Arizona

• Legal – Foreclosures and Liens: www.aaronline.com/documents/Foreclose.aspx
• Arizona Foreclosure Prevention Task Force: www.arizonaforeclosuretaskforce.com/
• Facing Loan Foreclosure or Alleged Foreclosure Rescue Scams? Arizona Department of Financial Institutions: www.azdfi.gov/foreclosure/Intro.htm
• Field Guide to Arizona Foreclosure Help-Line: www.housingaz.com/ShowPage.aspx?ID=248

General Assistance

• Guide to Avoiding Foreclosure: http://www.hud.gov/foreclosure/index.cfm
• Consumer Assistance – Foreclosure: www.aaronline.com/ConsumerAssistance/Foreclosure.asp
• Field Guide to Foreclosures: www.realtor.org/library/library/fg329

By AAR General Counsel Michelle Lind, Esq.
Arizona is reported to have one of the highest foreclosure rates in the nation. As a result, many REALTORS® are involved in the sale of properties that are owned by lenders. The vast majority of foreclosures in Arizona occur through a trustee’s sale. If the lender is the highest bidder at the trustee’s sale, the lender takes title and becomes the owner of the property. When listed for sale, these properties are referred to as “foreclosures,” “bank owned,” “lender owned,” or “REO” (real estate owned) properties. For more information on the foreclosure process, go to www.aaronline.com/documents/AzPropForeclosure.aspx.
 When the lender enters into a contract to sell the REO properties, the lender is generally treated like any other seller from a legal perspective. However, transactions involving the sale of lender-owned properties involve numerous unique considerations.

Liability and Insurance Issues with REO Listings

Because of the potential liability, every broker should have errors and omissions (“E&O”) insurance and consider general liability insurance. E&O insurance generally covers the amount a broker is legally required to pay as damages for a loss that results from performing specific real estate duties, which are specified in the policy. Most E&O policies have deductibles and limits of coverage for each wrongful act and for each policy year. E&O policies also have exclusions.
 Some REO listing agreements require the listing broker to perform duties, such as inspections, maintenance and repair of the premises. These activities may be considered property management by the insurance company. Therefore, confirm that the E&O policy will cover any claims that arise from these activities. Some listing agreements also require the broker to indemnify the lender, which may not be covered under the E&O policy. Therefore, read the terms of the listing agreement, understand the duties the lender expects to be performed on the listed property and discuss these issues with your broker and insurance representative.

REO Properties Are Often Sold “As Is”

If the lender directs that the property be sold “as is,” use the AAR As Is Addendum if at all possible. The AAR As Is Addendum will clearly define the terms of the sale and address all of the affected provisions in the AAR Residential Resale Real Estate Purchase Contract. The AAR As Is Addendum provides that the parties agree that the property is being sold in its existing condition and the seller makes no warranty to the buyer, except that the seller agrees to maintain and repair the premises so that at the earlier of possession or COE, the property will be in substantially the same condition as at the time of contract. If the seller declines to correct the defects disapproved, the buyer is entitled to conduct inspections during the inspection period, provide notice of items disapproved, and cancel the contract pursuant to Section 6j.
 Many lenders require the use of the lender-drafted “as is” addendum. If the lender requires the use of their own “as is” addendum, the brokers and the buyers should carefully review and understand its terms and conditions before entering into a purchase contract. 

REO Addenda

Many lenders require additional addenda to be included in any contract for an REO property. These addenda may contain many provisions that change the standard terms of the AAR Residential Resale Purchase Contract. For example, the addenda may contain terms that:

• alter the inspection period in the AAR Contract
• alter the seller warranties in the AAR Contract
• alter the financing provisions in the AAR Contract
• impose monetary penalties for the buyer’s failure to close escrow on the agreed upon date
• contain mold and other environmental disclaimers
• limit the seller’s liability

Again, it is imperative that the buyer and brokers involved in the transaction thoroughly review and understand all the provisions in the REO addenda before agreeing to the terms.

