot that just can’t make it, whether it’s smarts, time management, family committments, inability to function on strictly commissions, etc etc in that first 2 year period.

    I think most good real estate companies do monitor the purchase and sales agreements that all their agents write, with a stronger look at the ones written by newer agents, and the good companies definitely provide good training opportunities.

    This year will certainly weed out a lot of agents. I think buyers and sellers today should really be looking at the experience level of the agent they choose to work with. Competence and skill comes from years of experience.

    Yes, we were all new once. And, I’ve seen many first year agents have a lot of smarts, and savvy, so I can’t just say new isn’t ok. But, make sure that new agent has an advisor that you’ve met and also trust if you go with the newer agent.

    It’s more than just price.

  51. b,

    I’m not sure how percentages became the norm. I think it’s because 2% sounds like less than $12,000 to some people.

    I think most agents determine how many sales they can handle and still represent everyone well. That limit times an average commission equals annual income projections. That’s how most agent business plans are generated.

    It’s pretty much the same way that Broker’s set the agent split. And then there’s a cap so the price isn’t too high. Agent’s cap out the max they will pay a Broker/Company. I think you will see more agents cap out how much they will charge any customer regardless of price of home.

    The key is do you want an agent that handles too many at once, do you care about that at all, do they want someone who sets reasonable limits? Same as a doctor or lawyer. Do you want one who never says STOP I can’t take another client or the rest will be shortchanged as to my time?

    Assuming everyone wants an agent who sets reasonable limits as to how many clients they will handle at a given time, then the price per client is set accordingly. The lowest of prices isn’t enough, the highest is too much.

    Maybe someday there will be one set flat fee, but multiply that by 12 to 18 sales or so in a year, and decide for yourself where it should be. Should agents make the median income? Higher? Lower? Should years of experience matter?

    For the system to change, someone has to find one that works just as well if not better. I’ve tried several different methods over the last couple of years. Many more are trying others. At least more and more are trying to think out of the box and make a change. It’s hard to determine exactly what that change should be.

    It doesn’t have to be based on price, but a set flat fee would be higher for the buyers and sellers in the lowest price ranges. Most prefer not to go that route. That would benefit the wealthier people and hurt the poorer ones. Doesn’t sound like a good plan.

    Reality is that some people are a lot harder than others, not the houses or their prices. Hourly doesn’t work if someone is giving advices. Giving no advices doesn’t seem to work either. So far flat fee seems to be the only other reasonable solution to % based, with a cap.

  52. Q-Diddy,

    Surprisingly many buyers and sellers prefer someone they can tell what to do and not someone who WOW’s them with their knowledge and skill. More choices for consumers also equals many different kinds of agents for people to choose from. What you would want is not necessarily what everyone wants. Some people just want someone who smiles all the time and doesn’t give them a headache with too much knowledge 🙂

  53. So speaking of competent agents…How many real estate agents actually encourage their buyers and sellers to hire an attorney beyond just handing the client the agency pamphlet?

    In the case of a seller facing foreclosure, would the agents who have been participating thus far agree that this is a good thing?

    We’ve heard from Kary already on the original topic of this blog article. How about the other agents?

    Brokers? Do you want your agents referring to attorneys or is there a belief that this might invite more liability into your agent’s competency?

  54. I think the hard part Jillayne is that when a seller is facing short sale or foreclosure, they don’t feel able to afford an attorney. How much do short sale situations allow for attorney fees to be paid as a reduction of the payoff? How would a seller in foreclosure pay one?

    I’ve assisted buyers with short sale purchases and sellers who had attorneys. So I haven’t been in a situation where my client needed to be reminded that they needed an attorney.

    But when you walk into a situation where the heat, water and electric have all been turned off, you can tell the person they need an attorney, but they need a lot of things at that point and can’t afford any.

  55. P.S. I have had many clients in many situations assure me that they consulted their attorney. I wasn’t there and I never questioned that fact. Makes me stop and think.

