Regarding Note for Fee

I must comment on the information published in your Real Estate Q&A; column (Aug. 11). The query was from a seller whose real estate broker had refused to accept a note and second trust deed in lieu of a cash commission on the sale of his property. In his response, Robert J. Bruss stated that the broker “should have accepted” the note and trust deed because the broker had only the $18,000 commission to lose while the poor, hapless seller stood to be foreclosed out of his home.

First, by procuring an apparently qualified buyer for the seller’s property and negotiating an acceptable sales price, the agent performed the service for which she had been engaged. It is at this point that the commission is earned, not at the time the sale is consummated, as is sometimes erroneously believed.

If the agent and broker choose to accept a note and trust deed in lieu of immediate payment of the commission, they become creditors of the seller. As a prudent lender, they would want to make an analysis of the borrower’s previous credit history and the sufficiency of the security offered before making a decision to extend credit.

The seller in this case has four mortgages and a tax lien encumbering his property. One mortgage is already in foreclosure. I would be surprised if the seller could find any lender willing to extend credit under such circumstances. Further, the security being offered is the property being sold.

This means that once the sale is consummated the seller no longer owns the property, the buyer does. The seller then has no incentive to pay his obligation, as the broker’s primary means of recourse is to foreclose against the new buyer. As a buyer, I would find it extraordinarily unsettling to discover that I could face the choice of losing my home or of paying an $18,000 debt which was not my responsibility.

Secondly, though losing one’s home through a foreclosure proceeding is undoubtedly fraught with psychological trauma, Bruss’ concern with the seller’s possible loss of equity is misplaced. If the seller had as much as $18,000 equity in the property, the issue of paying the commission would not have arisen. The seller states that he is receiving “very little” cash from the sale. Under such circumstances, the magnitude of the broker’s possible loss is greater than the loss to the seller of his meager equity.

Lastly, Bruss closes his reply by stating that unless the seller can secure an “all-cash purchase offer” before the foreclosure proceedings are completed, all parties will lose. As far as a seller is concerned, the buyer’s mean of financing the purchase of property is irrelevant unless the seller is carrying a purchase money trust deed for a portion of the price. The seller’s net proceeds will not vary whether the buyer pays cash, secures a new loan, or even assumes the existing loans. Since this seller has so little equity left, it is unlikely that the terms of the buyer’s offer included a purchase money note and trust deed from the seller.

I can only have sympathy for the unfortunate agent and broker who have probably already been served with a summons and complaint by a desperate seller trying to salvage his position by any means available to him. With advice like this being offered in a supposedly expert and informed column, it is no surprise that the real estate industry is so frequently and unjustly maligned.

LAURA A. BRADLEY

Solana Beach