I just wanted to vent about a recent headache. I've been working with an investor who does double closing short sales. Well, I butted heads with another agent in my office on a foreclosure lead that signed a purchase agreement with my investor. The agreement is contingent upon a short sale. Part of the process involves conveying the property into a trust and then the property is either flipped to another buyer or is purchased by my investor then held as a rental. All of this of course, contingent upon the bank willing to work with us. The other agent was looking to get a listing with this lead that is in foreclosure. After contacting me to find out about what this lead's involvement was with my investor, I made it clear to him that the mortgagee was under contract with my client. I kept it short and encouraged him to find us a buyer and help us stop this foreclosure. I was met with an enormous attitude problem about the whole thing and before I know it, this agent throws me under the bus and tells the lead that what we're doing is unethical and illegal. He also contacts our sales manager to talk to me about my "fishy" dealings and proceeds to take a listing agreement with the lead. In the meeting, I make it clear to the agent and the sales manager that the lead is under contract and it would be unethical and illegal to solicit a listing agreement with this under contract party as well as slander me, my client and put Keller Williams in jeopardy. I work at KW by the way. Nothing is done whatsoever. 3 weeks later, when my client presents the foreclosure lead with the paperwork from the bank, they express their discomfort in working with us. The agent then withdraws the listing agreement that he states was made with another name that is not on title according to public record, for the same property. I can tell that he was trying to cover his [censored]. The agent was trying to work around the situation. He claims that due to this "new" information, he is unable to work with the lead because they are under contract. Meanwhile, KW sends me to the attorney's office and this is his response to what I'm doing...

First, please forgive me if I'm remembering this in correctly. But as I remember things, you aren't aren't merely helping investor/buyers pursue simple one stage short sales. Instead, the rough outline of your deals involve two stages which typically go as follows:

There is property owner, who is typically a homeowner, who is upside down (e.g. market won't pay enough to clear the owner's debt). I will call that owner "A." You work with an intermediary "B" who seeks to tie up the "A" property and negotiate a short sale transaction with A's lender say for $200k. B doesn't close on the acquisition of the property until B finds "C" who buys the property at say $220k. The A to B transaction closes simultaneously with the B to C transaction. The B to C transaction funds the A to B closing. B typically ties up the property by getting a contract and deed from A. Often the deed is conveyed into a trust, or perhaps an LLC. The A to B deed typically doesn't get recorded until the B to C transaction closes.

First, to my way of thinking, there isn't anything inherently ethically or legally wrong with these two stage transactions, but it is playing with fire (see below). At the very best, your protocols must be perfect. And in our experience defending brokers who were involved in these things, it isn't clear that the Colorado Real Estate Commissioners, or its investigatory staff agree with me. Some people just have a mind set that A is being ripped off if A doesn't benefit from the B to C sales price.

The kind of disclosure you suggest would be fine for a normal one stage short sale where a foreclose has not been commenced on the property. However, it isn't close to being sufficient, for some of the following reasons:

1. Even if you are a buyer's agent for B, you have a duty to disclose adverse material facts of which you are aware to the seller, A. This would include the need to disclose that B's sale to C will be at a higher price than B's purchase from A. The low A to B price enhances A's potential post closing liability and potential forgiveness of indebtedness tax consequences (if A doesn't qualify for the new temporary forbearance on forgiveness of indebtedness income--see summary of law just passed in the last few weeks.)

2. If the property is in foreclosure, and it is the seller's residence, you need to comply with the Foreclosure Protection Act. The CREC Foreclosure Property Addendum won't work in your deals so you or your investor need to develop a contract that complies with the FPA.

3. The CREC is about to finalize a new short sale addendum (attached). Its doesn't fit well with two stage deals. Once new form is finalized, my firm will figure out how to work with, or work around, CREC Short Sale addendum in two stage deals.

4. Regardless of how good your paperwork and communication skills are, there will be a few A's who will feel misled. Because it is so easy to file a CREC complaint, some A's will do so. Even if your paperwork is perfect, CREC doesn't like these deals. I have helped a "B" set up a darn good system, but my "B" doesn't have a real estate license. The practical worst thing that can happen to my "B" client is that the CREC can send him cease and desist letter. As persons with real estate licenses, you are more vulnerable than an unlicensed "B".


What you've provided doesn't address these 4 concepts. Addressing them right would be very expensive. Because it is playing with fire, I wouldn't permit these two stage deals in my real estate brokerage firm if was the employing broker. The next step should be for me to communicate with xxxx or xxx to see whether it is worthwhile for you to consider paying my office around $2k to develop a system.

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...Now we've asked KW to rectify this whole thing. Both my client and myself have heard from the lead that the other agent told them what we're doing is illegal! The office has the same response every time I mention the magnitude of the gross misconduct which has occurred. And that response is that... well you could get in trouble too even though I haven't done anything wrong. Myself and my client have been slandered without so much as even an apology. Not even an apology much less compensation! KW keeps telling me that they've taken disciplinary action against this agent but then they don't tell me what kind of action. They keep telling me... just trust us. I don't think they're doing anything. I think that my client and I could go to the CREC or the District Court and put a major foot in that other agent's [censored]. Enough to compensate my client for having to endure this disgusting behavior and hurt that other agent enough to never do such an idiotic thing again.

So how does everyone think this should be handled?

Sounds like it is time for an office change.