Description
N.J. course approval #1000161
NJ Core/Electives Package B 6 Hrs. Ethics/Core/ 6 Hrs. Electives on-line credit hours.
Section 1 Managing Risk Through Ethics Creating the foundation for ethical decision making and learning how to implement these traits in the everyday career of the licensee are the foundation for this course. By using strong ethical decision making practices the licensee decreases their potential risk, thereby managing it. Hence, the title to the first chapter! The term “ethics” is explored in depth in order to create the basis for recognizing the need for this type of behavior in a successful career. A discussion regarding principles and values is included as well. This discussion continues to bring the licensee to the understanding that basic principles and values will lead to ethical decision making and examples are abundant.
Moral reasoning brings up the steps along the way to ethical maturity. Moral reasoning has many steps and people proceed from one to the next.
There are complete explanations of terms and many examples pertaining to the subject being discussed at each point.
The agent has the opportunity to look at possible real life scenarios and learn how to handle them ethically and legally.
Reference is made in different sections to the NAR Code of Ethics and the foundation it provides for a satisfactory career. The Code is not included due to its size.
Section 2 Ethical Handling of Laws and Regulations New Jersey state license laws are explained so that the agent who was licensed a while ago has the opportunity to refresh his/her memory. By reinforcing the licensee’s knowledge of license law they become more aware of the need for ethical behavior. They have the opportunity to relate real life situations to their own experiences and can reconcile how they handled them in the past with how to handle them in the future if ethical decision making was not used. Another avenue that these discussions underscore is the need to act on behalf of the public rather than in the licensee’s favor.
References are made to when a transaction can be completed by a non-licensee (homeowner, etc.).
In order to protect the public, a great deal of time is spent exploring the different forms of advertising licensees use, the required use of the company name and anything else that must appear in an ad. An accurate property description is required as well as nothing that could be construed as illegal (two-family without proper permits). Once again, the chapter has many examples of advertising and the pitfalls that might prevail.
Fair Housing covers what is and is not permissible in advertising along with explanations of proper behavior based on covered classes.
Teams, web based advertising, and lawn signs are among the other topics covered in this section.
Proper handling of earnest money, trust accounts and commingling are explained and examples provide the opportunity for the licensee to see how small errors in ethical judgment can lead to huge fines and possibly even jail terms.
The handling of commission including how the rate is determined, who can collect it and procuring cause are presented, again, along with many examples. Contingency clauses and the handling of trust funds are included.
Explanations of purchasing property for the licensee’s own account conclude this chapter.
Section 3 Ethics, Agency and You begins with an explanation of “Agency”. It goes into expansive explanations of buyer, seller, agent, homeowner, principal, customer and client among others. Examples abound regarding how to handle typical agency situations that might create a need for ethical decision making. These include an agent not giving the owner the best offer from the buyer, presenting all pertinent facts to the seller before she accepts an offer, property manager making improper decisions, not presenting the buyer’s offer in a timely manner, making assurances to a buyer/customer that the seller/client did not agree to and many, many more. The fiduciary obligations of the licensees are discussed and explored, once again accompanied by many examples. Emphasis is placed on being aware of the different ways the same situation is handled if the party is a customer or a client.
Single and dual agency scenarios are offered as well as what occurs with transactional brokerage. Buyer brokerage is also explored. The role of the cooperating agent is included.
There is a heavy emphasis on the fiduciary responsibilities of the licensee in all phases of the transaction. Once these responsibilities are fully understood, the licensee will be more likely than not, be able to handle themselves and transaction details with an ethical priority.
We delve into the responsibilities of a general agency as opposed to a special agency and the decision making responsibilities of the licensee in both.
The section on agency disclosure covers the need to ascertain “who is my client” and how will we work together? The possibilities of undisclosed and unintentional dual agency are brought up along with the methodology of avoiding these situations. Many examples are included in areas such as; giving information to a customer that should be reserved for a client, the need for undivided loyalty, confidentiality and skill and care as well as a duty to account in order to protect our client.
A long list of statements to avoid is included as well as the reasons they should be avoided, which, of course, is to protect the proper use of the laws of agency and to avoid unethical behavior. This is followed by additional points to familiarize the licensee with in order to reduce risk which could be caused by a lack of ethics.
Section 4 Documents and disclosures include explanations of typical documents used in real estate transactions. These documents are heavily stressed as a means of handling all phases of the transaction for the benefit of the public. Most controversies occur when something is not documented. We stress the need for written documentation to prove that agreements have taken place. Obviously, once there is a written agreement it is difficult, in some cases impossible, to change the course of action without the approval of the parties named. The agent has a great deal of legal protection by using written documents rather than relying on oral agreements. Of greater importance, however, is the fact that the public has more legal protection with written documents.
