Commissions


Nevada Case Confirms Tail Periods Are Valid.

Easton Business Opportunities, Inc. v. Town Executive Suites-Eastern Marketplace, LLC

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What is a tail period?  In an exclusive right-to-sell brokerage agreement the tail period is a certain amount of time after the final termination of the listing period.  During this “tail” or extension period if the property is sold to anyone with whom the listing broker has had negotiations or to whom the property was shown prior to the final termination, a commission is owed.  The duty to pay a commission ends typically if the seller enters into a valid brokerage listing Agreement with another licensed real estate broker after the final termination of listing agreement.

The dispute in Easton Business Opportunities was a commission claimed under an exclusive right-to-sell brokerage agreement.  The purchaser viewed the property during the listing period and purchased the property directly from the seller during the tail period.  The Seller refused to pay the commission.

TRIAL – BROKER LOSES

The case went to trial in the Eighth Judicial District Court of Nevada, County of Clark.  The District Court ruled in favor of the seller and against the broker.  The District Court declared that the broker failed to give the seller a list of the people to whom the broker had shown the property at the end of the listing period.  Therefore no commission was owed.

APPEAL – BROKER WINS

On the May 6, 2010 in Easton Business Opportunities, Inc. v. Town Executive Suites-Eastern Marketplace, LLC the Nevada Supreme Court reversed and held in favor of the broker and against the seller.  The Nevada Supreme Court said, “ we are loath to impose such an obligation.”  So there is not an obligation for a broker to give a ‘list’ to a seller in Nevada at the term of the listing agreement of potential purchasers.  The Nevada Supreme Court placed liability on the seller for the commission if the seller sold during the extension period to a buyer to whom the broker had shown the property or negotiated with-in other words, it allocated the risk of being wrong about the buyer being commission-free to the seller.

The Nevada Supreme Court said, “we disagree with the district court’s reading of the brokerage agreement as a matter of law …  The agreement, as written, supports the opposite result and should have been upheld.”

The oral arguments can heard by clicking here.

Questions? darren@dwelshlaw.com

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On July 15, 2011 FTC DECLARES:

  • real estate brokers can conduct short sales and
  • can collect advance fees if they follow their own state guidelines.
  • real estate brokers do not have to make several disclosures required by MARS.
  • that as more and more American homeowners seek short sales, it is especially important that MARS not inadvertently discourage real estate professionals from helping consumers with these types of transactions.

I am keeping track of the Federal Trade Commission (FTC) Mortgage Assistance Relief Services (MARS) Rule.  My previous post proposing that MARS did not apply to the real estate profession from May 4, 2011 is here Advance Fees – Short Sales – FTC II.  As stated prior, I believe MARS should not affect licensed real estate sales persons, rather is directed at individuals and companies that do not already have a structure in place to police their conduct.

As of July 15, 2011 the FTC has stayed enforcement of many of the provisions of MARS against real estate professionals helping consumers obtain short sales.  The FTC declared the stay on enforcement includes a stay on the collection of advance fees.  Therefore brokers can conduct short sales and can collect advance fees if they follow their own state laws and regulations. See the July 15, 2011 FTC press release here:  http://www.ftc.gov/opa/2011/07/mars.shtm The FTC has ruled on a unanimous vote the following:

FTC will not enforce most of the provisions of the MARS Rule against real estate professionals who are engaged in obtaining short sales for consumers. The stay applies only to real estate professionals who:

1) are licensed and in good standing under state licensing requirements;

2) comply with state laws governing the practices of real estate professionals; and

3) assist or attempt to assist consumers in obtaining short sales in the course of securing the sales of their homes.

The stay exempts real estate professionals who meet these requirements from the obligation to make disclosures and from the ban on collecting advance fees. These professionals, however, remain subject to the Rule’s ban on misrepresentations. As a result of the stay on enforcement, these real estate professionals will not have to make  several disclosures required by the Rule that, in the context of assisting with short sales, could be misleading or confuse consumers. As more and more American homeowners seek short sales, it is especially important that the Rule not inadvertently discourage real estate professionals from helping consumers with these types of transactions.”

See my earlier blogs on Advance Fees

Advance Fees – Short Sales – FTC II May 4, 2011
Advance Fees Continued and the FTC 01.06.2011
Short Sale Advanced Fees 12.3.2010
Charging for negotiating short sales/Negotiators 10.1.2010

             As everyone probably has heard, the FTC came out with a 54 page Rule which declared that MARS activities, such as short sales, cannot be linked to advance fees.

