On or about September 30, 2011, an anonymous reader provided a response to a blog Berlin Patten had sent to its readers regarding who can or should be engaged in the negotiation of short sales. While we debated whether or not to further comment on the subject (as the blog response did not really specifically address the activities we attempted to discuss, namely negotiating short sales by title agents), we did not want our readers to be misled by the response to our original blog. While some issues are subject to some degree of interpretation or debate, we do not feel that the issue we intended to underscore in our blog entry is the subject of any interpretation or debate.
It remains our opinion that any title agent involved in the “negotiation” of short sales should also be licensed to practice law in the state of Florida or be a licensed mortgage broker. If they are not, Florida law provides for somewhat severe sanctions. We do not disagree with the fact that a non-lawyer or a title agent can merely request a payoff from a lender. In our opinion, however, that ministerial or clerical task does not constitute short sale “negotiations” and such conduct was not the focus of our blog entry.
The response to our blog entry cites potentially misleading material. Specifically, the Opinion (dated 8/19/10 to which the Blog entry refers) addresses a very narrow issue, namely the ministerial or clerical act of requesting payoff information and furnishing certain documents in connection therewith. The blogger fails to address the focus of our concern, namely those title agents who are either intentionally or unintentionally performing true short sale negotiations. Our concerns are fairly simple.
First, the Florida Bar has begun to weigh in on the subject and has conducted hearings addressing the issue of whether short sale negotiations constitute the unlicensed practice of law. While no definitive conclusions have yet been reached by the Bar, it is our opinion that the act of truly “negotiating” a short sale involves a great deal more than the ministerial or clerical function of “paper pushing,” and therefore constitutes the practice of law. In fact, we believe that the term “short sale negotiations” encompasses almost everything except the simple request for the short payoff. We feel the Bar will ultimately draw that same conclusion. In fact, the attached article, published in the Winter of 2010 in ActionLine, entitled, “Nonlawyer Assisting the Short Sale Seller: Ministerial Act or UPL,” provides an opinion consistent with that of Berlin Patten. Indeed, the essence of “negotiating” short sales involves not the initial request for a payoff, but among many other things the following: the negotiation of and/or consultation with respect to deficiency balances, promissory notes, payoff terms, language of approval letters, post closing restrictions, and the language of documents that short sale lenders require the parties to execute at or prior to closing.
The definition of what a short sale “negotiation” might involve became much more important after the Florida legislature passed a bill effective January 1, 2010 (and modified most recently in July, 2011), wherein it became unlawful for any person to “act as a mortgage broker” in Florida without a current, active mortgage broker license. The definition of a mortgage broker is now defined in Section 494.001 Florida Statutes as ”…for compensation or gain, or in the expectation of compensation or gain, directly or indirectly, accepting or offering to accept an application for a mortgage loan, soliciting or offering to solicit a mortgage loan on behalf of a borrower, NEGOTIATING OR OFFERING TO NEGOTIATE THE TERMS OR CONDITIONS of a new OR EXISTING LOAN on behalf of a borrower or lender…” (Emphasis Added).
In the Spring of 2010, the Florida Land Title Association, which is the mouthpiece for title agencies throughout the state of Florida, in an attempt to protect its agents from potential criminal liability associated with this new statute, published its report in response to the new legislation (a copy of the first two pages thereof is attached), and interpreted the legislation as follows “with respect to the title agent’s business, unless you are a licensed mortgage broker or attorney representing a client in the negotiation of a short sale, you are prohibited from negotiating a short sale. Whoever knowingly violates these statutes commits a felony of the third degree. Each such violation constitutes a separate offense.” Sec. 494.0018, Florida Statutes.
This is an extremely definitive, unambiguous opinion, and there is no “compensation” exception or other caveat therein for those title agents who might be negotiating short sales for “free,” as the anonymous blogger infers. The reason is simple, the FLTA clearly recognizes that title agents who are negotiating short sales would only be doing so if they expected indirect compensation (something that is also prohibited by the statute), namely to get the fees associated with the eventual closing of the transaction (if they are successful in getting it approved). They are not doing the work out of the kindness of their hearts.
While the Opinion referred to in the anonymous blog and the FLTA each agree that a title agent who is merely requesting estoppel information or merely providing documents would generally not be considered engaging in “negotiations” (and we agree), neither stand for the proposition that a title agent conducting true short sale negotiations is somehow exempt from Sec. 494.0018 Florida Statutes, whether or not they get paid directly for their work, and any suggestion to the contrary is extremely dangerous.
From and after January 1, 2010, it became unlawful for licensed title agents to conduct true short sale negotiations unless they were also a lawyer or licensed mortgage broker, and it remains our opinion that the act of conducting short sale negotiations by title agents (whether for compensation or not) should be performed only by one who is also an attorney or a licensed mortgage broker. Any title agent who is conducting short sale negotiations from or after January 1, 2010 should use great caution to determine what extremely limited activities they can or cannot perform, particularly given the severe sanctions associated with a violation of Section 494.0018.