Home Buying in 94526>Question Details

John, Home Buyer in 94526

Is it legal for a real estate agent to disallow an fha borrower from making an offer on a short sale?

Asked by John, 94526 Mon Jan 18, 2010

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Without knowing more details, it's hard to address the question. I'll take a stab at it.

Your agent represents you, and if you want to write an offer on any property for sale, he/she is obligated to do that, and present that offer to the seller. However, if your agent feels your offer isn't going to work for whatever reason, your agent has a duty to be frank with you and explain why. Your agent also has the right to terminate your agency relationship, but has the duty to complete the presentation of an offer you want presented, so the termination of the agency relationship needs to happen either before or after an offer is written and presented. You can also terminate your working relationship with your agent. Both parties should do this in writing of course.

The sellers agent represents the seller. If it is the sellers agent who is advising you or your agent that the seller will not accept any FHA offers, that is legal, or they might simply be responding with a "no" to your particular FHA offer, which is also legal.
1 vote Thank Flag Link Tue Jan 19, 2010
I don't understand the "disallow" part.

Listing agents must present all written offers to their principal, who probably is the Seller, not the Bank. Agents are not legally obligated to write offers for you, unless, you two have a contract.
1 vote Thank Flag Link Mon Jan 18, 2010
John no it is not allowable for a real estate agent to disallow an offer with FHA financing. The seller however can instruct the listing agent not to present any offers with FHA financing. It's a seller thing not an agent thing and in my area the agent only comments for the property would have that information.
Web Reference: http://www.Find1Home.com
0 votes Thank Flag Link Wed Jan 20, 2010
Hi John,
I don't believe that this is a legal issue. Sure if you really want to submit an FHA offer on a home, you can and it must be presented. However, with inventory as low as it is we are seeing multiple offers on many homes and a large portion of these offers are all cash. This means that if the home is bid up over the appraised value there probably wont be an issue closing the sale. As you know, the FHA will only lend in relation to the appraised value. So while the FHA loan program is a good one and it has helped, and continues help, many people buy homes It is not the most preferable route from a sellers perspective if there are all cash or conventional buyers that you are competing with.
Without knowing the details of your situation it sounds as if this is a multiple offer situation with some offers either being cash or conventional financing.
0 votes Thank Flag Link Wed Jan 20, 2010
LEGAL? Yes, but it is a breach of law to do something that is not in your financial interest (that whole fiduciarty duty thing), and good faith then comes into play, and then if you do write the offer then REALTOR ethics obligates that the offer be handled responsibly and presented. So all that said, how does taht affect you?

To recap what other agents have overed already 1) Short sales can not give credits, 2) Some FHA buyers need credits, 3) FHA appraisers sometimes recommend and mandate repairs 4) Short sales don't do repairs. 5) As a good practice sellers do not let buyers prform repairs on their home. So you sort of get a sense of the landscapre for your FHA offer.

It seems clear that your agent has assesed your situation and determined that your offer will run afowl of something in the above myriad of concerns (paragraph 2). Assuming that is the case, the agent did an assessment (based on the considerations in paragraph 1) and is advising that you take a pass.

If THIS is the case, then the agent has determined that while you may have the best of intentions, writing the offer may cost you time and money (if the market moves up while you wait, pricing you out of some segment of the market, for example) or that you can not reasonably act in good faith based on his knowledge of the situation.
Web Reference: http://bob2sell.com
0 votes Thank Flag Link Tue Jan 19, 2010
I know in my home search my agent at many points told me that the seller would not accept an FHA loan. It was never his decision though, but was one made by the current owner--most of the time being one of our friendly banks. It sounds like to me, you need to clarify this with your real estate professional. There was one situation where we were placing an offer on a home that was marked no FHA, but I insisted on clarification from the listing agent if a 203K FHA loan was allowable. The selling agent checked with the bank, and it was allowable. We really like the house that was neglected due one of our friendly banks disregard for protecting it from the elements, but unfortunately by during the negotiations some investor bought it for cash. Cash wins every time in the FHA vs. Cash debate. It was the perfect house then, but in the long run, we have an even better purchase under contract now. Wish you the best of luck, but every so often remind yourself that if you don’t get the house of your dreams today, it wasn’t meant to be. And your dream house is just waiting somewhere else.
0 votes Thank Flag Link Mon Jan 18, 2010
John -

If you have signed an agency disclosure with an agent they have the duty to present your (legal) desires. As many have mentioned below, agents are placing notes in the multiple listing service to alert other agents regarding "NO FHA Loans" at the request of the seller.