REO Disclosure Obligations

A seller, including a lender-seller, has a legal obligation to disclose all known defects to a buyer, even when selling a property “as is.” Of course, it is unlikely that a lender-seller is aware of all of the property’s defects. Therefore, most lender-sellers will not provide an AAR Seller’s Property Disclosure Statement (SPDS).
 If the lender indicates that a SPDS will not be provided, a buyer’s broker should nonetheless advise the buyer to request the SPDS in the offer. The seller can respond with a counter-offer that a SPDS will not be provided. However, before the buyer agrees to waive the SPDS, the buyer’s broker should provide the buyer with a blank copy of the SPDS form, which will enable the buyer to make an informed decision regarding whether to waive the SPDS. In these circumstances, a buyer’s broker would be wise to obtain the buyer’s written acknowledgment of receipt of the blank form. The buyer can and should utilize a blank SPDS as a checklist in conducting the desired inspections and investigations. The SPDS can prompt questions that will assist the buyer in evaluating the property.
 Federal lead-based paint law (42 USCS §4852d) and the subsequent rules and regulations require that before a buyer is obligated under any contract to purchase a home constructed prior to 1978, the seller must make certain lead-based paint disclosures to the buyer. “Foreclosure transactions” are exempt from the lead-based paint disclosure requirements. The law defines “foreclosure” as: “any of the various methods, statutory or otherwise, known in different jurisdictions, of enforcing payment of a debt, by the taking and selling of real property.” See, 24 CFR §35.86; 61 FR 9064 at Section IV(A).
 In other words, a trustee at a foreclosure sale who is enforcing the terms of a deed of trust is not considered a seller and is therefore not required to make the lead-based paint disclosures. However, when the lender becomes the owner at the trustee’s sale, the lender is required to comply with the lead-based paint disclosure law when they sell the REO. Thus, the lead-based paint disclosure exemption applies to the trustee’s sale, but not to the sale of the REO acquired through foreclosure.
 A seller of five or fewer parcels of land in an unincorporated area of a county, other than subdivided land, is required to furnish a written affidavit of disclosure to the buyer at least seven days before the transfer of the property. A.R.S. §33-422. The only exemptions to this requirement are: a trustee of a deed of trust who is selling property by a trustee’s sale, or any officer who is selling property by execution sale to enforce a judgment or to foreclose a mortgage.
 Therefore, again, when selling an REO after foreclosure in an unincorporated area of the county that is not in a subdivision, the lender-seller must provide the buyer with an Affidavit of Disclosure. The Affidavit must be recorded at close of escrow.

Subdivision Public Report Requirements

The Department of Real Estate has taken the position that when a lender forecloses on the sixth property (or forecloses on six or more properties) in a subdivision, the lender is a subdivider and must obtain a Public Report before offering the properties for sale. The Department adopted Substantive Policy Statement No. 2008.02 (SPS) in an effort to create expediency in these cases. This SPS is available at www.re.state.az.us/LAW_BOOK/Documents/SPS_Documents/SPS_2008.02_Subsequent_Owners_Public_Reports.pdf. Brokers working with REOs should consider alerting the lender of this requirement in writing.

Septic and Other On-site Wastewater Disposal System Requirements

Any on-site wastewater treatment facility (conventional septic tank or alternative system) must be inspected within six months prior to a transfer in ownership. Within 15 days after the date of ownership change, the buyer is responsible for submitting the Notice of Transfer form to the applicable governmental agency. The only exemption in the Rule is that the inspection is not required if the facility was not put into service before the property transfer. A.A.C. R18-9-A316(E).
 The Arizona Department of Environmental Quality (ADEQ) has indicated that when a lender forecloses a property with an on-site wastewater system, ADEQ does not consider this act a “property transfer” between a “buyer” and a “seller” and the inspection is not required. However, when the lender sells the REO property, the parties must comply with the Rule. Therefore, when the REO is listed for sale after the foreclosure, the lender is required to obtain a septic inspection and the buyer is required to file a Notice of Transfer form at close of escrow.

Additional REO Information

The AAR Legal Affairs podcasts have additional information on the issues related to REO transactions at www.aaronline.com/PodCast/Default.aspx. AAR also offers several webinars addressing this issue at www.aaronline.com/Webinars/Recorded.aspx. Other REO and fore- closure related information is available at www.aaronline.com/documents/Foreclose.aspx.

AAR General Counsel Michelle Lind is a State Bar of Arizona board certified real estate specialist and the author of Arizona Real Estate: A Professional’s Guide to Law and Practice.

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.

