Many Agents Have No Idea
July 28, 2014 |
By Barry Lehane
Please Note: Barry Lehane, the author of this article, unfortunately passed away a few weeks ago. Barry was one of our industry’s educational icons. Twelve months ago he prepared this article in preparation for the seminar “Write It Right or Lose the Write“. We are having this seminar again this Friday, August 1st at our Gilbert campus and in honor of Barry Lehane, who spoke for us last year, we are re-publishing his article.
It may surprise you that Arizona has one of the most complete libraries of forms to make the practice of residential real estate as consistent and compliant with the law as any state in the country. In fact there are over 53 AAR copyrighted forms available for our use. Every day when I get asked how to deal with a contract issue containing a “write in” phrase, or see crossed out sections on the contract, my reaction is, “wait…there’s a form for that.” So, let’s take a pause and look at this forms issue to get a better feel for the subject.
The forms development process is quite sophisticated and goes through several stages before these forms are confirmed and added to our library. A new form usually starts as a question like I mentioned and then is shared with a committee member to see if it is a common issue. Often this is the Risk Management Committee on which I was lucky enough to serve for two years. Then a work group would be given the task to examine the question and begin to establish whether there was a need for a form or contract change to deal with a solution. From here it might go to the forms committee for further development and then to the legal department for scrutiny. After that is bounced around a little it might come back to Risk Management for discussion and perhaps input for changes. This evolution leads to a “beta” version for testing, and finally a model is created for copyrighting. This is a lot of steps before a new form is approved. Many people have invested literally hundreds of hours into the development of a new form.
Did you notice the word “Copyright?” Yes, each AAR form is copyrighted for members’ exclusive use. To modify or take unauthorized use of any of these forms could lead to a copyright violation and legal consequences.
Here are a couple common situations. Agents often call and ask; “My buyer wants to put in a backup offer on this Short Sale, how do I designate an offer as a back-up?” Good question with an easy answer, use the “Additional Clause Addendum.” Clause one on Lines 9-17 identifies an offer as a backup, subject to the cancellation of a previous contract. How do we offer or demand proof of funds in a cash offer? Again, use Lines 26-29 from our friend, the “Additional Clause Addendum.” Another common demand these days is for non-refundable earnest money. As brokers we see all kinds of confusing or even non-enforceable language used in “write in” phrases in Section 8 of the contract. Why do that when Lines 30-34 of the “Additional Clause Addendum” handles it properly? We would all do well to get familiar with the additional clause addendum and its numerous applications.
Agents often overlook one of their strongest tools in contract compliance, the Loan Status Update (LSU) form.
Page two of the Residential Resale Purchase Contract requires at least one, and maybe two, LSU submissions to the seller in the first several days after contract acceptance. An LSU must be submitted within five days of acceptance and, if not complete with all answers to Lines 32-36 answered affirmatively, then another must be submitted with those affirmative answers by the end of the inspection period. We should take particular notice to the right column of Line 32. This calls for verification of funds to perform in the terms of the contract. Including down payment and any reserves required by the lender. If they can’t deliver that verification, then the seller is possibly able to serve a cure notice to protect the viability of the contract or even declare a breach. In past days this tool was not available to sellers who were often given the rhetorical (AKA “runaround”) replies when inquiring about the progress of a loan approval. These loan progress updates now have some substance.
The “Short Sale” has given birth to another needed and handy addendum called the “Agreement Notice.” In Lines 22-23 of the Short Sale Addendum it states that if the seller and the seller’s lender enter into a Short Sale agreement, they immediately give notice to the buyer. The problem is that until February of 2012 there was not a form with which to do this. As a result, buyers’ agents and listing agents would fight over seeing the bank demand letter which often had private seller information which the buyer had no right to see. So now we have the “Agreement Notice” for this purpose. It is much superior in that it not only acts to inform the buyer of lender approval of the sale, but also can serve to inform the buyer if the lender made a condition to approving the contract or countered the contract amount.
One of the most recent transaction support documents is the new “Buyer Pre-closing Walkthrough.” This dual purpose form not only provides a way to verify that the property is in the condition the buyer expects and that any negotiated repairs are complete, but also serves as the “Cure Notice” in case it isn’t in the proper condition.
Bottom line is that AAR is doing an outstanding job of staying on top of the needs of our ever-changing real estate environment to support our responsibilities as professionals and helping us to avoid legal misunderstandings. All we have to do is keep up with the latest in ZipForm and AARonline.com.
Much thanks to AAR for allowing us the use of excerpts from their copyrighted library.