First-Time Home Buyer Credit Scams

I am always amazed at the amount of energy scammers put into developing new ways to cheat people out of their money. And the person they are cheating is YOU.

In 2008, the First-Time Home Buyer Tax Credit was passed. This allowed first-time homeowners to claim a tax credit on their federal tax return. There are specific requirements the buyer must meet in order to claim this credit. (See article for details.)

To date, the IRS has identified 167 distinct "criminal schemes," involving over 100,000 unjustified or fraudulent claims.

Why should you be concerned? First, your money is being spent trying to catch these crooks. Second, these criminals are not paying their fair share of taxes, so you have to pay more to compensate. And third, the government is considering extending this tax credit. But this extension is now in jeopardy because of these thieves.

Former Countrywide CEO Charged With Fraud

Countrywide Financial CEO and co-founder Angelo Mozilo has been charged with securities fraud and insider trading. The Securities and Exchange Commission (SEC) also hit former Chief Operating Officer David Sambol and ex-Chief Financial Officer Eric Sieracki with similar charges.

The SEC said the men deliberately misled investors, leading them to believe that riskier subprime and option adjustable-rate mortgages were safe. It said the executives ignored the warnings of the company’s risk officer about the firm’s precarious underwriting practices.

The SEC claims Mozilo acknowledged privately that the company was unsure about the performance of option mortgages, but publicly spoke about their soundness. Mozilo is also accused of selling $140 million of his Countrywide shares even though he knew the firm was near collapse.

Lawyers for the men say they are innocent and are being charged because the SEC is looking for scapegoats.

Source: The Wall Street Journal, Liz Moyer (06/04/09)

Mortgage Payment Fraud Alert

A new scam has started to appear regarding loan payments. As many of you know, when you get a home loan, the loan is often sold to a servicing company. This allows the lender to recoup the money they loaned you and lend it to someone else. Once the loan is sold, you make your payments to the loan servicer, not the original lender.

Recently, some borrowers have been receiving letters informing them that their loan has been sold and they are to send all future loan payments to the new servicer. The problem is, the loan was not sold. So the unsuspecting borrower sends their loan payment to the new address. A couple of months go by and they receive a letter from the real lender telling them that their loan is in default. The borrower tries to contact the "servicer" only to find that they have closed up shop and have moved on to a new state and new name. The borrower now is out the money they sent to the crooks, and has late fees on their loan.

In an attempt to stop this fraud, lenders have set up a protocol for the transfer of a loan. Two letters are now sent - one from your lender telling you they have sold the loan, one from the servicer telling you they are now taking over the loan. If you receive a letter telling you your loan has been sold, you should contact your original lender to verify that they have, in fact, sold the loan.

Insuring Vacant Homes

As homes languish on the market, many homeowners are vacating their homes. This can be for a variety of reasons. They may have to move for a job relocation; they may have purchased another home; or they may be negotiating a short sale with the lender and have made other living arrangements. Whatever the reason, a vacant home may cause a problem with your insurance coverage.

Insurance companies consider vacant homes to be a high risk for vandalism and theft. And if there is a fire or a burst water pipe, no one is there to report it, so the resulting damage can be much greater. You need to check your policy to see if your vacant home is covered. If not, you should consider getting vacant homeowners coverage. Ask your existing insurer if they offer the policy. But you should also comparison shop with other insurers for the best rate. Coverage may also be available through some state-run insurance plans, such as Fair Access to Insurance Requirements (FAIR) Plan.

If you can't get - or afford - vacant homeowners insurance, you might want to consider these options:

Stay in the home until it's sold. If more than one person now resides in the home, perhaps one could remain while the other moves;

Discuss the pros and cons of renting the home with your Realtor. If you decide this is a good option, you may need to change your insurance to reflect that the property is now a rental. But that insurance will be cheaper than vacant home insurance; or

Hire a house-sitter, or allow a friend or relation live in the home until it sells.

