The latest news reveals that the number of foreclosures is increasing in Hawaii and one of the remedies to avoid foreclosure is the short sale. Recapping: a short sale is a situation where the sales proceeds are not sufficient to pay off the existing mortgages and cover the selling costs.
The mortgage companies agree to a reduced payoff for the sale to take place thus avoiding a foreclosure. Lenders are willing to work with distressed homeowners that are attempting to sell their property in this sluggish market.
I’ve written a number of articles about short sales because they are becoming more and more common in all areas on Oahu. Since January 1, 2008, there have been 283 short sales listed on the Honolulu Board of REALTORS Multiple Listing Service and the number increases every month. That may come to a screeching halt.
Act 137, known as the Mortgage Rescue Fraud Prevention Act was passed by Hawaii’s Legislature and signed into law by Governor Linda Lingle on June 3, 2008. It was done so with little fanfare and yet contains significant consequences for Hawaii’s real estate professionals and Hawaii consumers.
See the act here: Act 137
The stated purpose of the law “…is to protect Hawaii consumers from persons who prey on homeowners who face property foreclosures, liens, or encumbrances... This act addresses possible misrepresentations by compelling persons who offer assistance to fully and completely describe their services in written contracts and gives the homeowner the right to cancel at any time before a distressed property consultant has performed all services called for in a contract.” So far it sounds like a well intended law.
The problem arises in the definitions section: “Distressed property consultant means any person who performs or makes any solicitation, representation, or offer to perform any of the following relating to a distressed property: … Stop or postpone the foreclosure sale or loss of any distressed property due to the nonpayment of any loan that is secured by the distressed property…”
This is one of the duties that real estate professionals perform when they represent a seller in a short sale and unfortunately real estate professionals are not specifically excluded in this law. Lenders, attorneys and insurance companies are all exempt so why not real estate agents?
Short sales are a challenge for agents under the best of circumstances. They take much more time and often have their commissions reduced by the lenders as a condition of approving the transaction. Agents who work on short sales tend to do so as a service to their clients. With this new law in place, real estate professionals acting as “Distressed property consultants” have their compensation capped; it may not exceed “…the two most recent monthly mortgage installments of principal and interest due on the loan first secured by the distressed property or the most recent annual real property tax… which ever is less”. This is very little incentive for a real estate professional to list, market, find a buyer and negotiate with the lender to help the distressed seller avoid foreclosure, especially when that compensation is split with a co-operating broker representing a buyer.
In my view, the consumer will ultimately be harmed. If real estate agents are not involved in helping distressed sellers sell their property through the short sale process and marketing it on the Multiple Listing Service, the lenders will have no choice but to foreclose. The law should be amended to exclude licensed real estate professionals from the definition of “distressed property consultant” when they are performing services on behalf of a buyer or seller.
Walt Harvey is a real estate broker with East Oahu Realty and is Quality Service Certified®. Walt partners with his wife Arla and together they specialize in residential, commercial and investment real estate. You can reach them on their website: http://www.coastalhawaii.com Real estate question? E-mail them: mailto:walt@coastalhawaii.com or call 375-8959 or toll free at 866-773-3351.
