Every one of us has heard the discussion about whether Wall Street or Main Street is responsible for the real estate run up and bust of the last decade. We all know the right answer is that both are responsible. However, I don’t buy the argument that local people mostly made this problem.
For my entire professional career most Closing Agents and Realtors had no trouble following most lending rules. Appraisal values did not get distorted beyond recognition, loan-to-value ratios were not ignored, and secret second mortgages were not encouraged. Those rules didn’t get changed on Main Street.
Designer mortgages which we recognize today as a complete fraud, the purpose of which was to pump money into a select group of thieves on Wall Street, allowed this to happen. At the same time, like hungry animals with no individual judgment, we gobbled up every dime Wall Street made available. We have our responsibility for what happened, but not by any means most of it, in my opinion.
The question is, regardless of who profited and should have known better, what is our responsibility to our profession and to the community today? Someone on a level greater than ours will have to control Wall Street if that is possible. We have to act individually with a different level of responsibility than Main Street showed in the last decade.
For instance, I have argued in these pages that those of us who seek to invest in and use real estate, ought to get back in the market. Hopefully in the coming months we will do that in ever increasing numbers. As we do, investors will be buying properties that have come through short sales, foreclosures, bankruptcies, and other manipulations every one of which represents some investor’s personal agony with real estate. We Realtors and Closing Agents, will have the job of putting the pieces together. Let me show you what I mean by that.
A property is for sale in a residential condominium. Construction of that building was begun in 2003, and finished in 2005. The Purchasers can be predicted to have paid 30% or more than the units were worth. Today those units sit unwanted and unoccupied. What we didn’t reckon with was that there would be countless of those units, often in the same condominium. The cost of operating a condominium building is the same whether there are 50% of its units contributing, or all of them.
As a Realtor, if you are asked to sell a unit in this building, someone will hold you accountable if you fail to disclose a sick building. That building is sick because a significant number of its units are failing to contribute to its cost. These nonstructural facts have everything to do with the value of a unit in this condominium. A Realtor will be expected to know that, and to disclose it. The Realtor who does not concern himself with the association budget, existing lawsuits against or for the association, and numbers of unpaid assessments and therefore expenses either deferred or unpaid by the association, will have contributed to yet another crisis.
We in the real estate profession have been justly accused of being partially responsible for the mess we are in. If we get out of it, it will be by learning the traps for our clients, and making sure they understand the risks before they purchase.
The above discussion has only to do with condominium associations and units. A subdivision in which lots can be bought may be less complicated. However, a really cheap lot that has no access to water, sewer, or street maintenance, may be not so cheap if the Buyer can’t build on it. The Realtor who brokers a deal like that without documenting a disclosure prior to contract would be well advised to make sure his insurance coverage is up to date.
Buyers will look for a deal. They will find that deal in foreclosure or after a bankruptcy or short sale. If the Broker is asked to assist in that transaction, he or she might get paid a commission. But without a court order approving a bankruptcy sale, for instance, even a lawyer should be slow to assure the buyer of title.
Please don’t believe that there is any assurance of good title just because property went through foreclosure. A foreclosure can be properly completed and there be absolutely no assurance of good title. Only a title search at the time the mortgage was made and a complete understanding of the foreclosure file will reveal liens, unforeclosed mortgages, and other claims that can defeat title to the property.
The bottom line is that being a Realtor or Closing Agent is going to be more work and more treacherous than ever. You will be asked for advice, sometimes only because the person asking wants a way to rationalize his decision if something goes wrong. Do not even try to give advice about foreclosure, bankruptcy, or the effect of outstanding judgments or liens, and don’t put yourself in a position of having a buyer hold you responsible for failing to disclose the complex relationships within a condominium or HOA.
Where we go from here may be easy if we aren’t very careful to practice defensively. Don’t let a client say or believe that he relied on you for advice about the legal effect of bankruptcy, a short sale, or any of the myriad other designer solutions to real estate debt. Where you go from here will be right back to Court, now as a defendant, if the Realtor gives legal advice that doesn’t work out.
There is a good living to be made, and an honest service to provide, if the Realtor, Lawyer, and Closing Agent respect and help each other for their client.