  56. I have no idea if this is a good question to ask, but could the home seller ask his or her Realtor to reduce the real estate agent’s commission by the amount equal to X dollars of an attorney’s time?

  57. If the lender won’t allow the attorney fee, it won’t matter. They will take the payoff with the agent’s shorted commission AND still disallow the attorney fee. They won’t care that the commission was shorted to pay the attorney, and all costs must show on the HUD 1.

    The shorted lender either allows the attorney fee or they don’t. Who is paying that attorney is really them anyway you slice it, as the cost comes from their payoff figure.

    The only way the agent could pay it is if they pay it up front out of pocket. Since many short sales don’t close (though not in my experience yet) that would not likely happen.

  58. Interesting. Thank you. You didn’t flat out say “no” so the teenager in me thinks the answer is yes.

    Ardell, what do you think about the idea of short selling homeowners to ask for escrow to be placed at an attorney’s office that also does escrow? I can think of a few offices like this in town. This might be helpful for the seller. What do you think?

  59. Absolutely. I recommend it myself. I do the same for estate sales and any sale using a POA. It doesn’t come up often, but when it does I use John Wagner Escrow in Seattle. There are a couple others on the Eastside that I’ve heard good things about, but I haven’t had the opportunity to use them. Mark Hodges rings a bell. I also use Attorney based escrow for 1031 exchanges.

    Did you think that agents avoided attorney based escrows for some reason? But that doesn’t necessarily give them free legal advice, but the costs could get tacked in to the escrow fees and pass the lender payoff sniff test, I guess.

  60. Can an attorney who is acting for one party also act as escrow? I’d think the answer would be no.

    As to the agent paying for an attorney, I’ve done that in other situations, but in a short sale situation I don’t know that it would be reasonable. Agents doing short sales already do too much for too little.

  61. “As to the agent paying for an attorney, I’ve done that in other situations, but in a short sale situation I don’t know that it would be reasonable”

    What if that agent were the one who sold the home to the short selling homeowners and already earned one commission from these clients?

    It seems to me that if a real estate agent had experience handling pre-foreclosure listings, then that real estate agent would be very efficient at knowing what to do in order to maximize the homeowner’s chances to sell prior to the foreclosure.

    Signing on with a listing agent without this experience seems like a grave mistake for that pre-foreclosure/short selling homeowner.

    Agents experienced in pre-foreclosure home sales will be everything Q-Diddy is hoping for and more for that particular seller.

    So, wouldn’t some of that efficiency translate into lowering commission and using some of that to pay for the attorney?

    We must also realize though, that not every home in pre-foreclosure is a short sale and some of these home sellers very much DO have funds available to pay for their own attorney fees.

  62. There’s a difference, as you note, between pre-foreclosure and short sale. We did a pre-foreclosure last year and it was a piece of cake, except one thing!

    Three people at the bank told me that the foreclosure sale had been continued, and would be terminated altogether if the owner made the last payment on her workout agreement. Two people at the deed of trust trustee’s office told me the same thing. The problem was, none of them could tell me the new sale date. I kept pushing them to get a date, and it turns out it had fallen through the cracks (probably because the bank had three people working on it). If I had not kept pressing, the property would have been sold at foreclosure the week before the sale, and my client would have been left with a nice lawsuit rather than about $50,000 of proceeds.

    Short sales are entirely different animals. There’s no way you can make them easy or efficient. But I refuse to do them for another reason–I don’t like dealing with the people at the banks. Life is too short.

  63. b–I think I heard the commission system best described this way. It’s the way it is because that’s what’s best for sellers, and they control the market.

    Think of it this way. You want to sell something. Do you want to try to find someone who wants to buy it (who may or may not know what they’re doing), or would you prefer to attract people (who know what they’re doing) who happen to know a lot of people that seriously want to buy? The system is used because it works well to attract serious buyers.