I am surprised that the REALTOR® community has  acquiesced to this ruling.  My first blush at this matter: real estate agents are not the subject matter of this Rule, it is directed to loan service companies, loan mod companies, etc.  I put those opinions in my notes here – https://ameglegal.wordpress.com/2011/01/06/advance-fees-continued-and-the-ftc/

Obviously we are not out of the woods.

I want to try and explain, in detail, why I think the REALTOR® community  should announce that they are not the intended target of this FTC Rule and that  GLVAR, NVAR and NAR should support this position.

The question is, “do Nevada real estate salespersons conducting sales that involve short sales fall under this Rule?”

SHORT ANSWER.

 “Not  necessarily.” A Nevada real estate  salesperson is not a short sale negotiator, is allowed by statute to charge an advance fee and is not a MARS service provider per Foot Note 126 of the Rule.

LONG ANSWER.

What is MARS and where did it come from?  ‘‘Mortgage Assistance Relief  Services.”  It is Pursuant to the 2009  Omnibus Appropriations Act (Omnibus Appropriations Act), as clarified by the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act).  The FTC Rule is a Final Rule and Statement of Basis and purpose (SBP) concerning the practices of for-profit  companies that, “in exchange for a fee, offer to work on behalf of consumers to  help them obtain modifications to the terms of mortgage loans or to avoid foreclosure on those loans.”

What is a real estate broker?  A real estate salesperson in Nevada is one that:

a.) “…accepts consideration for assisting, soliciting or negotiating the sale, purchase, option, rental or lease of real property.” NRS 645.005.

b.)  “…with the intention .. of receiving compensation…sells, exchanges, options, purchases, rents or leases, or negotiates or offers, attempts or agrees to negotiate the sale, exchange, option, purchase, rental or lease of … real estate” NRS 645.030

c.) “…engages in or offers to engage in the business of claiming, demanding, charging, receiving, collecting or contracting for the collection of an advance fee … to promote the sale of real estate. NRS 645.030.  (Yes, an advance fee, see below).

The short recaps:

MARS: “…work …to help … obtain modifications to the terms of mortgage loans or to avoid foreclosure on those loans.”

Real Estate Broker: “…assists, solicits or negotiates the sale, purchase, option,  rental or lease of real property.”

Real estate agents sell property.  They assist sellers in selling which in turn can remove debt liability when the asset is sold.  Whether the asset is under  water or not that should not automatically render that service MARS.  They also help consumers choose property inspectors, but are not real property inspectors.  They assist consumers in  locating loans, but are not mortgage providers.  They assist in setting up 1031 Exchange tax deferred exchanges, but are  not CPA’s.  They assist in contracting  for the sale of real estate, but are not lawyers.

Why the confusion  then?  Because the FTC Rule §  322.2 Definition:

(i) ‘‘MARS’’ means any service … (6) Negotiating,  obtaining or arranging: (i) A short sale of a dwelling.  

Why then is a Real Estate Agent’s conduct not MARS?  I believe the Rule  is only referring to companies that offer such services that are not already licensed real estate brokers for a number of reasons:

a.)  The Rule talks of MARS providers that often claim to possess specialized  knowledge of the mortgage lending industry, sometimes touting their hiring of  former mortgage brokers and real  estate agents to bolster their claims of purported expertise.  [This would appear to discuss a loan  modification company, not a real estate brokerage.]

b.)  The actual press release  of FTC said:

i.)  “providers of mortgage foreclosure  rescue and loan modification services” [see what an agent does above] and

ii.)  “mortgage relief scams that have sprung up during the  mortgage crisis.”  [Selling real  estate is not a scam, and it certainly did not just spring up.].

iii.) “The  most significant consumer protection under the FTC’s new rule is the advance  fee ban. Under this provision, mortgage relief companies may not  collect any fees until they have provided consumers with a written offer from their lender or servicer that the consumer decides is acceptable…[again, a real  estate broker is not a ‘relief company’ and I refrain from making light if whether real estate agents are ever a “relief”.]

c.)  Section V (C). describes the difficulty in knowing how many MARS companies  there are.  [Real estate brokers are not mentione].