Even if you can't have someone live into the house, try to make it look like someone is living there. Keep the home and yard maintained. Periodically enter the home to make sure there are no leaks, cracked windows, etc. Don't allow the mail, newspapers or deliveries to pile up.

You may want to install a security system. Consider putting the lights on timers and make sure the windows are covered. You might ask a neighbor to park in the driveway.

Whatever you do, don't commit fraud by lying to your insurance company. Most policies allow you to leave the home vacant for a certain period of time before you are required to switch to a vacant home policy. If leave your home vacant longer than your current policy permits and the place is damaged or destroyed, the insurer can challenge the claim.

Lenders Held Accountable For Bad Loans

Most lenders sell their loans on the secondary market the moment the deal is closed. This allows the lender to get back the cash they just loaned out, keeping as profit the loan fees they collected from the borrower. They can then lend the money again, collect more fees, - a cycle that keeps money flowing to borrowers and profit streaming into the bank.

In order to sell these loans, the bank must guarantee that there is no fraud in the loan package. For example, the borrower's income can not be inflated or the appraisal can not be inaccurate. And to keep the bank "honest", they must sign an agreement that says if fraud is found, the bank must buy back the loan.

To no one's surprise, not every loan is completely factual. In the past, the odds were pretty good that one or two lies could easily slip through the system. And if the borrower did have problems making a loan payment, the home could always be sold for a profit, since everyone knows that real estate never decreases in value...

Well - now that the bottom has fallen out of the real estate market and borrowers are defaulting at record numbers, the secondary market is taking a long, hard look at the loans they purchased. Freddie Mac and Fannie Mae, the largest purchasers of real estate loans, are reviewing every loan that defaults. If they find fraud, they are requiring the lenders to buy back the sub-standard loans.

Of course, banks are not eager to do this, partially because they do not want the non-performing loans, but also because many banks to not have the cash reserves to buy the loans. Lawsuits are being filed and the government is considering requiring banks to keep a larger cash reserve. And even if the real estate market revives soon, you can bet these loan fraud problems will affect real estate lending for many years.

A Case Of The Fox Guarding the Hen House?

A new company has emerged to address some of the financial turmoil created by the credit crisis. Private National Mortgage Acceptance Company, LLC, known as a PennyMac, has just opened its doors.

PennyMac plans to buy at-risk loans from banks and savings and loans - at a deep discount. They will then attempt to work with the borrower to restructure the loan so that the borrower can make the payments and stay in the home. Once the loan is stable, PennyMac will then sell the loan to other investors at a profit. As stated on PennyMac's website, they will acquire "loans from financial institutions seeking to reduce their mortgage exposures. PennyMac will create value for both borrowers and investors through our distinctive approach to loan servicing. "

These financial woes were caused, in part, by the greed of irresponsible corporations. Some, like Countrywide, one of the biggest players in the loan debacle, are being investigated by the FBI for securities fraud. So it's good to know that there are money wizards trying to solve this mess. But who are these financial "white knights"?

Let's start with PennyMac's founder, Chairman, and CEO, Standford L. Kurland. Here's a quotation from Mr. Kurland's biography as stated on the website:

He is well recognized for his leadership in developing the strategic direction, risk management activities, financial management, and organizational development of Countrywide Financial Corporation. During his tenure at Countrywide Financial, until his departure in 2006, where he served as Chief Financial Officer and then Chief Operating Officer and President, the company grew in market capitalization from just over one million dollars to a leading financial services firm with over 25 billion dollars in market value. Under his leadership, Countrywide built a world class organizational and governance structure.

Yes - you read that correctly. The man who was the head of one of the largest companies responsible for this financial mess is now going to head the company that will profit from trying to fix the mess. "He won't be the first or the last person trying to make money on both sides of a trade," said Frederick Cannon, an analyst at Keefe, Bruyette & Woods Inc., who covers Countrywide.