    Now, why is the commission structured as it is–e.g. typically 3%? Because the sellers are competing against the other sellers. Sellers do frequently set commissions other than 3%, but most don’t because they don’t want to be at a disadvantage to other sellers. We do show 2.5% houses, but some agents reportedly don’t (although I don’t know that for a fact). And even if an agent does show, they might subconsciously downplay the house. But the seller is free to set the attractant at whatever level they want. I’ve seen some expensive homes with a flat $10,000.00 commission, and at least one of those sold. But in our practice, we’ll cut the LOC before the SOC.

    As to the higher amount for more expensive properties, agents with buyers are valuable commodities for sellers. Agents with buyers willing to pay over $1,000,000 are more rare, and thus more valuable.

    But anyway, it is the way it is because the sellers control the game.

  64. Kary,

    You said: “Agents doing short sales already do too much for too little.”

    With all due respect, doesn’t it depend on the price of the home? Short sales generally allow 5% commissions. Just because that is less than some expect, it doesn’t mean it is too little for the work at hand.

    I just finished one for a buyer client at just under $600,000 and the commission the lender allowed was MORE than the commission I agreed to with the buyer long before we knew it would be a short sale purchase.

    The person who didn’t make enough for their work on it was Lynlee Kane of Legacy Escrow. Not me. The least I can do is let everyone know how fabulous Lynlee is 🙂

  65. This question brings up as catch 22 situation. On one hand it may keep brokers and banks honest, yet it could also give the consumer the idea that they can just default on their loan and get away with it. I think this should be analysed on a case to case basis.

  66. Mila,

    For banks, it is often cheaper to do a blanket write off than to hire the people to do the case by case analysis. At some level it’s a business decision to take losses, so they can move forward with positive news from that point forward. i.e. End of Year Loss, but positive 1st Quarter or losses in 1st Quarter vs. positive 2nd Quarter.

    Look for banks to be more lenient at the end of specific break points.

    Everyone knows that you can often get something through if you close on the last day of a month because the lender is concerned with their month and stats. It’s not all about grabbing every dime or making the wisest case by case decision. Each case is less important to the broad scheme of things when you have stockholders to answer to.

  67. P.S.

    If the logic for the offering were about competition in the market place, why didn’t all agents recommend a much lower amount when everything was selling in a day, and competition was not a factor? That’s where the industry blew it big time.

  68. Jillayne asks: “What if that agent were the one who sold the home to the short selling homeowners and already earned one commission from these clients?”

    I think you asked this of Kary, but I wouldn’t be hiring an attorney. I’d be helping them stay on top of the situation (and Kim and I have done this) so they can sell at top dollar without the stigma and extra costs of falling behind and having a short sale.

    In fact the person I am speaking of ended up with a $300,000 plus tax free gain after we carried the mortgage payment for him for a year.

    Did he appreciate that? NO! He didn’t even “get it” and he sold it off market when the agreement was we would recoup some of the $2,500 a month we were carrying him for, when it sold via the commission. We got not a dime back and he waltz off with the over $300,000 gain.

  69. We also lent an agent $10,000 and I gave her the clothes off my back to help her get started. As soon as she was able to start paying us back from commissions…she left the Company.

    Since I was on a vent, I thought I’d get it all out even though it’s off topic 🙂

  70. Ardell, what I meant by doing too much in a short sale is the listing agent has to deal with the bank, in addition to their client. And my limited experience dealing with banks is they are typically slow and unreasonable. Too slow and too unreasonable, IMHO. Like I said, life is too short. I don’t want to spend it dealing with bank personnel.

  71. I do think the lender should be held responsible. It sounds as if he did not have the clients best interests in mind when he put them in a loan that cost them more and gave them negative equity when they qualified for a better loan.

  72. LGruen-

    “I do think the lender should be held responsible. It sounds as if he did not have the clients best interests in mind when he put them in a loan that cost them more and gave them negative equity when they qualified for a better loan.”

    This is a tough one. A lender should allow a borrower to know all their options and make it CLEAR to them about the RISKS. I don’t even need to talk about fraud, because everyone should no that it’s ILLEGAL!

    After that it’s up to the borrower to decide what they can live with. A lender can’t tell a borrower how to manage their finances and I think a lot of borrowers were too greedy.