Purchase offers are explained as being the initial document in writing which sets the offer in motion. The purchase offer often includes a home inspection clause and we discuss how this should be handled by the licensee. This includes do not hire the inspector, accompany the inspector, interpret the inspection report, pay for the inspection, or use the seller’s inspection report. The rationale for this is included.
We include information on property condition disclosure emphasizing the need for it so that the buyer is fully aware of the condition in order to prevent lawsuits. It is not a requirement in New Jersey. Since New Jersey is a caveat emptor state the responsibility for determining property condition rests squarely on the buyer’s shoulders. However, a buyer’s agent would have the fiduciary responsibility of disclosure to his client. Recommended areas to be included in a property condition disclosure are included as well as a discussion on the pros and cons of its use by the seller.
Section 5 Liability In the liability chapter we define the different ways in which a licensee can find they are liable for an action that might result in a lawsuit. We discuss fraud, misrepresentation, negligence and suppression; what they are and how they will become the basis for the ensuing lawsuit. Intentional and unintentional misrepresentation is explained including how they occur, who they affect and the consequences to both the licensee and the public. Suppression occurs when an agency relationship exists and information is willfully withheld from the client. Many scenarios are included to more fully recognize the potential for liability on the part of the licensee when the letter of the law is not followed and unethical behavior results.
Vicarious liability is defined and situations where it can exist are included. A lengthy discussion regarding stigmatized properties follows with reference to the NAR Code of Ethics.
Listing agreements are the next topic with emphasis on avoiding legal problems and liability by committing everything possible to writing. What should be included in the agreement is described. Sub agency is discussed and the benefits to the seller are included. This chapter concludes with a cautionary discussion of the problems inherent in giving any legal advice beyond the scope of licensing.
Section 6 Lead Base Paint The chapter on Lead Paint covers all requirements for lead paint disclosure. An understanding of what lead paint is and why and how it creates medical problems is included. The history of lead paint disclosure law is explored as well as the problems that can occur upon exposure. Methods of testing and evaluation of the results are explored and discussed. Effects of lead on the body are included as well as ways of eliminating or minimizing exposure if lead is found present. Federal penalties for non-compliance are included. The agent’s responsibilities are stressed along with detailed explanations of how to handle different aspects of the transaction where lead paint is concerned. This includes the explanation and dissemination of the required lead paint disclosure pamphlet. There are checklists for sellers, lessors and agents which presents the ethical and legal handling of all aspects of lead paint and real estate.
Section 7 Disclosure, Misrepresentation and Anti-trust investigate many different aspects of disclosure requirements in a real estate transaction. The first aspect is latent defects, what they are and how they impact a transaction. This is followed by ethical actions a licensee should take in order to comply with the law. The difference between making a seeming statement of fact as opposed to making it clear that the licensee is giving their own opinion is explored.
Next, the histories of anti-trust laws are given and their impact on the way in which business must be conducted today. The enormous fines that are possible as a result of anti-trust violations are included. We have an in-depth study of the most common areas of anti-trust that cause problems in the real estate profession.
The first one is price fixing. Examples abound about different scenarios where price fixing occurs and the licensee may be hardly aware of the problem. Statements such as “everyone charges x percent” or “the Board requires us to charge x”, and so on. Any discussion around “standard or regular” commission rates is understood to be illegal. Proper verbiage is included in order to prevent these types of violations.
Next, boycotts are given consideration. Possible scenarios including negative statements about competitors and their reputations are discussed and the ethical way of handling these discussions is included.
Market allocation and tie-in arrangements and referral fees are included in the section with full explanations of all.
The enforcement of anti-trust laws and the penalties involved are included. A recommendation that the company develop a policy covering these areas is recommended followed by a synopsis of duties the agent owes to the client.
Section 8 Everything Else is a variety of subjects that have not been covered previously. The first subject we discuss is contracts. Since broker prepared contracts are frequently used, it is important for the agent to review periodically the essentials of a valid contract. Areas such as legal capacity, legal age and the authority to act are included. Also, the need for an offer and acceptance and consideration for a contract to be legal is recognized. The Statute of Frauds is stressed so that there is an understanding that a contract for the sale of real estate must be in writing. This includes understanding that while offers are often transmitted verbally; ultimately, the contract must be in writing in order to be enforceable. The contract must contain a statement regarding how Megan’s Law is handled in New Jersey. We follow with a recommended list of do’s and do not’s when preparing the sales contract.
