Beware of The Short Sale Investor|Short Sale Fraud

by Bill Gassett on August 17, 2010 · 132 comments

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Beware of The Short Sale Investor|Short Sale Fraud

Short sale scammer

Any Realtor that regularly works with short sales is bound to come across a proposition from a potential buyer who happens to be a short sale investor.

As a home owner you may have also at one time or another noticed some signs around town that say  something like “we buy houses” or “stop foreclosure” or “We buy homes for cash FAST”

If you are selling a Massachusetts home and it happens to be a short sale let me give you some words of wisdom – make sure you or your Realtor does their due diligence when deciding whether or not to work with an investor.

A short sale investor has one goal in mind and that is to buy your short sale at the lowest number they possibly can. Seems reasonable enough. An investor obviously needs to buy the home on the cheap because more than likely they are going to turn around and flip it to someone else making a handsome profit. As a Massachusetts home owner trying to short sell your home you may be thinking why should you care as long as you find a buyer?

The answer is real simple. One of the biggest reasons why many short sales never reach the closing table is because the seller accepts an offer that is too far under market value and the lender rejects the contract denying the short sale.

When you are short selling your home what you need to understand is that the lender is going to verify the market value of the property prior to giving short sale approval. The lender will send out either an appraiser or ask an independent Realtor to do what is called a BPO (broker price opinion).

The contract price that you have accepted from the short sale investor needs to be within a reasonable proximity to appraised market value or the short sale will be rejected. From an investors perspective they could care less because they have your home tied up and there is no risk to them if the transaction does not happen. They get their deposit monies back if the lender does not accept their offer. A short sale investor knows this and will put offers on many short sales hoping something eventually sticks.

Just by putting a few of these deals together they can make quite a bit of money. Guess at who’s expense though? Trust me their pitch is going to be how they are going to be helping you get out of a desperate situation.  You will be more desperate when it does not happen because you will be that much closer to FORECLOSURE.

Your home will be off the market tied up for months with this investor while you wait for the banks reply. When it finally does come and the answer is no way Jose you will be starting from scratch and the foreclosure will more than likely be right around the corner. This scenario happens all across the country on a regular basis with short sales.

If your Realtor is naive to how short sales work, you could easily get caught in a situation you are really going to regret. I tell people all the time in the short sale articles I write that it is critical to work with a Realtor that has a strong track record of closing short sales.

There are also situations where the investor buyer is the referral source to the listing agent. The listing agent may be given an incentive from the investor buyer to take on a short sale in return for receiving the re-sale listing after the investor buys the short sale home. In essence the Realtor lists the house again when the home is being “flipped”. For performing the transaction for the investor the Realtor is promised they will handle  more of these transactions in the future. The problem with this arrangement is very simple.

Any Realtor who signs a contract with a seller to sell their home is working for that seller! It is the Realtors fiduciary responsibility to get the seller the best terms and conditions. How can a Realtor do this when there is an inherent conflict of interest? THEY CAN’T. This is a short sale scam!!

Financial ramifications of an accepted low ball short sale offer

Going back a few years ago it was not uncommon for many lenders to completely forgive a seller of their short fall. So for example if the seller was $50,000 short the lender would wipe out the debt and the seller would be free and clear. The game and the playing field has changed quite a bit in 2010.

It is much more routine for a lender to require a seller to pay back a portion of their short fall in order to close the property. An agreement to pay back a portion of the debt will become part of the approval letter. Typically the owner will be asked to sign a note where they agree to pay back a certain amount over “X” amount of time.

The reason why this becomes important when dealing with a short sale investor is because if they do manage to get the lender to approve the short sale you will more than likely be on the hook for a larger portion of debt than if you held out for something closer to market value.

Short sale investor/mortgage fraud

One of the other short sale scams that takes place is when there is fraud committed against the lender by efforts of both the Realtor and short sale investor. A simple example would be a short sale that is listed for $175,000. A Real Estate agent receives an offer from a couple that wants to buy the home for $160,000.

Massachusetts Short sale bribe

Instead of submitting the offer to the lender, the agent calls up an investor friend and has them submit an offer for $140,000. The agent does not let the lender or seller know about the $160,000 offer but instead submits the investors offer of $140,000.

The investors offer of $140,000 gets accepted and the investor turns around and sells the property to the couple who was willing to pay $160,000. Folks this is what is known as MORTGAGE FRAUD! The other term for this practice is known as “flopping”. Someone caught doing this will find themselves in Federal Court.

Many of the larger lenders now are requiring a full appraisal before a resale can take place. They are also requiring short-sale buyers sign statements affirming the transactions are arms length, with no hidden buyer-seller relationships, and that there are no agreements to resell the property in place.

Firms such as Bank of America and others have language in their short sale approval letters that prohibit the flipping of a property and after closing they will audit transactions to identify “flips” or “flops”.

Other measures have been put in place by the Treasury Department to prevent short sale fraud by requiring that the buyer and seller have no hidden relationship and banning a re-sale to take place in under 90 days.

Let me be clear on this issue. If the bank knows up front that a flip is going to be taking place it is NOT mortgage fraud.

There is nothing wrong with an investor making money. Being in business and making a profit is what most people strive for. Non-disclosure is a completely different story! A Realtor however, does not get off the hook quite so easily if they have not performed their fiduciary duty to get their client the best terms and conditions in the sale. Realtors that get involved with these kinds of transactions walk a fine line with getting themselves into a situation where they are clearly not working in the best interest of their client.

Block head Massachusetts short sale Realtor

If you find yourself in a position that you are going to need to do a Massachusetts short sale it is highly advisable that you work with a short sale specialist who is knowledgeable, honorable and someone you can trust! There are numerous Realtors that have begun to take short sale listings that have no experience what so ever completing a short sale transaction.

I would encourage you to do your home work when selecting a Realtor to work with in a short sale transaction. The last thing you need is to be stuck with a block head agent that does not know what they are doing!

Many agents do not know the 1st thing about short sales and try to learn on the fly. When you are facing foreclosure the last thing you want is to be stuck working with an agent that doesn’t know about short sale procedures!

If you are needing to complete a  short sale of your home or condo in Ashland, Bellingham, Framingham, Franklin, Grafton, Holliston, Hopedale,  Medway, Mendon, Milford, Hopkinton, Southboro, Westboro, Natick, Northboro, Northbridge, Whitinsville, Upton, Uxbridge, Shrewsbury, Worcester, or Douglas Get in touch! I would love to interview for the chance to represent your best interests.

I am successfully completing short sales through out the Metrowest Massachusetts area. So far over the last three years, knock on wood, I have a 100% success rate for short sale approval! I work hand in hand with a local short sale Real Estate attorney who knows how to get short sales done!

If you are outside of the Metrowest Massachusetts area or even in another state and need to do a short sale please feel free to contact me and I would be happy to refer you to a Realtor in your location that handles short sales and knows what they are doing! I have referred short sales to other Realtors all around the country.

Other short sale articles of interest:

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About the author: The above Real Estate information on beware of short sale investor|short sale fraud was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service the following towns in Metrowest MA: Ashland, Bellingham, Blackstone, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northboro, Northbridge, Shrewsbury, Southboro, Sutton, Wayland, Westboro, Whitinsville, Worcester, Upton and Uxbridge MA.

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