  73. You can point out things that will improve the chance of a resale (which presumably would affect price both ways–lower downside–greater upside), but houses should be bought more on features and current price than as an investment with an expected return.


    Was this your operating premise during the go-go years, or have we recently found religion?

  74. Eleua, I didn’t pretend to know where the market was headed when it was going up any more than I claim to be able to predict where it’s headed now.

    I don’t tend to deal with investor types. Most my buyer clients are recently married, expecting a child, recently divorced, came into some money, etc. They come to me wanting to buy, usually for a particular reason. And it’s not that often that they ask me where the market is headed, but if they do I’ll tell them no one knows. People repeatedly blame agents for the prices, but as I’ve said, people come wanting to buy and the hardest part is holding them back.

    When I talk of the potential of the property going forward it’s that it will do better or worse relative to other properties. Up more, or down less.

  75. These people knew whether they could afford their pmt when they signed on the dotted line. I agree…they probably bought a home that was more than they could afford, on a stated program. What ever happened to the “pre-qual” process for full doc loans?
    I suspect that the judicial system is going to be hearing more of these kinds of cases. I wonder if they are up for the challenges that await? There is no easy fix that’s for sure.

  76. WPool wrote: “These people knew whether they could afford their pmt when they signed on the dotted line.”

    I think people grossly overestimate the intelligence of the average American. You need look no further than what a lot of people have done with credit cards. They think if they can afford the minimum payment, that they can afford the debt, not realizing what it takes to pay off the debt (to amortize it over a reasonable period of time).

    Also, many Americans do no real budgeting, so they don’t really know how much they can afford to spend on this or that. I don’t know if this is still true or not, but for many years a good percentage of people in bankruptcy had fairly new cars. The car payment was what tipped them over.

    So yes, many of these people bought a house that was more than what they could afford, but I don’t think it’s clear that they knew that.

    I’ve said it before and I’ll undoubtedly say it again. Just because you’re approved for a certain loan amount doesn’t mean you can afford that. A lot of people don’t realize that.

  77. Kary-

    I tend to agree with you. A lot of average Americans don’t have a clue how to manage their finances. They’re like bandwagon fans, jumping on the next great thing without really understanding it.

  78. I agree the borrower in NY had a good lawer. Most people in that case cannot pay for one. On the other hand the borrower should really read the papers they sign when getting anything financed.

  79. Question: Would the threat of having the mortgage voided in the courtroom be a more effective way of bringing some rapid order into the mortgage industry?

    Yes, this will, for sure, open the eyes wide open of all banks. Lending standards will become more stringent and lenders will have to choose who they do business with very carefully. I would just hate to see this precedent bring out all the ambulance chasers. The last thing this industry needs is more frivilous lawsuits.

  80. Wow! Very interesting article. I feel that lawsuits like the one mentioned are the quickest way to see self regulation throughout the industry. As they say, money talks, especially to banks.

  81. I do think YES to answer your question:

    Would the threat of having the mortgage voided in the courtroom be a more effective way of bringing some rapid order into the mortgage industry?

    Historically in nature, case law is what helps set the presidence for many industries etc. Therefore I feel it would help the lending industry and consumers as well.

  82. Obviously I do not know exactly what happened here and if they were lied to and cheated about their loan then I am happy for their resolution. But one of the worst things in this society from my opinion is people in America do not want to take responsibility for their own actions. And commonly blame others for their situation. In America too many people are suing others for bogus stuff every day and it is one of the biggest problems with our society in my opinion.

  83. As a LO, I am in the business to let the consumer know if they are reaching out of bounds financially. We know the DTI/LTV. We know their work history, if they are planning a family and will be down to one income. We are loan consultants, we know what will fit them now and in the long run. Like someone said earlier, our society struggles with having to work and wait for what they want. Until then, we must do our job ethically.

  84. WOW! My next course will be on foreclosure. I hope that more judges are inflicting heavy penalties to predatory lenders. As I have said, we need to have more of these lenders on national television so that people can learn from this. I hope the Shearons’ are vindicated, but also learn.