By Bob Corcoran

You just have to love real estate. Even when times are turbulent, a smart agent can still make a good living in the business. Oh sure, you hear some agents and brokers whining about the market and how bad things are. But there are plenty of other agents singing a much different — and a much happier —tune.
 These agents are tapping an often untapped source of extra income, real estate owned (REO) properties — properties that go back to the mortgage company after an unsuccessful foreclosure auction. And yes, you’re absolutely right; the demand has skyrocketed because of the recent explosion of defaults and foreclosures.

I personally think you could call REOs — Really Excellent Opportunities! That is exactly what they are. Here’s the gist: banks are in the money business, not real estate. They don’t keep real estate on their books; they want cash on their books. So the banks are looking to sell these foreclosed properties. And there you have it: business just waiting to be plucked. Low hanging fruit ready for the taking for the ambitious agent who likes to make a little extra money.

Hmmm. Let me rephrase that – sometimes a lot of extra money. One of my clients, whose business is solely in the REO market, had a commission income in 2006 of $590,000. She finished 2007 with a commission income of more than $2.5 million. And this year, she’s looking to double that.

The only catch — and I mean the only one — is that, yes, REO sales can be a little more complicated because you’re dealing with a bank instead of just one seller. But that’s precisely why I started offering my REO Quick Start Program, to eliminate the complications, and to make it simpler and easier for agents and brokers to take advantage of REOs. Some of your early considerations should be:

• Having funds available to care for and maintain the REO properties
• Hiring help to handle REO work
• Creating an effective REO team
• Staying in contact with REO departments for new business
• Focusing in on the most profitable zip codes
• Streamlining the REO process
• Developing REO specific scripts
• Targeting investors as buyers for REO properties
• Handling the costs of fixing up properties
• Crafting effective marketing strategies for REO listings
• Continuing your normal business of taking residential listings while maintaining REOs

Another service banks pay agents and brokers for is the BPO — Broker Price Opinion. Basically it’s your paid opinion of what a defaulting property is worth. The bank pays you to assess the property and assign it a market value.

I know some agents have found it easier to start with BPOs and then move into the REO market. They use BPOs as a way to get to know the players at the bank. That’s certainly an option and I say go with what you feel most comfortable with. But the key message here is this: a lot of money is being left on the table for brokers and agents.

Best of luck to you! 

Bob Corcoran is a nationally recognized speaker and author, founder and president of Corcoran Consulting Inc. - CorcoranCoaching.com, 800-957-8353. Sign up TODAY for your complimentary business consultation. www.CorcoranCoaching.com/bpw.php

Most Arizona property foreclosures are by Trustee’s Sale, which is an out-of-court legal process defined by state laws. The process takes a minimum of 91 days from the first legal action, which is the recording of a Notice of Trustee’s Sale, to the date of the actual sale by open public auction. Until the property is sold at public action, the property owner has the ability to sell or refinance the property, because they are still the owner.
A property owner facing the foreclosure can sell the property. Ideally the sale will close escrow prior to the auction date. Your title company should be in contact with the fore-closure trustee as soon as escrow is opened.

The Notice of Trustee’s Sale:

The foreclosure process starts by the recording of a Notice of Trustee’s Sale with the Office of the County Recorder. This Notice describes the property being sold, the date, time and place of the auction, the original borrowers, the lender and the trustee. It also states the original principal balance of the loan.
The Notice of Trustee’s Sale is published in the newspaper, posted at the county courthouse and on the property, and mailed to everyone with a recorded lien or interest in the property.

Reinstatement Quotes:

During the foreclosure process, property owners and junior lienholders can request a reinstatement quote of the amount needed to bring the loan payments current and cure any default. This is not public information. Upon written request, Trustees must respond within five business days.

Payoff Quotes:

Also, property owners and junior lienholders can request a payoff quote. Upon written request, Trustees must respond within 14 business days. The original loan balance is stated on the Notice of Trustee’s Sale.

Other Available Information from Trustees:

Upon request and payment of a small fee, the Trustees will provide the unpaid principal balance remaining, the name and address of the owner, and a list of liens or encumbrances recorded against the property.

Credit Bid Quote:

Starting at 9:00 a.m. on the last business day prior to the auction date, the Trustee must make available the opening credit bid for the sale.

The Date of the Sale:

The Trustee can continue the sale to a new date within the next 90 days and can postpone a sale an unlimited number of times. If the sale is continued, the Trustee will provide the new date and time upon request.

The Auction:

The property will be sold at public auction at the time, place, and date stated in the Notice of Trustee’s Sale. The starting point will be the bid by the lender that is foreclosing, who can bid any amount up to the total amount owed, including the fees and costs for the foreclosure process.