There are different reasons why. It can be seller preference because they expect a longer close of escrow with FHA. (30-45 days) Because they anticipate a more rigorous appraisal process from the FHA appraiser (not necessarily so but it seems to be a perception out there), repairs on the home are extensive enough to affect an FHA loan and the seller wants to sell AS IS, and, as many have mentioned below, the anti-flipping rule and they simply want to take offers from qualified buyers -now.

But today they announced a waiver on the 90 day rule. See the link:

This will open up some doors but in my opinion there is still a bias toward FHA loans, particularly when it comes to REO /foreclosed properties. If processing times could be improved so that the close is 30 days, I believe that would help buyers as well.

Your agent should be explaining, to your satisfaction, of why it is not worth writing/presenting and FHA backed offer.

Web Reference: http://www.TalkToCJ.com
0 votes Thank Flag Link Mon Jan 18, 2010
Steve is right, FHA just announced the change to Anti-flipping rule!

"The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of "flipping" where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:

-All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
-In cases in which the sales price of the property is 20 percent or more above the seller's acquisition cost, the waiver will only apply if the lender meets specific conditions.
-The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program. "
0 votes Thank Flag Link Mon Jan 18, 2010
Hi John,

Pleasure to reply to your question. I've read all of the responses and they all are meaningful. I'd like to take a dirrerent slant on your question. Legality is a slippery slope. If a client and an agent can't agree on any situation and it gets to the point where the term "legality" of the relationship is mentioned, I think it's time to part ways. No client, nor agent should be working in an agency relationship where there isn't total trust on the part of both parties. Hope this helps.

0 votes Thank Flag Link Mon Jan 18, 2010
Good point, Steve. The Anti-flipping waiver might free up some opportunities where needed, in markets where multiple offers prevail.
0 votes Thank Flag Link Mon Jan 18, 2010
Since this is a short sale, the Seller is not getting any money from the transaction ... their lender or lenders may have specifically stipulated that they will not consider any FHA loans because of the more complex approval process for the property and the fact that the lender will generally not pay for any repairs.

Be aware however that FHA has apparently just announced that in some cases they will waive their "90 day" ownership rule, which may allow you to offer on properties fixed up by investors to re-sell.

Steve Curtis
Broker / Owner
0 votes Thank Flag Link Mon Jan 18, 2010

Happy New Year. I am priveledged to have this opportunity to address your question. Without knowing all of the details, I'll give you a high level answer and then if you want to talk, we can set up an appointment to meet and find a loan that will best meet your needs.

A property listing in the MLS has features, disclosures and terms set forth by the seller. For example, features will be number of bedrooms, or views, some of this is data that is pulled in from the tax roll. Secondly, disclosures would include if the property is in a Mello Roos districs or if it is an REO or Short Sale. Finally, TERMS are whether the seller is looking for 1031 exchange, or cash only, or conventional or FHA/VA financing. The only obligation the Listing Agent has is to present offers to the seller and it is up to the seller to review and accept the one they want to submit to their lender for short sale approval.

FHA loans have specific criteria in terms of property condition. If the property condition is very poor, an FHA loan may not work because the cost to finance repairs under the 203K rehab program may exceed the buyer's loan qualification and that information may not come to fruition until after getting into contract and completing buyer inspections. So, in essence, it is less attractive if there are known deferred maintenance issues. Additionally, there is a lengthy underwriting process that is longer than a conventional 30 day funding. In a short sale, the process of getting the lenders approval results in what is called a Demand to Close Escrow that specifies that date that the demand expires. If an FHA borrower cannot fund by the demand expiration date, it will expire and the deal might fall out of contract for buyer nonperformance if the sellers' lender is not willing to extend the timeframe. If the sellers' lender does agree to extend, the buyer is charged per diem fees of maybe $80 to $100 per day that increase closing costs. If the borrower is already cash strapped and relying on the low down payment, there may be no room for this.

