Is this fraud?

Question

So I sign a guy up last Thursday. He calls me and says he wants to short sale his house. He had it listed with an agent but the listing expired so I have my agent go with me  to sign a new listing agreement, and for me to get all the paperwork for the ss package. So I go over everything with him a few times so does the agent, he signs everything. It looks good to go. I step outside to take a call, when I come back I hear the tale end of this guy talking to my agent about his sister-in-law being a realtor in Reno, and can she get 25% of the commission. Well my agent says sure I guess so. 
Well the next day he calls me and says he now doesn't want to work with me or my agent. I find out today he has it listed with another realtor. My agent calls the new listing agent and she says the sister-in-law told him not to sign with me  that she will do all the negotiating. 
Doesn't this violate an arms length transaction?

Scott Hubbard · Answer

There were some disturbing mis-information on this thread.

1.  To the OP, yes the listing agent should not be a relative to the seller.  Wells Fargo/Wachovia will make the buyer/seller/agents sign an at Arm's Length Agreement attesting their be no relations between the parties.  Also, if it is a Fannie Mae loan, you will be required to disclose the actual relativity to the servicer per HUD rules.  There are other smaller servicer's that have these rules as well.  I have had deals nixed because of siblings, inlaws, cousins, and ex-wives being the agent. I even had a deal nearly get killed becuase the buyer's wife was the agent.

2.  I agree with J Scott, under most circumstances the Exclusive Listing would allow recourse during a traditional sale, but  with a distressed seller, it is unenforceable in many states.  I mean it is common sense, your going to penalize a seller who is trying to save their home? I sure would like to see a broker pursue that one.  No, there has been much discussion with regard to this and the simple answer is the broker would put itself at much risk trying to strong arm a seller who is not receiving any proceeds from the sale.

You did a wise thing by walking away.

Matt Whiteside · Answer

Sam- Yes it is frustrating. This guy has had three agents in the span of 3 days. I'm sure he had the same agrrement with the first agent about the sister-in-law, so they had no offers. I come in and put a purchase agreement on it then they balk. No one else has offered to buy as of yet. 
I know it's a confusing time for homeowners in this situation, but the sister-in-law is making it harder for him. I just don't know why if she was going to do the ss herself she hadn't started yet.

Bill- I will start asking about the shpere of influence from now on. I've been asking if they are working with a realtor.

Thanks for all the advice.

Rolly Dupree · Answer

One of the first question to ask is: does anyone in your family, friends or neighbors have a real estate license  that you may want to work with or take advice from? This situation happens frequently and it is not fraud only unethical!!! Sadly for us hard working agents...

Maryann L. · Answer

Yuck.
          
          Did he sign a purchase and sale with you?  In your p&s do you stipulate that the contract is contingent upon you negotiating the short sale?  Do you have a signed listing agreement?  I'm not sure but I don't think you can sign all this and just say, "whoops I'll have my new agent list it and my sister in law"
          
          Now on the flip side you may be able to hold the guy to the contract but really...do you want to?  I think if you were 3-4 months in and he pulled this crap I'd fight him all the way, but where it's only been a day I might just cut him loose.
          
          I had something similar happen.  Cousin was an agent and uncle was rich and was toying with paying off debt.  The homeowner opted "out" of everything and in my state if your negotiator isn't an agent, broker, lawyer or licensee of some sort, you HAVE to provide a cancelation contract to the homeowner.  Anyways, he signed it and we canceled everything.
          
          Home went to foreclosure.... :D 
          
          Oh - to answer your question, I'm not sure it's fraud, so long as the sister in law discloses her relationship, but it could be a "grey" area.