Bidder’s Deposits:

Bidders who wish to participate at the auction must bring a bidder’s deposit of $10,000 in a form acceptable to the Trustee. Most often the Trustee requires a cashier’s check made payable to the Trustee. Check with the Trustee’s office for their requirements before the day of the sale. The highest bidder must pay the balance of their bid by 5:00 p.m. on the following business day to the Trustee.

Trustee’s Deed Upon Sale:

Once sold, the Trustee issues a Trustee’s Deed Upon Sale to the highest bidder within seven business days. This Trustee’s Deed Upon Sale conveys title without any covenant or warranty. Bidders at a Trustee’s Sale must do their own title and property research prior to the auction date. The former property owner has no right of redemption. The foreclosure process eliminates any liens that are subordinate or junior to the deed of trust that was foreclosed.
If the IRS has recorded a federal tax lien, then they have the option of redeeming the property for the amount of the bid within 120 days from the date of the sale.

Excess Proceeds:

If the property sells for more than the opening bid by the lender, the extra money from the sale is typically deposited with the County Treasurer, along with a civil complaint and a judge eventually decides how to divide up the funds.

Pitfalls:

If representing a seller of the property in foreclosure, have the escrow close well before the date of the Trustee’s Sale. Encourage your escrow officer to stay in contact with the foreclosure trustee. A postponement of the date of the foreclosure sale is not freely given.

Rex C. Anderson is an Arizona attorney whose clients include lenders facing challenges with non-performing real estate loans. Over the past 18 years, he has handled over 12,000 Arizona foreclosures and over 9,500 consumer bankruptcy cases for mortgage lenders. He can be reached at 888-675-7809 or at Rca@RcaLaw-az.com.

The Internal Revenue Service (“IRS”) has recently provided information to taxpayers about the possible tax consequences resulting from a home foreclosure. The general rule is that when a lender forgives a portion of a loan, the amount of debt cancelled constitutes taxable income for the taxpayer. The IRS website highlights the exceptions to this rule, so taxpayers can consider their options before their property is foreclosed by the lender. The IRS also recommends that the taxpayer may want to consult with a tax professional, as devising a structure to limit the taxes resulting from a foreclosure is a complicated process. Some of the exceptions are:

• debt is discharged in bankruptcy
• an insolvent taxpayer (defined as a tax-payer whose debts exceed his/her assets) may not have to recognize all of the discharged debt on his/her tax return
• cancellation of qualifying farm debts
• cancellation of a nonrecourse loan

If the taxpayer’s property is foreclosed, the taxpayer will receive a Form 1099-C from the lender. The IRS urges taxpayers to review the Form 1099-C to make sure it is accurate. If the taxpayer is unable to pay the taxes arising from a foreclosure, the IRS describes the process for making an “Offer-in-Compromise” to the IRS, which may relieve the taxpayer of a portion of the debt and/or create a payment plan for the taxes.

To read the Q & A on the IRS website, go to www.irs.gov/newsroom/article/0,,id=174034,00.html.

By Bob Corcoran
You just have to love real estate. Even when times are turbulent, a smart agent can still make a good living in the business. Oh sure, you hear some agents and brokers whining about the market and how bad things are. But there are plenty of other agents singing a much different — and a much happier —tune. These agents are tapping…

By Jan O’Brien

As a broker/manager of a large real estate office (291 licensees as of July 2008) in a city (Las Vegas) that is dealing with 70%+ of monthly closed transactions being short sales and REOs, I’ve written this post with the intention of educating and spreading the word to as many people as possible that there is a stress-free way of accepting the market, adapting and enjoying success.
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®.

The flood of foreclosure properties at all price points may be giving inexperienced buyers and real estate practitioners the impression that homes can be bought for a song, quickly fixed up, and flipped for enormous profits. That couldn’t be more wrong, said foreclosure expert Frank Mears, ABR®, CRB, GRI, of Augusta, GA.
 
Finding lucrative opportunities in the REO foreclosure market requires patience, diligence, and a lot of homework. “Some houses look OK from the street, but are disasters on the inside,” Mears said. “You and your buyers need to inspect these properties, especially because REOs are usually being sold ‘as-is’.”