You sure are correct, Mr. Cannon. Kurland isn't the only former Countrywide manager planning to use PennyMac to drain even more personal profit out of this loan crisis. Here are a few other former Countrywide employees and their new PennyMac titles:

David Spector, Chief Investment Officer;
Farzad Abolfathi, Chief Technology Officer;
Adal Bisharat, Director, Strategic Planning;
James S. Furash, Chief Development Officer;
Aratha M. Johnson, Chief Administrative Officer;
Michael L. Muir, Chief Capital Markets Officer
Lior Ofir, Director, Technology;
Mark P. Suter, Chief Portfolio Strategy Officer; and
David M. Walker, Chief Credit Officer.

If I murdered someone and wrote a book about it and that became a best seller, I would not be allowed to keep the money. The law says I can not profit from my crime. So why are these people allowed to perpetrate these financial crimes and, not only get away with it, but be allowed to profit from the fix?

Fair Debt Collection

As economic times become more difficult, a greater number of people are defaulting on their bills. And a greater number of debts are being turned over to debt collection agencies. And with this has also come a rise in complaints about debt collection agencies. The Federal Trade Commission said that, for the past three years, they received more complaints against debt collectors than against any other industry. And for the past five years, complaints are up about 43 percent according to the Better Business Bureau.

Debt collection agencies are necessary for businesses who are legitimately trying to recoup their losses. According to a study cited by a collection industry trade group, in 2005 the collection industry saved the average American household $351. That is how much money households would have spent if businesses were forced to raise prices to cover bad debt.

But sometimes these agencies resort to unethical tactics to try and recover the debt. "Most people are not aware of their rights. And unfortunately debt collectors take advantage of that fact," says Joe Ridout of Consumer Action. So it's important that you know what these companies are and are not allowed to do. Here are some basic consumer rights:

A debt collector may not call you before 8 a.m. or after 9 p.m., unless you agree;

You may not be contacted at work if the collector knows your employer disapproves;

If you don't want to hear from a debt collector, write a letter telling them to stop. By law, they have to. But the debt won't go away and you can still be sued;

If you have an attorney, the debt collector is allowed to contact them. If you don't have a lawyer, your friends and family can be asked about how to get in touch with you;

A debt collector may not misrepresent the amount of your debt;

A debt collector may not use profane or threatening language;

Debt collectors may not say that they will put a lien on your property or file a lawsuit unless the agency really means to do that and it's legal; and

Collectors may not legally claim federal benefits such as Social Security, or your retirement accounts, like your IRA or 401(k).

Debt collectors can get very aggressive, so it's important that you know your rights. For more information, you can look at the Fair Debt Collection section of the Federal Trade Commission website. This site goes into detail about what debt collectors are and are not allowed to do. In addition, it provides information on how to file a complaint against a debt collection agency.

Appraising the Appraisal - New Guidelines for Home Appraisals

There is plenty of blame to go around when it comes to the housing crisis - lenders, Realtors, mortgage brokers, and borrowers. Even the appraiser has been derided for overstating values. But appraisers have been placed in a very difficult position.

Many banks and savings and loans have their own "in-house" appraisal departments. The appraiser, a bank employee, is told that the loan department wants to make a loan on a particular home. In order to do so, the appraisal needs to come in at or above a certain home value. The appraiser knows that if he does not come in at that amount, the loan will not go through and he'll have the loan department breathing down his neck. Enough of these complaints and he might lose his job. So he manipulates the numbers to make sure his appraisal comes in at the required value.

This problem exists even for independant appraisers (those who do not work directly for a lending institution). Most appraisal companies are on a lenders "approved appraiser" list. This means that, with each new loan, the lender will turn to this list to hire an appraiser. For many appraisal companies, this is how they get the majority of their business. And if they are thrown off the list, the appraisal company may go under.