  85. The rules and regulations that pertains to Real Estate transaction to parties involve had been written and amended plenty of times to ensure that all parties are informed and protected. Many information from pamphlets, brochure , booklets and internet are readily available for a homebuyer to use to educate them in the homebuying process. With this said, how can the judge award such ridiculus decision to the Shearon when none of the rules and regulations were broken. Marketing a high cost-loan is not againts the regulations. The Shearon took advantage of a stated income programs. Accountability should have more bearing in this case. Not enough evidence suggest that the bank/lender broke any laws.

  86. Jillayne –
    Have you seen the free foreclosure ebook put out by eHomeAssure? I got a mailing for it the other day and they are toting it as the ‘bible’ for avoiding home foreclosure. Just interested if you had any thoughts on it. Heres a link for ya: Free Foreclosure Ebook. Wondering if any of these ‘housing guru’ type tactics are actually feasible …

  87. What happened to the 125% LTV. There was never a time this loan scenario would work. Unbelievable!
    It is absolutely essenital that as professionals we look our for interest of the consumer.
    Sounds like a new reality T.V. show in the making.
    I hope the Shearon’s prevail.

  88. This is great that the homeowners fought back, it is rediculous how LO’s and Brokers could take advantage of trusting consumers. Please keep us posted of the outcome of this case. Look forward to seeing the Shearon’s win.

  89. Yes, this would bring order into the mortgage industry. Maybe lenders will have to go by stricter guidelines and for their part, consumers will not get into something that they don’t fully understand.

  90. Question: Would the threat of having the mortgage voided in the courtroom be a more effective way of bringing some rapid order into the mortgage industry?

    Hmmm…great question. I am sure that it would affect the way many lenders and brokers do business. It would take a very strong case to actually be able to void a mortgage. Not everyone in the mortgage business is honest, obviously, so it really is a huge part of the consumers responsibility to know what they are getting into. If there is something they don’t understand, ask questions, if they don’t like the answers go to someone who you feel more comfortable with. I know some lo’s and brokers are just very crafty and can sell ice to an Eskimo, but really consumers need to be very aware of their rights when buying or refinancing a home. So many times people are just so excited or feel rushed to get the deal done that they don’t properly investigate what they are getting into.
    On the other hand if a company is found guilty of pulling the wool over someones eyes, I think they should pay the price to the fullest extent of the law.

  91. I believe that the threat of having the mortgage voided in the courtroom, coupled with some cut and dry repercussions for the LO/Broker/Consumer Lender would do the trick. If a mortgage “professional” is caught, as Staci B said, “pulling the wool over the consumer’s eyes”, they should be held accountable…I think this is a great way to divert bad business practices.

  92. Whle I agree the Shearons were taken advantage of, it is still the job of the consumer to make sure there getting a fair deal. I dont think voiding anyones financial obligation is the answer. It reminds me of the borrowers that have tons of negative credit but its always not theres! You never hear somone with an 800 say wow thats not mine I dont pay my bills on time my score should be way lower. We keep hearing about Billions being lost in the mortgage community. What I dont understand is the homes are still there and worth something. I would like to see more short sells. When a home is sold at auction on the steps of the court house its a cash deal this greatly reduces the amount of people that can purchse the home thus selling it for way below market value. At least by selling the home short saving time, fees and allowing enyone who would qualify for the home could increase the sales price reducing the lenders loss.

  93. I can’t believe that the original lender didn’t check or verify that the Shearons didn’t have enough income to be able to pay for the loan. That just sounds incredibly ignorant on the part of the lender.
    I actually think that this blog is something that every homeowner should read. With all the foreclosures going on, homeowners might actually have a chance to get themselves out of their unfortunate situation. If homeowners did know more about their ability to take legal action against their lender, that in turn would provide more checks and balances for LOs.