The final section of this is an overview of the Fair Housing Laws that were not covered earlier in the course. The role of government in writing and enforcing these laws is explored. Explanations abound regarding the influence these laws have not only on housing, but life in general. Areas such as education and employment and how they are affected are included. Some antiquated laws are cited such as the right to discriminate based on race in housing and the paragraph in a NAR textbook explaining that “the inclusion of certain racial types would diminish the value of homes”. Statements made in the Code of Ethics such as “The Realtor® should not be instrumental in introducing into a neighborhood members of any race or nationality, whose presence will clearly be detrimental to property values in the neighborhood” are also included to further the understanding that fair housing is ever changing and the agent must be aware of any and all current laws under which we must act. Megan’s Law is reviewed.
We continue with exploration of the proper way to work with both buyers and sellers in an ethical and legal way where fair housing is concerned.
Steering is discussed as well as harassment. Both of these issues need to be fully understood in order to avoid acting in any way other than “under the law”.
We briefly sum up the core course in order to clarify the ethical and legal behavior expected of a licensee.
FINANCING
Section 1 INTRODUCTION TO MORTGAGE BASICS This illustrates all the variables involved in a financing transaction. We discuss many of the risks that a mortgage lender is faced with including; risk of lending for investment property, difficulty in documenting income for self-employed, the possible need for third party borrowers, fees to charge in order to lower the potential risk factors. We then proceed to delve into the differences between mortgage brokers vs. mortgage bankers. The key difference being the fact that the mortgage broker cannot close the loan and the mortgage banker can. The broker is the third party in the lending process. Mortgages are defined and explained including definitions of mortgagor and mortgagee. (Who gives and who gets a mortgage are often confused by the relatively new licensee). We move on to the essentials of a valid mortgage illustrating most of the varied terms that could be included. Types of mortgage loans are explained including secured, amortization, fixed and adjustable loan programs and hybrid loans. Terms including index, margin and cap are delved into. Amortization and negative amortization, balloon payments and graduated loans are fully explained and there is an abundance of examples to illustrate the terms used. We then move on to loan programs, beginning with conforming loans. FNMA, FHLMC as well as Ginnie Mae are explained in depth so that the licensee has a full understanding of how the use of some of these programs will create opportunities for financing that might not exist without them. Nonconforming and government loan programs such as FHA or VA plans are described. We document the history of these loans and the rationale behind them. Additionally we clarify that an FHA loan is insured by the government and a VA loan is guaranteed. Private mortgage insurance is discussed at length including when it becomes a necessity and when can it be ended. Home equity loans are explained fully with examples of when and why they could be used and how they might create problems if they are adjustable rate programs. The sections of the loan that will ultimately create the rate are explored and explained. A brief explanation of jumbo loans follows and then study of reverse mortgages, the good, the bad and the ugly.
Bridge loans, blanket mortgages, package loans, construction loans, and hard money loans are all touched upon.
Section 2 THE MORTGAGE PROCESS Mortgage underwriting is explained so that the agent can explain to the borrower the 4 C’s of the underwriting process: credit, capacity, collateral and common sense. We build on this by exploring each of the 4 C’s and why it is important. The need for credit reports and FICO scores are explained. We delve into what a lender might be looking for in the credit report beyond the FICO score. Next, the capacity to repay the mortgage loan is described. How commissioned or self-employed individuals are treated differently from salaried people is explained. Debt/income ratio and assets are determined and discussions of PITI are included. The collateral is examined with an eye toward the ease of using it to repay the principal in the event of a default. Different types of property are discussed with their possible risk in the event of a foreclosure action. We examine the different types of meaning the word “value” has. This includes market value, mortgage loan value, investment value, and value in use. This leads to understanding LTV (loan to value) and CLTV (combined loan to value) the sum of all liens against the property divided by the value. The higher either of these is increases the risk to the lender. The final C is common sense which the underwriter must use in order to determine whether to recommend the lender approve the loan. We then proceed to cover general loan submission procedures and requirements. There are different loan submission forms used by different lenders. However, they generally include the following: Uniform Residential Loan Application, VOM (verification mortgage) or VOR (verification of rent), Income documentation including proof of all income and asset sources, at least last 2 years pay stubs, last 2 years W-2 forms, last several months bank statements for each account, and at least 6 months 401K and/or IRA statements. These will vary from time to time and are merely meant as a guideline. Title report, Appraisal, Broker disclosures and fees are also needed. Each borrower’s credit worthiness will be determined on a case by case basis. However, the underwriting criteria must apply consistently to each borrower regardless of race, color, religion, age, gender, national origin, marital status, familial status or handicap. The eligibility of the property is then determined. This would include accessibility to the property and availability of utilities. The intended use of the property is also considered. Classifications of residential property such as single family, multi-family, condominium or cooperative are also determined. The same would hold true for commercial or industrial property. The next part includes information on the appraisal process with an emphasis on the marketability of the property. Included is a section on derogatory or adverse credit information and how it might be handled. We segue into foreclosures and acceleration clauses, as well as repossession, and the process of declaring bankruptcy. A discussion of bankruptcy discharge or dismissal completes this section.