Either way, the in-house appraiser or the approved appraiser has every reason to manipulate the appraisal to meet the lender's required loan amount. But this is about to end.

Starting in 2009, Fannie Mae and Freddie Mac, two of the biggest players in the secondary mortgage market, have announced that they will no longer buy loans from lenders who do not use independent appraisers. Lenders who want to sell loans to Fannie Mae or Freddie Mac will not be allowed to use in-house appraisers, or appraisals done by a subsidiary or an affiliated company. Also, mortgage brokers and real estate agents may no longer choose the appraiser. And finally, Fannie Mae and Freddie Mac will create the Independent Valuation Protection Institute, a group that will accept complaints from consumers who feel their appraisals are unfair, and appraisers who feel that they are being pressured to provide inacurate appraisals.

Will this make it harder to get a loan? Yes, but at least you will know that your homes appraised is a realistic estimate of it's true worth.

Would You Send "Jingle Mail"?

There's a new buzz word in real estate - "jingle mail". No, it's not a letter from Santa. It's the sound of lenders receiving the keys to homes on which they hold a mortgage. As housing values plummet, many people find they owe more than their house is worth. If you have a fixed monthly payment that you can afford, you may want to keep making your payments and hope that, in time, the market will recover.

But what if your loan payments are going up and you can no longer afford them? What if, in order to stay current on your mortgage, you have to get behind on other bills? Is it worth it to keep putting money into a house that you can no longer afford and in which you have no equity? Many people are starting to say no and are allowing their homes to go into foreclosure.

Of course there are consequences to foreclosure. The biggest result is the reduction in your credit score. However, credit rating companies point out that the hit you take to your credit due to a foreclosure is less destructive than the one you would take if, by continuing to try and make the monthly payments, you end up in bankruptcy. And with the passage of Mortgage Forgiveness Debt Relief Act of 2007 , even the IRS is making it less painful to default on your home loan.

Foreclosure has always been an option for homeowners who, due to rate increases, job loss, etc., can no longer afford their homes. But lenders are starting to see foreclosure being used by homeowners who can afford their monthly payments. They simply choose not to.

Why would someone choose to go into foreclosure? Let's say you bought your house a few years ago for $500,000. Real estate values in your neighborhood have dropped and now similar homes are selling for $375,000. You could buy another home for $375,000, move in, and walk away from the $500,000 house. Sure your credit is wrecked, but after about 3 years, assuming you kept up on all your other payments, your credit score would recover.

So here's my question to you - when is it OK to just walk away from your debt? Are you shirking your financial responsibilities, or are you making a smart financial decision? Fifty years ago, divorce was often seen as an admission that you were not strong enough to keep a marriage together. Today, most of us are more accepting of divorce as a way for two adults to move on with their lives. Are we seeing the beginnings of a change in attitudes towards foreclosure? Rather than a stigma, will foreclosure simply be seen as a way to better manage one's assets?

What do you think? Send me your comments - I'd really like to know if you think we're on the edge of a change in attitude towards foreclosure.

MedFICO - Good Credit = Good Healthcare?

You already know that your credit score affects your financial health. But soon it may determine your physical health as well. Fair Isaac, the company that brought you your FICO score, is working with Healthcare Analytics and Tenet Healthcare to create a new MedFICO score. Just as your FICO score tries to predict whether or not you will pay your credit cards and mortgage bills, MedFICO is intended to determine your likelihood of paying your medical bills.

The healthcare industry says the reason this score is needed is to help hospitals decide whether a patient is capable of paying a medical bill, or whether they should write the bill off as uncollectable. Without this prediction, hospitals find it very difficult to balance projected income with expenses.

But consumer advocates have raised some alarms. We already know that there has been identity theft when it comes to our financial credit scores. What assurances do consumers have that there will not be similar problems with our health scores? In addition there is great concern over patient confidentiality. If medical bills become available for other to see, what is to stop an employer from hiring someone based on their medical history? Will hospitals provide different levels of care depending on whether the patient is deemed a good or bad credit risk? And what about simple clerical errors? How will an incorrect score affect the quality of care?