  94. It is unfortunate that this loan situation ended up in litigation. Maybe the LO could have informed them that they shouldn’t buy the house, or any other one in that price range. We need to inform borrowers that just because they can qualify for a house, it doesn’t mean they should buy it. Ultimately, I believe it falls on the part of the LO to let people know of the consequences of what can happens if the market turns.

  95. Yes I like the others who have posted before me, believe that a courtroom victory for the Shearon’s could be a good step forward in the fight against predatory lending. Lenders who face steep penalities like having their mortgage voided and losing hundreds of thousands of dollars would definately have to think twice before baiting people who don’t know better in to bad mortgages for a larger profit.

  96. Any punishment or course of action that can be taken on someone for commiting a preditory lending act willraise awareness. It would prevent some peopel in our line of work or at least make it more apparent that it’s not a good idea to pray on the unknowing..

  97. there are way too many variables to consider here to really know what the right or wrong result should be. Predatory lending is apparent, pressured/deadline driven responses, emotional compromise, simply a very bad decision. Regardless of being pressured to close, caught up in the excitment of home ownership, deadline missing consequences, any or all the above could be reasons but at the end of the day, a decision had to be made to sign the final papers and they did. We all know homeownership is a big step and potentially a great investment and tool. In most cases, the largest investment you will ever make and so the process should not be taken lightly which of course it is often times. finding a professional trustworthy and knowledgable loan officer to deal with is key but considering what a big step purchasing your first house is, as consumers, any additional research, homework, input from family friends can be very, very helpful and should be a must. Again, at the end, its the borrowers that signed the papers and they should be held accountable to some extent.

  98. No question, these are situations that just shouldn’t happen, but why is it that no one puts any blame whatsoever on the consumer? Ya know people really shouldn’t be that gullible or stupid. Oh! Mr. Consumer we can get you into your home and we only need to raise the purchase price by $20,000 and you are in!!! Give me a break.
    Lenders design wild programs and push the brokers and LO’s to sell them. Then of course bad things happen and the Lender places all the blame on the brokers and LO’s..You bet!!! I realize all this happens and that yes there are some unscrupulous brokers and LO’s but ya know, people really need to start taking some responsibility for their own actions too!! I get so tired of hearing about those bad loan people. Consumers can stand up too ya know and say I am not doing business with that guy or gal,,,they do not seem up and up to me!!!

  99. Of course….seeking legal counsel is always advisable when you are in unchartered territories. However, I have received bad direction from legal counsel also! In today’s world where information is so readily available at the tips of our fingers (pardon the pun….), research is the key. Homeowners finding themselves in a compromised position of not being able to afford their homes need to first look at how and why they are here in the first place. I find it hard to believe that someone with good credit, income and down payment did not have the ability to figure out they qualify for the going rate….. Walk in to the bank and you can see the general range of what current home loan rates are???? I think it is probably more due to the desire to purchase greater home price than what our budget actually allows. That same homebuyer goes out and purchases cars, shoes, vacations etc. all which they cannot afford. I do think financial education needs to be part of our graduation requirements. No attorney or real estate agent can protect the ignorant. There has to be some responsibility placed on the consumers!

  100. Shelley wrote: “No attorney or real estate agent can protect the ignorant. There has to be some responsibility placed on the consumers!”

    I’d agree with that, and also the non-quoted comment that it’s possible to seek legal advice and get bad advice. That said, I don’t think it’s realistically possible for a consumer to adequately research their bankruptcy options or tax consequences. Doing some of that research would be useful in order to ask better questions and have a better understanding of answers, but I don’t think it’s a substitute.

    I’d add that occasionally an agent (or attorney) will run into someone who is not only ignorant, but insists on staying that way. My practice is to send such people away, at least where they are not willing to follow advice or take the steps necessary to complete the task correctly.

  101. Pingback: Why Do We Need a Real Estate Attorney | Brown and Brown, PLC

  102. When it comes to the State of Florida Florida, real estate law encompasses a number of state statutes that can often be complicated and intimidating for many looking to sell their home, especially those who are trying to avoid foreclosure.

    Hiring a real estate attorney can help explain the laws and regulations that impact residential or commercial real estate.

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