“The Rule will apply to MARS providers. Based upon its knowledge of the industry, the Commission believes that a variety of individuals and companies provide or purport to provide such services, including telemarketers, mortgage brokers, lead generators, payment processors, contractors that provide back-room services, and attorneys.” FR Vol. 75, No. 230 Page 75137. [Real estate brokers are not mentioned.]

d.)  The rule itself states, it does not consider real estate agent services to be MARS.  See Foot note 126 of the 54 page Rule:

“As a general matter, the Final Rule is not intended to apply to the marketing of services to assist consumers in selling their properties to third parties.  The Final Rule, however, does specifically cover the marketing of services involving the sale of properties to third parties if those services are designed or intended to assist consumers in averting foreclosure, e.g., through a short sale or deed-in-lieu of foreclosure.  One commenter urged the commission to exempt  licensed real estate professionals from the Final Rule. NAR at 1–2.  The commenter argued the Rule would restrict real estate agents in helping consumers with the process of selling their homes through short sales. Id.  The Commission concludes that an  exemption for real estate agents is not necessary.  Real estate agents customarily assist consumers in selling or buying homes and perform functions such as listing homes for sale, showing homes, and finding desirable homes for consumers.  The Commission is aware that real estate agents may perform these functions when properties are bought or sold through a short sale transaction, but does not consider these services to be MARS.

Finally, Nevada has an advance fee  statute, which allows, “the collection of an advance fee for an advance fee listing.”  An Advance fee listing” is a brokerage agreement by which a person who is engaged in promoting the sale of real estate agrees to render to an owner to  promote the sale or lease of the property, for an advance fee.”  Why not simply rely on the current laws of Nevada?   Real estate brokers are not loan companies.  Why are real estate brokers agreeing to new limits on their services that only apply to MARS providers.

I have to say it, “women are from Venus, real estate agents are not from MARS.”

ANY COMMENTS are appreciated.

See my earlier blogs on Advance Fees
Winter 2011

Winter 2011

UPDATE to the Advance Fee Discussion
……………………………….
……………………………….
See my earlier blogs on Advance Fees
……………………………….
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Effective December 29, 2010 the Federal Trade Commission (FTC) issued the Final Rule concerning the Mortgage Assistance Relief Services which bars the collection of advance fees to work on behalf of consumers to help them obtain modifications to the terms of mortgage loans or to avoid foreclosure on those loans.
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Does this apply to real estate agents in Nevada?  I do not think so.
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Persons holdings NRS 645 real estate licenses would not appear to be covered by the FTC ruling, taking into consideration the October 2009 NRED position paper.  Provided the Nevada real estate agent is only performing real estate activities and not loan modifications.  Real estate activities are, “assisting, soliciting or negotiating the sale, purchase, option, rental or lease of real property.”  Per the NRED, there can be no advance fees paid to a real estate broker except in accordance with NRS 645.322 – 324, there may be no separate or distinct payment or compensation for performance of activities defined as loan modification, foreclosure consulting or  providing of covered services outside of a real transaction, and should the transaction not close and thus no commission is paid, no separate or other payment is allowed for services that are defined as loan modification, foreclosure consulting or providing covered services.  An advance fee listing in Nevada can only be, “for assisting, soliciting or negotiating the sale, purchase, option, rental or lease of real property, or the sale, exchange, option or purchase of a business…” and “means a fee contracted for … an advance fee listing …to sell …property, issued for the purpose of promoting the sale … of … real estate … to … real estate brokers or salespersons…

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What is not clear in Nevada is what the Advance Fee accounting should look like per NRS 645.322.  For example with
trust accounts in Nevada per NRS 645.310, NAC 645.806, the Nevada Real Estate Division issued form 546, the Trust Account Reconciliation.  NRED also issued Trust Fund Accounting And Record Keeping For Nevada Brokers.
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As stated above, an advance fee can be paid to a real estate broker provided it is in accordance with NRS 645.322 – 324.  The FTC’s 12.29.2010 Rule addresses only mortgage lenders.  The California Department of Real estate on October 11, 2009 ruled that advance fees for Loan Modification and/or similar services are unlawful unless a “no objection” letter has been issued.  Nevada does not yet have such a ruling.  On December 8, 2010 my office asked of the Honorable Nevada Attorney General and Administrator of the Nevada Real Estate Division to issue a position similar to the October 15, 2009 Position Paper further clarifying the NRED’s position as to advanced fees.  Specifically clarifying what the accounting should entail, if the Prudential, Americana Group, REALTORS® suggested form is approved and finally if there is interest in setting up a task force to address this issue, I am willing to volunteer my time to attempt to create a form that can assist the Nevada real estate licensee community to address this issue and/or to assist in preparing the position paper.
……………………………….
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I will keep you posted.
Any comments are appreciated.
Darren J. Welsh cell 702 245 1787 Phone: (702) 733-9310   Cell (702) 245 1787 Fax: (702) 862-4576

Is this half full?