Section 3 MORTGAGE LOAN This section covers calculations required to determine the viability of the loan. Loan to value ratio is critical to the lender and we go through the process of determining how it is calculated. Debt to income ratio is explored and so is PITI with many examples to simplify the process of understanding all the math calculations. Disposable income is compared to gross income resulting in an approximation of the “borrowing power” a buyer might have. An amortization schedule is clearly defined and the way in which principal and interest are applied is explained.
We conclude this section by explaining how the term of the loan can be reduced through the payment of additional principal during the life of the loan.
Section 4 CLOSING THE LOAN RESPA and Truth in Lending documents are briefly explained and then items that appear are more thoroughly discussed. These include application fees, processing fees, closing and closing costs, title search and report and title insurance, types of title policies. Escrow or transaction fees of any sort must be listed and explained. Points, whether applied to discount the loan rate or a charge for processing the loan must be included and explained. We discuss the index and margin used to determine the rate of an adjustable mortgage. Closing costs are the next topic. These include recording fees and document or transaction stamps or taxes. Appraisal fee, broker fee and transaction fees can cause the closing costs to escalate quickly. Home warranties, pre-paid property insurance and pro-rated real estate taxes as well as homeowner association dues, when required, all become part of the closing costs. Pro-rated interest is also included. We next discuss the process of “passing title”. Title is defined and an explanation of the difference between title and possession is included. Items included in a title report include, among many other categories, easements, liens, saleable interest in property, zoning, leases, assessments and lis pendens.
Abstract of title is introduced and explanations of the differences among the abstract, title report and title insurance are well reviewed. An unbroken chain of title as well as a suit to quiet title and a cloud on title are explored. Finally, the differences between the borrower’s policy and the lenders are explained.
Section 5 FRAUD, SCAMS AND RED FLAGS This section touches on the myriad of potential frauds and scams that have occurred. It is meant to alert the licensee to the potential for wrongdoing. Mortgage fraud, straw borrower, property flip schemes, double escrows, equity skimming, foreclosure and builder bailout schemes, loan application red flags, verification of deposit red flags, tax return red flags, appraisal red flags, employment and income scams are included. Mortgage fraud is intentional material misrepresentation. It is not done accidentally. Fraud for housing involves misrepresentation in order to obtain property whereas fraud for profit is done to create a financial gain. Straw borrowers are set in place when the real buyer might not qualify for financing. Property flipping schemes involve reselling property often to increase the value based on inflated appraisals. Double escrows are not always illegal, but often are. They involve buying a property and then reselling the contract at a higher price. The original sale is not closed, instead the inflated one is and the buyer walks away with a profit. Other schemes involve new owners collecting several months’ rent but never paying the mortgage and then walking away from the property. Builders selling new homes with a fictitious down payment are also explained. We explore the many different red flags on loan applications to alert the licensee of areas of potential trouble. These include tax return, down payment and other credit or income documents that might be falsified.
The possibility of appraisal fraud is also discussed.
PREDATORY LENDING
Section 1 BASICS A complete definition of predatory lending is included with many examples. These include false appraisals, income falsification, inflated lending, interest rates based on race or ethnicity, charging fees for nonexistent products and services. We also discuss higher risk loans for minorities, cash out refinancing, stripping equity, and high pressure home improvement tactics with high interest financing. Not giving the borrower the true picture of the cost of financing is a typical predatory lending tactic. Symptoms of predatory lending are included such as convincing a borrower that this is the only loan available, signing blank loan documents, convincing a borrower that the loan is insured against fraud, closing costs are much higher than represented and convincing owners that refinancing will solve all their money problems.
Key terms are included in order to familiarize the licensee with the vocabulary of predatory lending.
Section 2 LENDING AND DISCRIMINATION Prohibited lending practices often include discrimination. These are a violation of the Fair Housing Act. Included in predatory lending discrimination are failing to provide information regarding the availability of loans or financial assistance and providing inaccurate or different information than what might be offered to another based on the covered classes in fair housing laws. Refusing to sell or rent, negotiate, deny information, using different qualifying criteria in a sale or rental are discussed. The issue of reverse redlining is included. Discriminatory steering and case studies are discussed.
