Professional designations are commonplace in many industries. The settlement industry is no different. Many state escrow associations have certification programs in place. Oregon is one such state.
Members of the Oregon Escrow Council can stand out by showing their commitment to their chosen career by achieving a professional designation such as Certified Escrow Officer (CEO). Settlement agents with this designation earn it through experience and by passing an examination administered by the Oregon Escrow Council.
Cynthia Fox is a Certified Escrow Officer with Ticor Title in Medford, OR. Through her training and experience, she was able to identify the tricks a third-party negotiator used to misrepresent the closing costs on a HUD-1 statement.
Short sale transactions pose many challenges. Generally speaking, sellers need an expert to assist them in negotiating the terms of the short sale. As a result, many licensed real estate agents and attorneys have shifted their focus to this type of business by acting as a third-party negotiator on behalf of the seller. The third-party negotiator typically has all direct contact with the seller's lender, as was the case in Cynthia Fox's file.
The listing agent asked Cynthia to work up an estimated HUD-1. She prepared her HUD-1 based on the terms as agreed upon by the buyer and seller in the purchase and sale agreement. The sales price was $267,000. After listing all the closing costs, her HUD-1 reflected a net of $248,897 for the lender. The listing agent forwarded the HUD-1 on to the third-party negotiator, an Oregon-licensed real estate agent – or so everyone thought.
Soon after, Cynthia received an approval letter from Wells Fargo approving the short sale, as long as they received $234,735.54. This startled Cynthia since the amount was $13,741.46 less than what she came up with. Upon closer review of the short pay letter, she noticed there were items included in the approval letter which neither the buyer nor seller agreed to in the purchase agreement. None of the following items were listed on her HUD-1:
|Cash due from seller:||$1,500.00|
Cynthia was confused. According to the purchase and sale agreement, the seller did not agree to a concession or to pay any of the buyer's closing costs. Additionally, the taxes were current, with nothing due at the time, and she had no idea who was charging for a lien search. She asked the listing agent why these items were listed on the approval letter. The listing agent forwarded several items to her, including a final addendum, an invoice from an attorney and a copy of the HUD-1 approved by Wells Fargo.
Immediately Cynthia noticed the final addendum was not signed by anyone, nor did it contain signature lines. It was quite confusing. Here is an excerpt:
- Buyer acknowledges that seller's lender has agreed to allow seller to contribute $8,010.00 to buyer's closing costs and $5,288.46 to property taxes ("Buyer Credits").
- Buyer further acknowledges that the short sale lender has not agreed to pay all of the seller's settlement and other charges ("Seller Charges") and that only those Seller Charges approved for payment by seller's lender will be paid by seller. Unless otherwise specifically stated herein or agreed to, seller will not contribute any funds to close this escrow.
- Buyer agrees that to close this escrow such unpaid seller charges shall be paid by buyer.
Next, Cynthia reviewed the invoice from the attorney who was charging $15,000 for, "…services rendered to research, examine and review title, liens, and judgments as well as the terms and conditions of the sale and lien releases from the short sale lender."
Finally, she reviewed the HUD-1 approved by Wells Fargo. On page one were two credits from the seller to the buyer: one in the amount of $8,010 described as, "seller concessions (FHA buyer)" and another in the amount of $5,288.46 described as, "credit for property taxes."
On page two of the HUD-1 was a charge to the buyer in the amount of $13,037.00 described as, "attorney's fee includes lien search, title search/exam." The approved HUD-1 was also on the old 1986 version of the HUD-1 and listed Cynthia as the settlement agent, making it appear she created this misleading HUD-1.
Now Cynthia understood completely. The third-party negotiator convinced the lender to approve a seller concession knowing the short pay lender would not agree to pay his fee from the seller's closing costs. The seller concession was not being used to cover the buyer's closing costs on a new FHA loan, but was being used to cover a portion of the negotiator's fee. The negotiator also failed to disclose that the property taxes were already paid. Instead, he presented a HUD-1 listing a separate credit to the buyer for the taxes.
Cynthia elected to resign from the transaction telling the listing agent, "You do not mess with my kids, my husband or my HUDs. Do not prepare a HUD-1 and make it look like it came from me!" The seller felt the same way and told his real estate agent he wanted to proceed with the short sale without the assistance or services of the negotiator.
This prompted a call from the third-party negotiator to the listing agent. He admitted to the listing agent the fees listed on the buyer's side of the HUD-1 were truly to pay for his fees. There was no contractual agreement from the buyer or seller to pay these fees, much less through closing.
The listing agent, who has closed many short sale transactions, explained to the third-party negotiator he had placed the file in jeopardy due to his actions. The listing agent then contacted the State of Oregon to file a complaint and discovered the third-party negotiator was not even licensed! The company he works for was licensed, but it did not appear he was licensed to provide third-party negotiation services.
The sad thing is the negotiator charged $15,000 and did not even negotiate to have the lender's deficiency rights against the seller waived. The short pay approval letter noted, "Nothing in this Demand Statement or in the release of the mortgage shall waive the right to seek a deficiency under the loan documents or any of its other rights thereunder…" If the sale closes, the seller could still be held responsible to his lender for any amounts unpaid.
Cynthia lives up to her designation of CEO. She talks the talk and walks the walk. She has been rewarded $1,000 for making the decision not to participate in concealing the true nature of the transaction to the short pay lender.