Realtor,Representations,Credit law Realtor Representations of Credit and a Short Sale

When you work with an attorney, you will have no problem reducing the risks associated with getting your case in front of a judge and jury, or other formal court, when you need to. However, every case is different. It is important to work wi Bankruptcy is a situation, wherein an individual is termed as unable to discharge all the debts. When a person or a company is not able to pay off its creditors, it has an obligation to file a bankruptcy suit. In fact, a bankruptcy suit is a

December 2009I have conducted severalworkshops at PSAR now. If you have attended one of my workshops you know thatthe leading reason for a client suing the licensed professional assisting themwith their mortgage distress is a “surprise”. The client is led to believe thatthings will work out one way, and instead, they work out another. The purpose ofthis article is to assist you in avoiding a client’s surprise as it relates toclaims made about a client’s credit.What impact does a short sale have on a client’s credit?Responding to a client about the impact their mortgage distress(or short sale) will have on their credit is speculative at best. The answer tothis question varies from household to household. There is no uniform answerthat applies equally to everyone. So be careful in what you tell your clients.The bottom line is this: If a client does not have command and control overtheir financial world then the destruction of their credit is likely a foregoneconclusion. Conversely, if the client does have command and control over theirfinances then their credit will likely take care of itself.A judgment lien, a tax lien (which are both known toresult when people do not have command and control over their finances — aswell as experiencing mortgage distress) can have a devastating impact on aclient’s credit. An unsecured creditor, such a credit card company or a lender ona foreclosed out junior lien previously encumbering their home, can sue yourclient and obtain a civil judgment against them resulting in a derogatory markon your client’s credit bureau. Which mark on your client’s credit is worse? Acivil judgment? A Judgment lien? A tax lien? Or a foreclosure appearing on yourclient’s credit?When clients think about their credit they generally thinkabout their credit score (frequently referred to as a FICO score) and creditscores vary between the different credit bureaus. Each of the three largestcredit bureaus (Experian, Equifax, Trans Union) have their own calculations fortheir respective credit scores. These formulas are proprietary. It is for thisreason that you will frequently see the exact same client have different creditscores from bureau to bureau.The speculative nature of predicting the impact of a shortsale on a client’s credit is compounded by the law that applies to creditreporting. Lenders, collection outfits and debt buyers are the largestpurchasers of credit bureaus. These organizations contribute more to the revenueof the credit bureaus than any other segment of society. The credit bureaus havecontracts with these organizations and these contracts are governed by contractlaw. Moreover, the Fair Credit Reporting Act (FCRA) also influences whatinformation is reported on a consumer’s credit bureau.The speculative nature of predicting the impact of a shortsale on a client’s credit is compounded by the law that applies to creditreporting. Lenders, collection outfits and debt buyers are the largestpurchasers of credit bureaus. These organizations contribute more to therevenue of the credit bureaus than any other segment of society. The creditbureaus have contracts with these organizations and these contracts aregoverned by contract law. Moreover, the Fair Credit Reporting Act (FCRA) alsoinfluences what information is reported on a consumer’s credit bureau.Lenders use credit bureaus to assess the likelihood of aprospective borrower repaying a loan. If a client or his agent were capable offreely manipulating credit reporting then what value would these credit bureaushave to a lender? If the integrity of the information contained in creditbureaus is lost, then in turn, lenders’ demand for credit bureaus will likewisebe lost resulting in the credit bureau companies suffering severe financial detriment.It is therefore in the credit bureau companies’ best interest and the bestinterest of the lenders that accurate information appears on your client’scredit bureau.Any representation that any particular transaction or eventwill have a specific impact on a client’s credit rating is nothing more thanspeculation. In this setting fraud and deceit become a concern for the personmaking the representation.Using credit as the carrot to induce the short saleBe careful here. The Credit Repair Organization Act (“CROA”)may apply to your client’s transaction if credit is being used as theproverbial carrot to induce the client to agree to short sale their home. CROAwas enacted to address abuses associated with credit repair organizations.However, the Act goes well beyond credit repair organizations. CROA contains anexceptionally broad definition of the credit repair organizations that aresubject to its requirements. A credit repair organization means any person who performsor offers to perform any service, in return for the payment of money or othervaluable consideration, for the express or implied purpose of: (i) improvingany consumer’s credit record, credit history, or credit rating; or (ii)providing advice and assistance to any consumer with regard to any activity orservice described in clause (i). USCA §1679a(3)A). Please note that the courtsdisfavor narrow construction of consumer protection statutes. To the contrary,consumer protection statutes tend to be liberally construed by the courts.Placing a disclaimer in a contract that you make no claims to improve or removeany credit reference on the consumer report is ineffective if you have promisedcredit repair or amelioration.If an entity is offering or providing services, for a fee,for the express or implied purpose of improving a consumer’s credit rating, itmeets the statutory definition of a “credit repair organization”. When you usecredit as the carrot to induce a client to short sale their home, is creditancillary to the transaction or the subject of the transaction? Arguably, it isthe subject of the transaction and CROA may apply.What can you say toa client about their credit?For the aforementioned reasons any statement to a client abouttheir credit is purely speculative. So, stay away from any specificrepresentations. Also, keep in mind that you have a fiduciary duty to discloseany information to the client that may affect their decision to short sell ornot short sell their home. Be truthful with your clients and disclose to themboth verbally and in writing that: (i) The impact a short sale will have ontheir credit is extremely speculative and any statements made by you concerningcredit are statements of opinion only; (ii) none of your statements are to be construedas a specific representation of fact nor are they to be construed as an expressor implied warranty as to the impact the short sale will have on their credit.Tread these credit waters delicately. As with most consumerprotection statutes, CROA has both a statutory attorneys’ fee provision anddamages provision which make CROA violations attractive cases for consumerprotection attorneys. I hope you found this article helpful and I wish you allthe best of luck in your short sale endeavors.