An explanation of the differences between predatory lending and sub-prime loans concludes this section.
SHORT SALES
We begin with an explanation of what constitutes a short sale. This leads to an understanding that short sales are generally very emotional for the seller. Step one is determining whether the property would qualify for a short sale. It must be appraised or a BPO prepared before any other action takes place. The appraised price, mortgage balance, outstanding liens and brokerage fees must be factored in to the appraised price in order to determine whether the short sale is feasible. The lender is then approached to get assurance that they will allow the process to be completed. Additionally, anyone who has a financial interest in the property must approve. Lenders usually have specific employees handling these sales. They work in the “loss mitigation department”. A successful short sale often is the result of highly experienced people putting it together. One that fails is usually the result of inexperienced or uneducated participants. Lenders have additional financial considerations that the real estate licensee may not be aware of and they might create problems in achieving the predetermined goal. Buyers of short sale property need to understand that banks can rescind the offer without penalty. This can happen simply because someone brings a higher offer. Often, the buyer will become disinterested because a great deal of time has passed with no assurance that they will actually buy the property. Some lenders are simply not prepared to handle short sales and their staff is ill equipped to make all the necessary decisions. This leads to inaction which could result in a newly disinterested buyer. A critical element of the short sale is that the owner must have financial hardship. If they are employed and have assets, are current in their payments, the bank will not agree to a short sale. There are many requirements before a short sale can be organized. These are specified and explained. Among them is that a contract must be signed before the lender will consider entering the process. Commission must be negotiated in advance and there cannot be any additional remuneration. To do so could trigger an investigation for fraud. Any cooperating brokers must know that the listing could constitute a short sale contract. There are many ethical considerations. If the lender is willing to modify the loan, the licensee cannot stand in the way. The licensee must assist in accurately defining the owner’s hardship. We cannot accept any remuneration for assistance in putting this together beyond the agreed upon commission. We cannot participate in manipulating the BPO or agree to assist in allowing an owner to accept any payment not listed on the HUD 1. Property defects must be disclosed. We should recommend a home inspection. Keep the lines of communication open. Always remember, the “bank is boss”. The buyer must be the owner-occupant. They agree not to immediately resell the property. The buyer cannot make an agreement to live in the house and pay the owner rent. Buyers should have their financing in place before they sign a contract. We must do everything to protect the public. The short sale purchase contract is legally binding once the earnest money has been deposited. However, the lender must approve the offer and release all liens against the property.
Short sale specialization is not for everyone since it takes a great deal of detail orientation, patience and a willingness to hold peoples hand.
PRICING
Section 1 INTRODUCTION Problems associated with unrealistic pricing are studied. Next we present an overview of the process of pricing property. We continue with an understanding of the components of a valid Competitive Market Analysis. The importance of gathering and displaying the pertinent information, explaining the research and market conditions, and establishing a price range for the seller to ponder are determined. Establishing that a written market analysis can establish a trust relationship and open the door to better communication is included. We move on to the necessary components of the market analysis including the seller’s motivation to sell the property. Scenarios are included showing how seller motivation will impact the price of the house.
The need for the agent to be totally familiar with the area in order to properly price the property is determined.
Section 2 PREPARING THE MARKET ANALYSIS We begin by exploring all the data necessary for a competent market analysis. This includes but is not limited to: property size and location, school district, style of home, total number of rooms, number of bedrooms and baths, overall conditions, comments on upgrades or renovations, finished basement or not. External factors are introduced such as overhead wires, air traffic, auto traffic, nearness to shopping and transportation are explored. We now assess the current market by taking in to account homes that were sold within the last 3 to 9 months that are similar to the property we are analyzing. We look at similar property that was offered for sale but did not sell and we conclude with property currently on the market that will compete with the subject property. Adjustments for condition or attributes, both included and lacking are now determined. We can now assign a price range that would attract buyers. However, reality is that the seller will probably have a different version based on the value he perceives.
Section 3 THE PRESENTATION We begin by explaining the value of fair pricing such as a faster sale with less inconvenience based on exposure to more prospects. It also creates salesperson enthusiasm which in turn also produces more prospects. Examples to encourage the seller to work with us and price the property fairly are next. Presentation of the market analysis is followed by scenarios important to understand how to overcome seller’s objections. We explore the sellers desire to include “bargaining room” and include examples of how this might hurt the exposure necessary to sell the house. The length of time we get to market the property is discussed as well as presenting offers.
This section concludes with an understanding that a good market analysis accompanied by a well prepared listing presentation will ultimately assist the seller in achieving his goal.
* No partial credit can be given for this course.