MedFICO's designers counter these concerns by stating that only the medical provider's name and amount owned will be seen on the report. But that does not guarantee the patient's medical history will be secure. For example, if someone has an unpaid bill to the Betty Ford Clinic, would the presumption be made that the individual had a substance abuse problem? If there are monies owned to Sloan Kettering, will some people assume the patient was treated for cancer. These are just some of the many questions this scoring system raises.

MedFICO is still in the development stage, but it may be implemented as early as this summer. I'll be sure to update you as more information becomes available. But you need to know this is on the horizon.

How to Value a Property - Whose Fault is it if I Paid Too Much?

There is an article in today's New York Times about a woman who is suing her Realtor because she believes she paid too much for her house. She claims her Realtor withheld important information about the value of the home, and that the lender and appraiser aided in this fraud. As a real estate professional, I am intrigued by the specifics of the suit. But it brings up a broader question. Excluding cases where there has been fraud or misrepresentation, what influences a buyer's opinion when deciding what a home is worth?

Buyers look to a number of resources for help when deciding on an offer price. Typically, the primary source for pricing information is their Realtor. Hopefully the Realtor and client have looked at other homes in the neighborhood for comparison. In addition, the Realtor should be able to show the client sales prices for similar homes. But no two homes are identical. Even homes with the same floor plan can have vastly different values depending on condition, upgrades, lot, views, etc.

A second source of information is the appraisal. At it's most basic, an appraisal is designed to assure the lender of the home's value. This is why many purchase agreements have a contingency that states the appraisal must equal or exceed the offer price. Usually the appraiser finds recent sales of similar homes. He then lists the differences between these "comparables" and the subject property and assigns a value to each difference. By adjusting the value of the subject property based on the value of these differences (adding value for assets the subject has that the others don't, subtracting value for assets the comparables have that the subject does not), he comes up with the appraised value of the home.

But buyers also turn to another source for help in establishing a home's worth and, in my experience, this group has more influence then either the Realtor or the appraiser. It consists of friends and family. They may or may not have actually knowledge of similar property values, but they will certainly have an opinion. Most of us like to have our decisions confirmed by those we know and trust. If a friend looks at the home, hears the offer price and starts to gush about what a great a "deal" it is, odds are that the buyer will go ahead and make the offer. If, however, this same friend frowns and suggests the price is too high, no amount of comparables proving otherwise will make most buyers comfortable with the offer price.

But the final judge of a property's worth comes down to the buyer herself. We all see property through our own set of preferences and prejudices. Sometimes we know what we want, describe it to the Realtor, and he finds something that comes close. But every Realtor who has been in the business for more than a few years has a story about a buyer making a list of "must-haves", then buying something different.

When a buyer walks into a home and her eyes light up, nothing and no one will dissuade her from doing whatever she can to get the home. Her Realtor can show her "better" homes; the appraiser can provide lower-priced comparables; friends can point out the home's defects. But even with all this data, sometimes a buyer simply must have that house. It's as if she has fallen in love. And, as with love, a buyer can be blind to the house's true value. It's only after the honeymoon period is over that the buyer may realize she has paid too much. And, like a marriage, it can be very costly to "divorce" your house.

To Tell Or Not To Tell - Real Estate Disclosures

Whether you are buying or selling residential real estate, your contract, if correctly written, will require a variety of disclosures. Disclosures are documents provided to the buyer, usually by the seller or someone hired by the seller, divulging information which could materially affect the desirability or marketability of the property. Some disclosures are mandated by law; others are dictated by common sense.

They cover a lot of ground, everything from whether the home has legal and functioning smoke detectors to whether the neighbors are noisy. But whatever the topic, they exist as an attempt to stop misunderstandings and potential lawsuits.