ADVANCE FEES

UPDATE – Notice on December 1, 2010 the Federal Trade Commission issued the Final Rule concerning the Mortgage Assistance Relief Services which bans advanced fees

Short Sales

Can I charge an advanced real estate commission on a short sale?  Yes.

Advance Fee Listings/Buyer Broker Agreements.

NRS 645.004  “Advance fee listing” declares that an advance fee listing is a brokerage agreement promoting the sale of real estate for an advance fee.  An advance fee can be paid to a real estate broker provided it is in accordance with NRS 645.322333324.  All commission payments still go through the broker, Prudential, Americana Group, REALTORS®, in accordance with NRS 645.280.  There may be no separate or distinct payment or compensation for performance of activities defined as loan modification, foreclosure consulting or providing of covered services outside of a real estate transaction.  Remember, a real estate transaction is, “assisting, soliciting or negotiating the sale, purchase, option, rental or lease of real property, or the sale, exchange, option or purchase of a business,” per NRS 645.005.

Can I keep the commission if the short sale does not close?  DEPENDS.  The Nevada Real Estate Division has verbally expressed a desire that funds accepted during the Short Sale processs, should not be retained, but returned.  My interpretation of the law is that an “accounting” must occur and then the monies can be retained.  I have asked the NRED to comment as of December 8, 2010.

Accounting of use of advance fee collected.

If you charge an advance fee you must, within 3 months after the charge or collection, furnish to your client an accounting of the use of that money.

Can I charge a flat fee and a percentage together at the same time?  Yes.

Federal law instructs that a real estate broker’s fees may only be charged if the broker is engaged independently and the fees are reasonable and customary. See HUD Handbook 4155.1 for additional information.  All charges to sellers and buyers by real estate brokers and agents for their services in listing and selling the home (“commission”) must be disclosed on Line 700 of the HUD-1 settlement statement.  Although RESPA regulates how the commission is disclosed, RESPA does not prescribe how a real estate broker or real estate agent determines the charge for his or her services in any contract with a seller or buyer.  The commission may be determined using a flat fee, a percentage of the sale price, or a combination of those methods.  See U.S. Department of Housing and Urban Development. January 22, 2010 Letter.

Is there an advanced fee listing form from the NRED?  Not yet.

Nevada law says that the Nevada Real Estate Division may require a form of brokerage agreements which include provisions for the payment of advance fees to be used.  However, this form has not been written by the NRED.  So, of course, I wrote one.  You can get a copy from your managers as of December 7, 2010.  It will be on Ameriforms and Zip on week of December December 13, 2010.

This is part of my short sale series listed below in alphabetical order:

7 Tips for Short Sale

Addendum to Short Sale Listing

Charging for negotiating short sales/Negotiators

Deficiency Judgments Nevada

Foreclosure and the One Action Rule in Nevada

HAMP the Federal Shortsale Program coming April 2010

Income Taxes & Foreclosures/Shortsales

Lender Short Sale Approval Addendum

Nevada Supreme Court Mandatory Mediation Program and How it Affects Shortsale

Nevada Short Sale Documents

Seller Being Released From Liability Language in Shortsale

Seller Liability After Short Sale

Short Sale Addendum to Purchase Agreement October 2010

Short Sale Wallet Size Answer Sheet

IRS PUBLICATIONS shortsales/foreclosures:

IRS publication on how 1099 taxes are calculated, exempt, etc.

IRS explanation as to taxes resulting from Foreclosure and Debt Cancellation.

Ten Facts about Mortgage Debt Forgiveness

Questions?  Call me. Darren Welsh, Esq. 702 245 1787  email me darren@dwelshlaw.com or drop me a TPS by filling out this form.

Charging for negotiating short sales/Negotiators

As review you can see my blog from March 5, 2010 Short Sale Third Party Coordinators.

Here are some common questions and answers to these questions.

“What can you charge as a Nevada licensee in a short sale?”

ANSWER – A commission.  Period.  You cannot charge negotiating fee, a handling fee, only a commission.  As a Nevada real estate licensee you can earn a real estate commission under NRS 645 for selling real estate.  Specifically the law states that selling real estate means, “… sells, … or negotiates … the sale, … purchase, rental or lease of [real estate] …. the collection of an advance fee … in connection with … the sale … of …. real estate.”  That’s NRS 645.030.  Under NRS 645.323 you have to have a Nevada real estate license, to “accept an advance fee,” for selling.

“But what about all the loan negotiating I do in a short sale, is that OK?”