After proper legal notices, the next step in a foreclosure is typically a courthouse auction. Interested real estate professionals should contact whomever is in charge of the auction and find out what documents a buyer must bring to the proceedings. It’s wise to have on hand an assortment of cashier’s checks in various denominations to cover bid amounts since most foreclosure auctions are cash only. “Don’t bid if you don’t have the money on you,” Mears said. It’s also important to visit auctions in your area several times before you bid to learn the procedures. If you are representing a buyer, make sure to have a written buyer- brokerage agreement that includes provisions for your compensation. “You don’t want to do this for free,” says Mears. “And the auctioneer isn’t going to pay you.”

How to Get the Listing

If a property doesn’t sell at auction and joins the inventory owned by a lender, there are several important ways to position yourself to obtain that listing.

• Only contact lenders if you are serious about taking on REO properties.
• Be willing to do whatever it takes for the lender, including handling evictions, securing the property, handling trash, and undertaking any necessary maintenance. Follow through with what you agree to do.
• Make sure you have the cash flow to manage a property’s carrying costs. The lag time before a lender reimburses you could be significant.
• Show eagerness to take on less appealing properties as well as good ones.
• Find out when the lender’s fiscal year ends. It may be more flexible on pricing toward the end of this period because it doesn’t want to start the new year with a large carry-over inventory.

Reprinted with permission from REALTOR® Magazine Online, November 20, 2007.

By Lisa Robinson, CIC
The cycles of the real estate market dictate how you generate your business which can present challenges in managing your risk. At the height of the market a few years ago, we were dealing with multiple offers, waiving inspection items and finding creative ways in which to get an offer accepted.
Today the market is quite different with short sales and REOs being a significant source of opportunity. Following are some important insurance considerations relating to the requirements put forth in the lender listing agreements.

Errors & Omissions

All E&O policies define the scope of services that will be covered under the policy. Ideally, the definition of professional services for a real estate firm should include duties of a real estate agent, broker and property manager.
 Some policies further define what services are considered to be property management activities. These may include: 1) development and implementation of management plans & budget; 2) oversight of physical maintenance of property; 3) solicitation, evaluation and securing of tenants and management of tenant relations, collection of rent and processing evictions; 4) development, implementation and management of loss control and risk management plans for such property; 5) development, implementation and management of contracts and subcontracts (excluding property and liability insurance contracts) necessary to the daily functioning of such property; or 6) personnel admin-istration and record keeping in connection with such property.
 If your policy does not cover property management activities or you are operating outside of the scope of your professional services as defined in your E&O policy then your policy will not cover any claims that arise from these activities.
 Some lender listing agreements require you to provide additional duties that you might not normally provide or are beyond your area of expertise such as safety inspections, environmental inspections or renovations of the property. Several of the policies offered by the current E&O providers specifically state that property management services do not include renovation services or analysis or evaluations of, or recommend-ations concerning environmental hazards or exposures.
 You should undertake a rigorous review of your E&O policy with your insurance broker to determine where your exposures for uncovered claims exist so you can adequately address funding these risks to the firm. Consideration can be given to placing an additional E&O policy that would cover “property preservation” exposures that can fall outside of the real estate E&O policy.

General Liability

All E&O policies contain an exclusion relating to bodily injury or property damage claims. This is covered under the firm’s general liability policy.
 Many carriers will write general liability coverage for a real estate office and attach an exclusion for properties you manage and/or properties you list for sale. What this means is they are only providing coverage for your office premises — if someone slips and falls while at your office.
 When the policy is written in this manner it is not covering you for what you do — listing and selling properties or managing properties. Your exposure as a real estate agent, broker or property manager is when you are out showing property and your negligence causes bodily injury to a third party or property damage.
 You must confirm the coverage afforded under your current general liability policy addresses the real estate activities you are engaged in. If it does not, then you will be faced with defending yourself in an uncovered claim as well as the lender if named as an additional insured under your policy.
 You should be aware that residential property management is considered a high risk activity that many carriers are not willing to cover.
 Typically these listing agreements will require you to name the lender as an additional insured under your general liability and automobile liability policies. In order to add an additional insured under your policy you must submit to your underwriter for approval and there may be an additional premium charge.
 If the listing agreement requires you to cover independent contractors under your general liability policy, you will need to address this with your underwriter as general liability policies generally do not provide coverage for independent contractors.
 You should confirm the limit of liability that the lender requires in your contract. The standard general liability limit is $1,000,000 per occurrence, $2,000,000 annual aggregate. If you are required to carry a $3,000,000 combined single limit, you will need to increase your general liability limit to $3,000,000, if possible, or purchase an umbrella policy to provide the higher limits.
 Many of these listing agreements require a full indemnification to the lender. When coverage is not afforded under an insurance policy, the firm and the agent will be responsible for these uncovered exposures assumed through the agreement.
 The reality today is that lenders are shifting ALL of their risk to the real estate agent and firm, thereby significantly increasing the risk of the transaction. It is important that, following discussions with your insurance broker and attorney, you transfer as much risk as possible to the insurance carrier and determine methods to fund the uninsured risks of this market.