Because disclosures cover so many areas, it is sometimes difficult to decide what should and should not be disclosed. But what if the seller knows about a condition that may occur? Should that be disclosed? As an example, let's assume the seller lives near an open lot that is under negotiations to be developed. Nothing is finalized and no one has actually started building. But the seller knows that this could occur. Should the seller disclose this?

The answer is yes. This is just the sort of information a buyer needs to know and a seller has an obligation to disclose. These potential developments may not be obvious to someone driving through the area, but the seller knows about them. So even if building hasn’t begun, a buyer has the right to be informed of the possibility of development.

This information could directly affect a purchaser’s assessment of the value of the property. He could decide that he doesn’t want to live in a place where trucks and workers will be driving through on a daily basis. He may not want to live with the noise, dust and disarray that happens with construction. On the other hand, the buyer may see this as a boon. More building brings more buyers into the area and, perhaps, an increase in property values.

In any event, it is up to the seller to disclose this information. And it is up to the buyer to decide how this information will affect his desire to purchase. This is the essence of the disclosure laws.

Credit Repair Scam That May Get You A New Home - IN JAIL!

Your credit is lousy. Maybe you just declared bankruptcy or gone into foreclosure. You're desperate and depressed. Suddenly, you find the answer to your prayers. It may come as an add on TV. Or it might show up as a letter in your mailbox. But there it is - a chance to start over:

Erase Your Credit!
Get a New - CLEAN - Credit File in 30 Days!
Get a Fresh Start With a New Credit ID!

Whatever the words, the promise is the same. For a fee (of course) you will get a new credit ID number which you can then use to build a whole, new credit profile. Use this new number when applying for credit and no one will ever see your old credit problems. And, best of all, this is totally legal and sanctioned by the government!

It sounds wonderful and, like most things that sound too good to be true, this one is a lie. It's a scam to move what little money you have left, out of your pocket and into those of the "credit repair" company. The difference between this and other scams is that this one is also illegal and, by following their instructions, you could end up in jail.

The scam is based on a process called "file segregation". You will be told how to file for a "new" social security number. In fact, what you will be doing is filing for an Employer Identification Number (EIN). EIN's look like social security numbers, but they are used by businesses to report financial information to the IRS. Your helpful "credit counselor" will recommend that you use a different mailing address on your application, and suggest you come up with some credit references ("not to worry if the addess and references are fake, it's just a formality").

Once you get your EIN, you will be instructed to use it (and the false address and credit references) to apply for new credit cards or loans. You'll be cautioned that it may take 60-90 days before your new credit "really begins to work", so be sure to pay all your new bills on time.

What you will NOT be told is that, by following their advice, you may be committing fraud. It is a federal crime to:

Misrepresent your social security number;
Obtain a EIN under false pretenses;
Make false statements on a loan or credit application.

If you use the mail or phone to apply for credit and provide false information, you could also be charged with mail or wire fraud. And if that were not enough, in most states, you could also be accused of civil fraud.

The bottom line is that there is no quick and easy way to "start over". If you want to repair your credit history, start by reading Your Credit Rating - Know the Score and Help During Hard Times.

Many people are looking for a quick, easy way to repair their credit. But it takes time and work. Don't fall for this scam. Not only will you be throwing away your money, you may end up in jail.

Piggybacking Credit - Don't Get Taken For A Ride

We've all heard the ads - "Increase your credit score in 30 days or less!" - companies promising to bolster your credit score into the 700's so you can get better rates on your loans or credit cards. How do they work this magic when it takes the rest of us months to clean up our credit?

The process they use is called "credit piggybacking". For a fee (usually in the thousands of dollars) they will match you up with someone with excellent credit who will then place you on one of their credit cards as an "authorized user". You don't get to use the other person's card. In fact, you often don't even get the card. What you do get is to "piggyback" on to part of their credit history. Their entire payment history for that account magically shows up on your credit report as if it were your own payment history. Because these "donors" have been screened to ensure their credit is excellent, their payment history serves to increase your overall credit score. If you buy enough of these accounts, it can really push your score up.

