On February 1st 2011 Arizona Department of Financial Institutions released its Broker/Manager Risk Management Update; Special Edition January 2011. In this Update, DRE addressed the topic of Short Sale Negotiator Regulations.
The first issue in the Update was:
QUESTION. Is a real estate broker/salesperson acting outside the scope of their real estate license by assisting a seller in negotiations with the lender to facilitate a short sale?
ANSWER: No. The scope of a real estate license encompasses assisting in the “negotiation of any transaction calculated or intended to result in the sale . . . of real estate.” A.R.S. § 32-2101(48)(j).
QUESTION: May a real estate broker/salesperson receive additional compensation for negotiating a short sale?
ANSWER: No. The Arizona Attorney General’s office (“AG”) has opined that a real estate licensee may not receive additional compensation from any source (seller, buyer, lender or otherwise) for negotiating a short sale, unless the real estate licensee is also licensed as a loan originator by the Arizona Department of Financial Institutions (“DFI”) and the requirements of A.R.S. § 32-2155(C) are met .
1) The AG indicates that the general rule is that additional compensation requires an additional license. If a real estate broker/salesperson assists the seller in negotiating with the lender to accept the short sale price as a customer service and does not charge or expect additional compensation (including an increased commission), the real estate broker/salesperson does not need a separate loan originator license from the DFI.
QUESTION: May a real estate broker/salesperson without a loan originator license be compensated as a third-party short sale negotiator in a transaction?
ANSWER: No. A real estate licensee may not receive compensation for negotiating a short sale, unless the real estate licensee is also licensed as a loan originator by the DFI.
Given the foregoing answer, it would seem clear that AZ DRE has answered the previous question with clarity. Namely, a real estate broker/sales person who is negotiating a short sale as a third party (and not as a customer service) would in fact have to be licensed under AZ Department of Financial Institutions.
QUESTION: Must a third-party short sale negotiator be licensed in Arizona to negotiate a short sale for compensation on behalf of an Arizona seller?
ANSWER: Yes, a loan originator license issued by the DFI is required to be compensated as a short sale negotiator.
QUESTION: Are there any additional licensing restrictions that apply to FHA loans regulated by HUD?
ANSWER: Yes. Loan originators must be employed by a licensed mortgage broker who is responsible for the supervision of the loan originator. Under HUD rules, a mortgage broker who handles FHA loans (“FHA mortgagee”) is prohibited from employing staff who are also employed in the real estate field. For further information about HUD's requirements, visit www.hud.gov.
Last but not least:
QUESTION: If a salesperson receives any fee in connection with a short sale, regardless of how the fee is described on the HUD-1 must the fee be paid through the employing broker?
ANSWER: Yes. A.R.S. §32-2155(A) requires that a salesperson “accept employment and compensation as a licensee only from the legally licensed broker to whom the licensee is licensed.” Compensation is defined as “any fee, commission, salary, money or other valuable consideration for services rendered or to be rendered as well as the promise of consideration whether contingent or not.” A.R.S. §32-2101(16). Thus, a salesperson may not receive compensation as a licensee from any person or through any entity, including a licensee’s LLC, other than the employing broker to which the salesperson is licensed.
