HUD Bans Dual Agency on Tuesday
On Tuesday, HUD announced that is was banning dual agency on short sale transactions (transactions involving distressed homeowners) in order to help achieve its goal of an “arms-length transaction.” Dual agency is a business model employed by mega real estate firms that sacrifice their clients’ right to representation in exchange for a self-dealing opportunity to collect a double commission. Dual agency is illegal in every other profession because it rarely can be performed without some sort of fraud (or appearance of fraud) and it almost never results in an arms-length transaction. Ever heard the saying, “you cannot serve two masters?” Dual agency is the opposite of the definition of an “arms-length” transaction.
NAR Talks With HUD – Ban on Dual Agency Lifted on Wednesday
On the same day HUD announced its ban on dual agency, the National Association of Realtors (“NAR”) wrote a letter to HUD and apparently “immediately began talks with HUD officials on the proposed change.” We wrote our letter yesterday, but apparently, we were too late. According to NAR’s webpage (click here to access), “On Wednesday afternoon HUD officials reported to NAR that they would reissue the July Mortgagee Letter (#2013-23) and remove all dual agency language….”
HUD’s Definition of an “Arm’s-Length” Transaction
“All doubts will be resolved in a manner to avoid conflict of interest, the appearance of conflict, or self-dealing by any of the parties (e.g., a real estate agent shall never be permitted to claim a sales commission on the sale of his own property or that of an immediate family member….)”
Perhaps HUD’s new definition of an “arms-length transaction” should be, “All doubts will be resolved in a manner to avoid conflict of interest, the appearance of conflict, or self-dealing by any of the parties so long as the party is not a large corporate real estate broker or a safeguard service affiliated with a real estate broker.” Conflict of interests harm consumers and there can be no special exceptions for businesses that choose a business model that profits from those conflicts. Dual agency is the absolute worst conflict of interest possible in a fiduciary relationship. It almost always devolves to the undisclosed dual agency (common-law fraud) and self-dealing (theft by swindle). One of the most important remedies often available to victims of undisclosed dual agency is rescission of the contract – because dual agency transactions rarely involve an arms-length transaction.
NAR’s Letter Was Not Factual
HUD capitulated on this issue based on discussions that they had with NAR. We are unaware of any conversations with consumer groups. We are aware that NAR’s letter was not factual.