It's a great situation for everyone. You get an increase in your credit score, allowing you to get credit at a better rate. And the owner of the account and the company that matched you with the credit card holder gets to share in the fees you paid to have this done. Everyone is happy. Everyone, that is, except the bank when you apply for a new loan or credit card. For some reason, they seem to view this as credit fraud. And now it is going to stop.

FICO, the company that compiles credit scores for banks, is revamping the way scores are calculated. An "authorized user" account will no longer count when calculating your credit score. It won't hurt you, but it won't help you either. If you have been using an "authorized user" account to bolster your credit score, you may actually see your score decline, since this account will no longer be factored in to the calculation.

If you need to improve your credit, read Your Credit Rating - Know the Score. If someone offers you an "autorized users" account, don't take it. At best you'll be throwing out money on fees. At worst you'll be accused of credit fraud. This is one piggyback ride you can't afford to take.

Ask the Expert - Which Agent Writes the Offer?

Question: Last week I drove by a home that looked interesting. I called the agent whose name was on the sign and made an appointment with her to see the house. After looking it over and discussing the pros and cons with her, I told her I was interested in making an offer, but that I would be using my own agent. She seemed upset. Did I do something wrong?

Answer: In a word - "yes". Instead of calling the listing agent, you should have had your own agent make an appointment to show you the property. Look at it from the listing agent's point of view. She took the time to meet you at the property, show it to you, answer all your questions, maybe even give you pricing comparables for the house and advise you on the best structure for an offer. You used her time and her expertise. But you didn't want her to get paid for that. Instead, you handed the fruits of her work over to another agent. In effect, you said that her time and knowledge were worthless. Sure, she would still get part of the commission if you bought the home through another agent. But you increased her work without increasing her pay. And you took up her time that she could have spent working with her own clients. No wonder she was upset - wouldn't you be if someone did that to you?

Do Realtors Have Ethics?

Any English majors who are reading this are leaping to their feet and yelling “oxymoron!” (the combining of incongruous or contradictory terms). A favorite example when I was in school was “military intelligence”. Many people would add “real estate ethics” to the top of their oxymoron list. But believe it or not, real estate agents are ruled by ethical guidelines. Whether or not we follow these rules is another matter.

Anyone who has a license to sell real estate in California is regulated by the Department of Real Estate (DRE). But just because you hold a license does not mean you are a Realtor®. This title denotes membership in the California and National Associations of Realtors®. Membership in these associations means that you are bound by their rules as well as all DRE regulations.

So exactly what kinds of rules are we talking about? The most basic deals with who is required to be licensed. You do not need a license to buy or sell your own property. But the moment you perform any real estate act for another for compensation (property management, holding open houses, etc.) a license is required. And not just any license…you must either have a broker’s license or have a salesperson’s license and work for a broker.

Once a client-agent relationship is formed, that agent owes his client an obligation of absolute fidelity to the client’s interests. This includes the obligation to provide the client with material facts in order to make informed decisions about the sale or purchase of a home.

One example of this rule which has been very much in the industry news of late concerns “pocket listings”. When a broker takes a listing, the owner can chose to not have the home listed in the Multiple Listing Service. If she chooses, the owner can go a step further and allow only that broker to sell the home. No other broker will be allowed to show or sell the property.

If the broker gets the correct signatures from the client on the appropriate forms, this is legal. But in my opinion, it is rarely in the best interests of the client, because this type of listing, which limits the marketing and competition for the home, seldom brings the seller the highest and best offer on her property. This places the broker at odds with his fiduciary duty, the most basic obligation a broker has to his client.

As a real estate consumer, you have the right to demand that your representative not only have the legal qualifications to represent you, but the ethics to represent your best interests.