Sam M. · Answer

Frustrating isn't it? I had one I initially contacted with regard to working out a deal on their second mortgage (80k) with a 110k first and a quick sale value around 160k it gave some room though not as much as some like. 
 As it turns out the mother in law was a realtor and was going to short sale it to their cousin????? An investor bought it at the trustee sale......Argh

Bill Gulley · Answer

See, it washes out like I said! And yes, even if it is an exclusive listing. Tacky and unprofessional but in reality, without recourse. Matt, have your agents inquire from now on, "are your represented by a Realtor" and the comment above is very good too about asking about any center of influence that needs to be included in this transation! Good luck. Bill

Matt Whiteside · Answer

Well to follow up. I did cancel everything with the homeowner.  My Agent/broker told him she wasn't going to fight him about her listing agreement, not worth the hassle and good luck. 
I'm sure the sister-in-law promised this guy part of her commission, that's what bothers me.
I'll keep you all posted to see if the house goes to the sheriff sale on 9/9. I hope the sister-in-law dosen't screw this guy up.
Oh well another lesson learned.

J Scott · Answer

Not if it was an exclusive listing agreement.  The agent would only need to prove procuring cause if it were an open listing, which is very uncommon in most areas...

With an exclusive listing agreement, the listing agent is entitled to commission regardless of who provides the buyer, as long as the contract is submitted during the listing period (or is identified before the protected period).

This is true in any state...

Huh?

The seller can pull the listing at any time, and change listing brokers at any time.  When that happens, the new listing broker can list the property.  I've never heard of a broker demanding that the property be kept off the market.

But, the original listing agent is still entitled to commission if the property sells during the listing period.

It's very simple, and assuming the original listing agent can prove that she was actively licensed at the time of the sale and that the sale was made during the listing period in the original agreement, any judge will rule that a commission was earned.

I can't speak for any other broker, but mine has already proven that she is happy to go to court to get an owed commission from a seller under these circumstance.

Again, I'm not sure what you mean?  I don't know of any broker that would require a property be kept off the market during the protected period.

That's not what we're talking about here.  We're talking about whether the original listing agent is entitled to a commission or not.  And that's 100% clear in the eyes of the law.

If the agent sues for commission, she will win...

Bill Gulley · Answer

Well, to do that Scott, the agent needs to go to his borker and claim that he was the prucuring cause of the sale, if an ad had never been run and he never showed the property, he won't be proving that. As to the protected period, that is what the period of time is for, to protect the agent who showed and advertised the property so that the seller does not seel to someone he had reasonably contacted or caused to know that the property was available. The agent that got canned didn't even get it to the MLS.

Now back to the agent and his broker, the old listing broker (A) will need to contact the new listing broker (B) and make the claim or ask for it to be held off the market. B will probably laugh, since A can not show any financial damage in this case.

Why brokers do not hold people's feet to the fire on these issues; ...It's really bad public relations. Any broker who would insist that a property be held off the market for the protected period will get the reputation of being unreasonable real quick. A won't push it especially since he is not out any commission earned. B won't deal with A any longer if A did push it.

When you hear about these cases paying off is when a seller terminates a contract and turns around and sells to a buyer who was shown the property by the agent that was cut out or was the procuring cause of the sale.

This clause in a listing agreement is there to protect the listing agent and broker in those cases, not as a punishment to get even with a seller who was informed by his sister-in-law that she could do the listing on a co-broke arrangement with one of her buddies who is in the area. It's a contract covenant, not a rule or law and it is only enforced at the option of the broker.

As I said before, ask a potential client if they are working with a Realtor before you get in your car!

In my area we have almost 3,000 agents running around in these woods. Chances are if you knock on any door that person will be related to a Realtor or know one or at least know of one.

I use to ask people; do you have a good friend or a relative that's a Realtor....are you working with a Realtor right now? I asked in a joking, in a "by the way" tone, because that will happen often, people will learn from a few Realtors and get a market value estimates on the place, just to keep their friend of sister-in-law honest and when they have doubts that they have knowledge and experience, then they list with them.

In the reality of realty as I always say!

Steve Babiak · Answer

IMO, it would be fraud if this relative that's an agent took title to the property, either as the "B" middle-person or as the "C" end-buyer.  That is where related parties are not permitted in the typical short sale "approval" letter.

IMO, if just negotiating, that should be fine, since it isn't that far removed from the homeowner doing the negotiating by themselves - and the homeowner is allowed to be the negotiator.

Is this fraud?

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