Friday, November 15, 2013

Banks can be a little rotten at times

I generally like to keep my posts as positive as possible. Sometimes however it is difficult to avoid a subject that has some negative tendencies. This is one of those time and needs to be addressed. Many of America's banks are handling real estate transactions in an appalling way. Buyers should be aware and cautious when entering into a transaction with a bank.

As many of you may know, the banks managed to tap into a large chunk of federal dollars in the form of what we commonly call "the bailout". These banks through various government programs are able to offset losses in foreclosures and short sales. The government wanted to be certain that our financial system did not collapse under the weight of the market crash in late 2008. Regardless of how we feel about the so called, "bailout", it happened and it's all water under the proverbial bridge now.

The problem is that many banks are working the system and taking advantage of the taxpayers and buyers. Banks often stall and dig in their heels on short sale transactions until they finally foreclose. Often it is the case that the bank fails to close on a short sale transaction that would have netted them say $200,000 only to foreclose and get a net of $150,000. Then they slither over to the feds and get more "bailout" money from one of those federal programs. I have seen this transpire many times over the last five years.

The latest trend among banks involve all this REO (Real State Owned) they now hold. Much of this inventory they are holding could have been off loaded in the short sale process that they seemingly sabotaged themselves. Milking the feds is apparently not enough. Now these institutions are preying on innocent home buyers. Banks are posting REO assets on auction sites with a real estate firm that will work for a tiny fee to "list" the property on a local MLS with no cooperating broker arrangement. Then they try to get buyers to engage in the transaction without the traditional representation of a real estate agent.

The modern system of the MLS cooperating brokerage arrangement transformed real estate for buyers from a shady proposition to a safe and properly represented transaction over 40 years ago. Now these banks are trying to circumvent all of the positive progress we have made in consumer protection. They want to lure buyers to an auction website without representation. It seems that some local MLS systems are a willing accomplice to this rather dastardly deed. They do not seem to object to listings being posted with no cooperating brokerage arrangement. Thus we see this reversion to the slimy 1960s used car style of home sales by greedy banks that just want to squeeze a little more profit out of the house the feds already bailed them out on.

Buyers should be aware that the listing agent has an obligation to the seller to negotiate the best possible terms for the SELLER. Banks are exempt from state mandated legal disclosures and often use their own in-house addendum forms that may have serious negative consequences to buyers. Most real estate agents work for a brokerage that won't be too pleased at taking on the state regulated responsibility of agency with out a cooperating brokerage arrangement. This puts the buyer in a position of either being unrepresented or having to hire an attorney or real estate agent for an additional fee.The more likely scenario is that the buyer will enter into a binding contract with the bank without representation. Who do you think will get shafted in that arrangement?

Buyers should be very cautious before entering into these agreements. Buyers that use an agent to purchase the majority of homes listed on the local MLS will enjoy the security of being legally represented under the state regulated agency laws without having to pay that agent a fee. The cooperating broker arrangement on the MLS assures that the listing fee paid by the seller is shared among brokers. This gives buyers the confidence that they will be well cared for and properly represented in the transaction. Some of our seedy banks are working hard to destroy that arrangement just to line their pockets with a little more gold.

There are sharks in the pond so be careful my friends, be very careful.

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