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Washington short-sale brokers could lose licenses
Real estate team accused of false advertising, underpricing listings
By Matt Carter
Inman NewsTM
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A prominent short-sale broker and his wife could be barred from practicing real estate for 10 years, after an administrative law judge affirmed six of 10 alleged license violations filed against them by the state of Washington's Department of Licensing.
Washington regulators suspended the licenses of designated broker Michael Hellickson, his wife Tara Hellickson, also a broker, and their Pierce County-based brokerage, Hellickson.com Inc., without a hearing in September after receiving more than two dozen complaints about their practices.
A superior court judge reinstated all three licenses in October, pending the outcome of a hearing by an administrative law judge.
After a 10-day hearing in February and March in which the Department of Licensing called more than two dozen witnesses, Administrative Law Judge Terry A. Schuh affirmed six of the 10 alleged violations filed against the Hellicksons, and half of the 10 alleged violations lodged against their firm.
An attorney for the Hellicksons has filed a petition for review of Schuh's May 11 initial order. The Hellicksons' licenses remain in force while Schuh considers the issues raised in the petition and the Department of Licensing's response.
If the Hellicksons' petition is unsuccessful, the Department of Licensing will have 90 days from the May 11 initial order to revoke their licenses.
Michael and Tara Hellickson would then have the option of going back to Superior Court to challenge their license suspensions.
Schuh found that the Hellicksons and their firm engaged in a "pattern and practice" of listing homes at artificially reduced prices that didn't accurately reflect what the owner was willing to accept, in the hopes of generating multiple offers.
The Hellicksons misrepresented that they would buy homes listed with them that did not sell within 30 days, and that Michael Hellickson engaged in false advertising when he claimed to be the No. 1 agent in Washington, Oregon and Hawaii, Schuh ruled.
The Hellickson Team also "engaged in a pattern and practice of negligent and dilatory communications with homeowners, potential buyers, and lenders" by not responding to phone calls and e-mails in a timely fashion, resulting in unreasonable risk of harm to their clients, according to the ruling.
The administrative law judge also affirmed findings that Michael and Tara Hellickson drafted addendums to purchase and sale agreements requiring that buyers prequalify with one of two or three specific lenders, even though their clients had not requested or authorized such a requirement. Although the agreements were signed or initialed by sellers, Schuh found that such authorization was "uninformed," because the addendums were not requested by homeowners or discussed with them.
On the other hand, Schuh found that the Department of Licensing had not proved allegations that the Hellicksons encouraged homeowners to stop making their mortgage payments, or told them they were required to vacate their homes before they were legally required to do so.
The Department of Licensing also failed to prove allegations that the Hellicksons instituted automatic price reductions without authorization by the sellers, Schuh said in a May 11 initial order, setting those findings aside.
Although Schuh ruled that the Hellicksons had, in fact, failed to provide copies of executed listing agreements to homeowners as alleged, he set aside charges that the couple engaged in a "pattern and practice" of misrepresenting the contents of listing agreements, such as their term.
Hellickson, who's also known for the short-sale and REO (bank-owned property) coaching seminars he offers nationwide through another company, Club Wealth Inc., said he expects to prevail in his two-year battle with the Department of Licensing.
His refusal to turn over records sought by the Department of Licensing, he said, "stirred up the hornet's nest," and department staff seemed determined "to dig up anything I'd done wrong."
Clients, agents testify at hearings
To make its case against the Hellicksons, the Department of Licensing filed 296 exhibits and called 27 witnesses to testify, including former Hellickson Team employees and nearly a dozen past clients. Also testifying were several real estate agents who represented prospective buyers, and a Wells Fargo liquidation manager.
When the department brought charges against the Hellicksons and suspended their licenses in September, they had 400-500 listings, more than 200 of which were pending, Michael Hellickson testified.
In 2009 and 2010, about half the listings represented by the Hellicksons -- who conducted their business as "The Hellickson Team" -- were short sales, and the other half REOs.
The department received 37 complaints about the Hellicksons -- about 10 of which were filed after the department filed charges. The complaints referenced either Michael Hellickson or his team, but the Department of Licensing said it also sought to revoke Tara Hellickson's license because she was the co-listing agent on all of the listing agreements.
The department stopped communicating with the Hellicksons after receiving a Dec. 2, 2009, letter from their attorney, Douglas Tingvall, informing the department that the couple would no longer provide information or documents to the department because such requests allegedly violated their Fourth Amendment protections against unlawful search and seizure.