In summary, there are several reasons why a seller may not consider offers with FHA financing. A Buyer's Agent would not dissuade you from making an offer with FHA loan terms unless they are following instructions in the MLS which is courtesy to the Listing Agent and seller. So, yes, it is legal and in fact falls under an Agent's fiduciary obligation to their seller.

I hope this clarifies the situation for you and don't hesitate to give me a call if you have more questions.

P.S., Don't forget, deals must be in contract by April 30th and close by June 30th, to qualify for the Federal Tax Credits.

Arturo C. Shivers, Realtor
DRE Lic. No. 01779941
760 Camino Ramon, Suite 200
Danville, CA 94526
Mobile: (415) 871-4239
Web Reference: http://www.casarati.net
0 votes Thank Flag Link Mon Jan 18, 2010
If the seller bought the property less than 90 days ago, they may not be able to sell it to an FHA buyer. The best suggestion is to have your realtor discuss this with the listing agent. We all have had successful transactions with FHA loans both as the seller's and buyer's agent.
Suzanne Looker
0 votes Thank Flag Link Mon Jan 18, 2010
Hello John:

Are you sking about the listing agent or the agent who represents you as the potential buyer?

I don't know about illegal but it certainly sounds somewhat unethical, particularly if it is the latter case.

Certainly it seeems that there are sellers who appear to discriminate against FHA borrowers but I think that is mostly because there is a general feeling that a buyer who has a substantial down payment and a high income and good credit is a better bet than somebody with only 3.5% down. Of course a seller could instruct their agent not to present FHA loans and that would presumably be acceptable practice.

Personally, I have successfully closed transactions with FHA loans for both buyers and sellers without any problems and in a timely manner.

Bernard Gibbons

Bernard Gibbons, Realtor, e-PRO Certified Internet Specialist, DRE License # 01331583
J. Rockcliff Realtors, 15 Railroad Avenue, Danville, CA 94526
Phone (925) 997-1585

See all homes for sale in Contra Costa and Alameda Counties
at http://www.BernardGibbons.com
0 votes Thank Flag Link Mon Jan 18, 2010
An Agent may not unilaterally nullify Buyers who want to use FHA loans; however, the Seller can decide not to accept FHA financing as one of the terms of the sale. The Seller does not need to provide you with an explanation why they will not accept FHA offers. For whatever reason, the Seller can choose to accept or deny the Buyer's financing as a term of the sale.

I would have your Realtor simply ask the Listing Agent why the Seller is not interested in FHA offers. Perhaps it due to a misunderstanding on the part of the Seller, a "mythconception" of the Listing Agent regarding FHA loans, or that the property has yet-to-be disclosed "Health & Safety" issues that the Seller does not want to fix.

Best, Steve
0 votes Thank Flag Link Mon Jan 18, 2010
It depends, But if the agent knows that the property WILL NOT qualify FHA then it would be considered "ok" to do so. He cant submit an offer to the bank for a property that wont pass the inspection. This is my reasoning of why this agent would be doing this and I have seen it a lot, especially with home that were rental units.

John & Sarena Villaescusa
Keller Williams Realty
Cell: 562-818-2671
Email: Johnv@kw.com
Website: http://www.VGroupHomes.com
Web Reference: http://www.VGroupHomes.com
0 votes Thank Flag Link Mon Jan 18, 2010
If the agent forsees difficulty with getting FHA approval on a property, they can alert potential FHA buyers. This prevents wasting both parties time. There may be other reasons for not accepting FHA offers too. I would talk to your agent about what possible options might be. There are always solutions if there is a willing buyer and seller!
Best of luck,
Web Reference: http://www.jscarealty.com
0 votes Thank Flag Link Mon Jan 18, 2010
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