ANSWER – Well, first, remember, the only thing you can charge is a commission.  You can negotiate with the lender during the Short Sale phase, per the NRED, provided you follow certain rules.  As noted in the Nevada Real Estate Division Position Regarding Short Sales negotiations there may be no “separate or distinct payment or compensation for performance of activities defined as loan modification, … outside of a real estate transaction.”  Activities that by definition might include aspects of “Loan Modification Consultant,” “Foreclosure Consultant,” or “Provider of Covered Services” must be part of a real estate transaction and all commission payments must still go through the broker in accordance with NRS 645.280.  In other words, you can charge a commission for selling real estate and selling a short sale is real estate, so it’s OK.  But you may not offer as an independent menu choice to provide services defined as loan modification or foreclosure consultation.

“And what about getting a negotiating fee?”

ANSWER – No. Only commission.

“But short sales are time consuming, I need to charge extra money.”

ANSWER – Fine.  Charge a larger commission, but it is commission, must be disclosed as commission and paid as commission.  Do not change its name to hide what it is.  You have a real estate license, you have the privilege to charge a commission.  That is it.

“And what about getting paid an advance fee?”

ANSWER – It’s OK, but there can be no advance fees paid to a real estate broker except in accordance with NRS 645.322 – 324 and do not forget to follow all of the requirements of NAC 645.675 which states that the Advance Fee Agreement must declare that, “a full refund will be made to the customer if the services for which the advance fee is being received are not substantially or materially provided to the customer.”

“But what if I set up a separate company and charge for ‘assisting’ in the transaction?”

ANSWER – I would ask back, “if it’s a real business, do you have a business license?”  If you say, “yes I do have a business license.”  Well, “what services are you providing?”  NRS 645F says you are a loan modification consultant if you offer to assist a homeowner in changing the loan amount.  If you negotiate the settlement of the loan down from its current outstanding principal amount, it would appear you are changing the loan amount.  I do not see a legitimate way that such a business can charge a ‘fee’ in a real estate transaction without having an NRS 645F license.  The application for a NRS 645F license is located here.

“Can’t the Seller hire a Negotiating Company?”

ANSWER – Of course.  But, all loan negotiating companies in Nevada need to be licensed under NRS 645F (lawyers doing the actual negotiating are exempt.)  Here is the list of every single licensed loan modification company in Nevada.  There are thirty nine (39).  If you don’t see the company your Seller wants to use…then they are not licensed to conduct loan negotiations in Nevada.  Remember, attorneys are exempt from the provisions of Chapter 645F.  You can confirm if an attorney is licensed in Nevada by searching the individual’s name on the State Bar of Nevada’s Web site through the attorney search option.

“Where should the Negotiating Fee get placed on the HUD1?”

It does not matter what line it is shown on, either in the commission section or the other costs section but not hidden on page 6, for example, of the HUD1.  Remember also, a Listing or Selling Agent cannot typically be the “negotiator” as they can only charge a commission.  If an agent sets up an LLC to divert these negotiation fees they must be licensed under NRS 645F.  A legitimate negotiating company is easily fully disclosed on the HUD1 and they should be able to produce their license (or you can look them up).

The U.S. Department of Housing and Urban Development, Washington, DC (HUD), in both a letter to outside counsel and in the new RESPA Rule FAQs page has confirmed that commission can come in a percentage and a flat fee combination.

As discussed in my December 24, 2009 Doc Fee Versus Commission  I shared that the “Broker Administrative Commission” is a part of the commission.  Like all commissions it is not required.  It is separately invoiced by Americana for accounting purposes, but it is simply a part of the listing or selling commission.   It is not a fee for additional services.  The BAC is  a portion of the commission for the real estate services provided by Americana for a buyer or seller.

On January 22, 2010, HUD confirmed Prudential, Americana Group, REALTORS® position.  In this letter from HUD, Helen R. Kanovsky writes, “RESPA does not prescribe how a real estate broker or real estate agent determines the charge for his or her services in any contract with a seller or buyer.  The commission may be determined using a flat fee, a percentage or the sale price, or a combination of those methods.

The new RESPA Rule FAQs  on page 43 and 44 states that in regards to the HUD-1 700 series, “The percentage used to compute the sales commission has been removed from the HUD-1 to better reflect current practices in the real estate industry. The total amount of the commission to each real estate broker or agent must be shown …”

This is not a rule change.  HUD shares that per 24 CFR 3500.4  the January 2010 letter “does not constitute a rule, regulation, or interpretation” of law, and that “no person may rely on it to provide protection from liability under RESPA” or regulations HUD has put in place to implement the law.

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