In his petition for review of Schuh's initial order, Tingvall said Michael Hellickson is "an innovator and a leader" in the short-sale business, and that innovators "become targets for competitors and regulators, who often do not understand or lag behind a rapidly changing environment." In the past, license revocations of five years or more have been the result of "criminal acts, serious moral turpitude, fraud, theft or other intentional mishandling of client funds," he said. The Hellicksons "were not found to have done any of these things."
A "disinterested observer" could conclude that regulators went on a "witch hunt" only to retaliate for the Hellicksons' refusal to provide records without a warrant or determination of probable cause, Tingvall argued.
The Department of Licensing, meanwhile, maintained that a 10-year license suspension, although "severe" and "rare," was justified because the Hellicksons allegedly committed a large number of violations, many violations were repeated, and they did not cooperate with the investigation or acknowledge or attempt to correct their conduct. Listing homes at artificially low prices was a serious enough violation that it, alone, might have resulted in a 10-year revocation, the administrator of the department's real estate unit, Jerry McDonald, testified.
30-day sale program
The Hellicksons' radio advertisements, for-sale signs, and website promised that they would purchase their clients' homes or sell them at no commission if they did not sell within 30 days. Although the ads noted that some restrictions applied, no ad said the 30-day program did not apply to short sales, Schuh found.
Schuh found that the purpose of the ads was to generate leads and listing agreements. The Hellickson Team, he determined, "had no intention of buying homes at anything close to market price."
Two agents employed by the Hellickson Team, Joe Toner and Jon Ryan Geersten, testified that they used a script when scheduling listing appointments that mentioned the 30-day offer. Geersten testified that when he expressed reservations about the offer, Michael Hellickson told him that the offer was contingent on the seller accepting a sale price that was 50 percent of market value.
Hellickson testified that the 30-day offer could not apply to short sales, because lenders would not accept such a low offer. He also testified that he had not purchased any homes under the 30-day sale program since 2008.
In his petition for review, Tingvall argued that there was "nothing false, deceptive or misleading" about the Hellicksons' 30-day sale program. The Department of Licensing offered no evidence that any consumers relied on it, Tingvall said, or that the Hellicksons refused to purchase any eligible homes.
The Hellicksons were under no legal obligation to post the restrictions that applied to the program on their website or in their newsletter, their lawyer maintained. "Obviously, (the Hellicksons) hoped that prospective clients would call them to ask about their services," the Hellicksons' lawyer argued in the petition for review. "The purpose of any advertising by a real estate broker is to generate calls and personal appointments."
False advertising
Tingvall noted that the Department of Licensing offered no evidence to refute Michael Hellickson's claim that no other agent did more business in Washington, Oregon or Hawaii in 2009 or 2010, or that he was not the leading expert on short sales in those states.
But Schuh found that the Hellickson was never licensed in Oregon or Hawaii, and would simply refer business in those states to someone who was. The Hellickson Team also advertised a loan company that "was not functional," and Michael Hellickson's license to originate loans and the license of the mortgage firm it was associated with had both expired.
Listing prices
Schuh said it was undisputed that the Hellicksons obtained authorization from their clients to make "substantial, arbitrary price reductions, usually every two weeks, simply because the home had not generated offers." The price reductions were "aggressive and frequent," and "apparently the prices were below what the lender would accept," Schuh wrote. "The implication is that (the defendants) were more interested in generating offers than they were in realistic pricing."
In November 2008, for example, The Hellickson Team listed the home of Dan and Kathleen Streight for $275,000. The asking price was then reduced at two-week intervals in increments of $25,000, to $175,000 by the week before Christmas.
"When Dan Streight learned from a real estate agent that the price on his home had dropped to $175,000, he and his wife were shocked because the lien holder had told Mr. Streight that (the lender) would not accept less than $240,000," Schuh wrote, citing Streight's testimony at the hearing.
Schuh found that the Hellicksons "engaged in a pattern and practice of listing homes at artificially reduced prices" in order to generate "multiple lowball offers." But he also determined that the preponderance of the evidence showed that the Hellicksons were authorized to do so by sellers through signed, preauthorized, price-reduction forms.