Lisa Robinson, CIC, is president of Pinnacle Insurance Consultants in Scottsdale. She can be reached at 888-800-9770 or lisa@pinnacleinsuranceco.com.

By Christopher A. Combs

Find answers to the questions and more Hotline questions and answers addressing the following topics by clicking on the category in italics above each question. Visit AARonline for more hotline topics.

Foreclosures, REOs, & Liens

THEFT AFTER FORECLOSURE

Q: The lender foreclosed on the home and became the new owner of the home. When the previous owners of the home moved out after the foreclosure they removed all of the fixtures from the home, including vanities, sinks, toilets and light fixtures. Did the previous owners of the home commit a criminal offense by removing these fixtures after foreclosure?

Foreclosures, REOs, & Liens

BROKER CAN PAY COMMISSION ON SALE OF REO PROPERTY TO UNLICENSED BANK

Q: The broker enters into a 6% listing agreement with the bank for the sale of an REO property. After the transaction closes, the bank requests a 2% “referral fee.” Can the broker pay a 2% “referral fee” to the bank after close of escrow?

Foreclosures, REOs, & Liens

REO PROPERTY MUST USE LEAD-BASED PAINT DISCLOSURE

Q: The bank has foreclosed on a home built prior to 1978. At the foreclosure sale the bank received a trustee’s deed. The bank has now entered into a contract to sell the home, but does not want to use the lead-based paint disclosure forms. Is the bank as the seller of an REO property required to use the lead-based paint disclosure forms?

Foreclosures, REOs, & Liens

SPECIAL EXEMPTION AVAILABLE FOR OLD SUBDIVIDED LOTS

Q: The lender foreclosed on twelve homes in a subdivision, and these homes are now REO properties. The public report for the subdivision was issued four years ago. Can the lender sell these homes without a new public report?

Foreclosures, REOs, & Liens

LIMITATIONS OF ANTI-DEFICIENCY STATUTES

Q:
An owner of a four-acre lot has nearly completed the construction of the home. The mortgage lender has scheduled a trustee’s sale to foreclose on the home next week. If the mortgage lender completes the foreclosure next week, does the owner have the protection of the anti-deficiency statutes?

Foreclosures, REOs, & Liens

PURCHASE MONEY LENDER IN SECOND POSITION HAS NO CLAIM AGAINST HOMEOWNER

Q: The buyer purchased a $100,000 home with 80-20 financing. In other words, one lender made an $80,000 first purchase money loan, and another lender made a $20,000 second purchase money loan. The $80,000 first purchase money loan has foreclosed and now owns the home. Can the $20,000 second purchase money lender file a lawsuit against the owner to collect the $20,000 loan amount?

Foreclosures, REOs, & Liens

BROKER’S PROMISE TO PAY CO-BROKER COMMISSION IS ENFORCEABLE

Q: A listing broker represents an REO property. The listing broker has a listing agreement that will pay them a 6% commission. The listing broker lists the property in the MLS offering a 3% co-broke commission. A buyer makes an offer on the property. The REO seller will accept the offer but only if the listing broker reduces their commission to 4%. The listing broker agrees to the reduced commission. Can the listing broker require the buyer’s broker to split the reduced commission after the sale of the property?

Foreclosures, REOs, & Liens

COMPENSATION PAID BY BANK FOR BPOS MUST BE PAID TO REAL ESTATE AGENT’S BROKER

Q: A bank owns several REO homes. A real estate agent has agreed to furnish to the bank a Broker Price Opinion (“BPO”) on each of the homes. The real estate agent is charging a minimal fee for each of these BPOs. The goal of the real estate agent is to procure listings on some or all of these homes. Can the real estate agent directly receive compensation for these BPOs, or should the compensation for these BPOs be paid to the real estate agent’s broker?