The Streights testified that they had verbally agreed to a series of $20,000 price reductions every two weeks. Although they did not discuss a bottom price, the Streights said they understood they would be notified in advance of any price reduction. They also claimed a price-reduction authorization form they signed was blank. The form, introduced as evidence at the hearing, called for price reductions of $25,000 every two weeks.
Michael Hellickson testified that the price-reduction authorizations he provided to short-sale clients were always completed at listing appointments. The Streights did not ask him to provide advance notice of price reductions, he testified, and he had not offered to do so. Schuh said he found Hellickson's testimony credible.
In another instance, the asking price on a condo the Hellicksons listed at $175,000 in September 2008 was reduced several times in two months, to $75,000, before bouncing back to $117,000 by the following February. The owner, Richard Smith, testified that he had agreed to lesser price reductions, that the form he signed authorizing price reductions was blank, and that his calls to the Hellickson Team office about price reductions were not returned.
Toner, the former Hellickson Team agent, testified that he was instructed to convince sellers to sign price-reduction forms with reductions of at least $25,000 every two weeks, but said he was never told to have clients sign blank price-reduction forms. Toner testified that when he started working with the Hellicksons in August 2009, listing prices were determined using comparative market analyses (CMAs) produced by Tara Hellickson.
But after a few months, Toner testified at the hearing, he was told to list homes for the amount owed to the lender. He said he continued to prepare his own CMAs to fulfill his responsibilities to the seller. Toner said no additional market research was done before preapproved price reductions were applied.
Michael Hellickson testified that he took a comparative market analysis (CMA) with him to each listing appointment, but that it was not his practice to perform a CMA before every price reduction.
An expert witness for the Department of Licensing, real estate agent Allison Ybarra, said preapproved price-reduction agreements are not, in themselves, violations of state licensing law.
The Hellicksons' pricing practices generated a number of complaints to their multiple listing service, Northwest Multiple Listing Service (NWMLS), most alleging that the asking price of a listing was not a good faith reflection of what the seller would accept, or that the lender would approve.
Justin Haag, NWMLS' director of policy and forms, testified that the MLS did not add the term "good faith" to rules governing the pricing of listings until the summer of 2009.
Haag testified that NWMLS had received 40 complaints about the Hellickson Team since 2004, most of them regarding pricing. A total of 18 complaints resulted in disciplinary action by the MLS against the Hellickson Team in 2009 and 2010 -- or about 3 percent of the Hellickson Team's sales in those years.
In his petition for review of Schuh's initial order, Tingvall said nothing in real estate licensing law prohibits preapproval for price reductions, and the department "has no business interfering with private contracts between brokers and competent adults." He also argued, "Short sales are different than typical retail sales ... The department is out of touch with current trends and practices. Doing things differently is not the same as doing things negligently," he argued.
Listing agreements
The Hellickson Team office "was disorganized and inefficient," Schuh said in explaining how he was "persuaded that it repeatedly failed to provide clients with copies of the executed listing agreement" -- a breach of reasonable skill and care.
In his petition for review, Tingvall said evidence presented by the Department of Licensing on whether the Hellicksons failed to provide copies of listing agreements to sellers was "equivocal and unpersuasive."
And Schuh was not convinced that the Hellickson Team engaged in a pattern and practice of misrepresenting the terms of the listing agreement to clients, as alleged by the Department of Licensing.
One couple who had originally wanted a three- to six-month listing agreement, William and Kathleen Cody, said they were later surprised when a buyer's agent informed them that the listing agreement they signed in March 2009 would not expire until Dec. 31, 2013. William Cody said he did not read the listing agreement before signing it, but that parts were left blank -- a claim also made by other clients.
Michael Hellickson testified that any handwritten additions to listing agreements were added at the time of the listing appointment, and that nothing was added later. Hellickson said his listing agreements were typically for three to four years, to give him enough time to complete a short sale. Hellickson testified that he didn't want to make an investment in marketing a house only to have the seller relist with another agent.
In an audio recording advertising Hellickson's coaching seminars, which was introduced as evidence at the hearing, Hellickson said his listing appointments typically lasted 32 to 37 minutes, and that by the end of each appointment he had obtained a signed listing agreement, preapproved price-reduction form, and disclosure and other documents.
In the recording, Hellickson said he was able to obtain 50 to 75 listings a month, exercising "dominance" over clients using an approach he compared to "a trainer whacking a dog as hard as possible." Hellickson said he would bring four pens to listing appointments, because that would save eight minutes.
Michael Hellickson's former personal assistant, Theresa Jenkins, testified at the hearing that listing agreements and price-reduction authorizations were not always completed at appointments. Jenkins said she regularly saw signed listing agreements with blanks that had not been filled in.
There were several agents working for the Hellickson Team, she said, and she did not know which agents were not having clients complete documents at listing appointments.
Schuh found that while it was the Hellickson Team's "best practice" to complete listing agreements before obtaining clients' signatures, "compliance with this practice was not 100 percent."
Explanations of what was in the listing agreements was "likely sparse because Michael Hellickson had neither the time nor the inclination to volunteer to do so," Schuh wrote. "However, the sellers must take some responsibility to review a document for blanks before signing and to ask to be shown where provisions of particular concern to them were addressed."
Communication with clients
Schuh also found that the Hellickson Team's poor communications with clients, potential buyers, and lenders placed their clients "at unreasonable risk of harm or prejudice."
Toner testified that the Hellickson Team office was disorganized and hectic, causing delays in response to purchase offers and complaints from clients that office staff members were rude and nonresponsive.
Jenkins testified that files would go missing and that documents were not properly maintained, labeled and stored.
Joyce Watts, a real estate agent formerly employed by the Hellicksons, testified that she was under the impression that the Hellickson Team's office was understaffed and overwhelmed by the volume of business it did.
Monika Peltz, a Wells Fargo liquidations manager who was involved in the attempted short sale of the Streight's home, testified that the lender did not get offers on the home until they were nearly two months old, and never received all of the documents it needed.
Kathleen Streight testified that she was told by other REALTORS® that there were five or six offers on her home, but that buyer's agents could not get any information from the Hellickson Team on the status of their offers. Streight said that at one point, she left 10 voice mail messages with the Hellickson Team but did not receive a callback. Condo owner Richard Smith, too, testified that communication was spotty and his frequent calls were not returned.
Washington's real estate licensing law requires that real estate brokers "present all written offers, written notices and other written communications" between parties "in a timely manner."
But Tingvall noted that the Hellicksons were not accused of violating that provision of the licensing law. Instead, the Hellicksons were accused of violating more general statutes that address incompetence and negligence over their alleged failure to return phone calls in a timely fashion.
Returning phone calls might be a courtesy to the client, as Ybarra testified, "but it is not a legal requirement of real estate licensing law," Tingvall argued.
Wells Fargo could have lost or misplaced the short-sale packet they were originally sent, Tingvall said in his petition for review. The Streights, he said, ultimately elected to pursue a loan modification and "were not harmed by any alleged delay in presenting offers" to the bank, he said.
For short-sale specialists, communications with sellers and banks are among the biggest challenges, Tingvall said, as banks are backlogged with files and may take months to respond to an offer, and homeowners may themselves be unresponsive.
Preferred lenders
Schuh also affirmed the Department of Licensing's findings that without being asked to do so or authorized by their clients, the Hellicksons, through addendums to purchase and sale agreements, required that buyers prequalify with one of two or three specific lenders.
Michael Hellickson testified that the purpose of the requirement was to get a quick determination from a reliable lender that the buyer would qualify for a loan, before investing resources in a transaction that would only fall through. Hellickson said his brokerage did not receive any compensation for referring buyers to certain lenders for prequalification. Hellickson said the prequalification of buyers by preferred lenders was explained at listing appointments. But several clients said they had not discussed the requirement with Hellickson and did not read prequalification addendums they signed or initialed.
Failing to discuss any addendum with the client -- or representing that a requirement has been requested by the seller, when it has not -- is a violation of "reasonable skill and care" provisions of state licensing law, Ybarra and another real estate agent, Rebecca Beaty, testified.
But the federal Real Estate Settlement Procedures Act (RESPA) doesn't bar sellers or brokers from asking borrowers to prequalify with a preferred lender, Tingvall noted, as long as buyers aren't required to obtain loans from those lenders, and pay no fee for prequalification. Sellers or brokers can even require such prequalification by lenders that they have an affiliated business arrangement with, Tingvall said.
The Hellicksons would simply recommend that sellers request buyers to prequalify with one of the Hellicksons' preferred lenders, "a perfectly lawful and prudent request," Tingvall said.
In the Hellicksons' view, Tingvall said, prequalification by a known lender was "was more reliable and provided better security for their sellers."
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