I hesitate to write this post because I hate to put ideas in anyone’s head about how to commit fraud. The perpetrators are always one step ahead of the banks and “the system” and, just like with mortgage fraud, the rest of us will all end up paying the bill for the latest trend in sticking it to the bank. I learned about this today from Greg McClelland, the Michigan Association of Realtors legal counsel, who is seeing this taking place.
Here is how it works:
Nice, honest, and unsuspecting Realtor Jenny takes a short sale listing. Deciding it is more work than she can handle, she accepts the assistance of a “short sale expert” (I’ll call them SSE) who promises to facilitate the deal with the banks. Personally, I understand Jenny’s motivation: short sales are a TON of work for the listing Realtor, and the likelihood of actually getting compensated for that work can be pretty low, especially to an agent inexperienced in short sales. Not to mention that the banks, as a rule, look to the Realtor’s commission as a great source of funds for reducing their losses, ie, they like to cut commissions as much as they can.
Jenny has had the house listed at $200k and is getting a fair amount of activity, but no offers yet. Jenny feels her market analysis is right, and the house will achieve something close to asking price.
SSE tells Jenny to slash the price to $125K, and tells the owners to make the place look as dumpy and undesirable as possible. Jenny is told to remove all decent photos of the house from the MLS and the internet. Jenny is also told that if she meets or talks to the bank’s appraisers or BPO agents that she will lose her commission on the deal. SSE handles all communications with the lenders.
Jenny gets an offer for $125K on the house from a buyer produced by SSE, and SSE submits it to the bank and tells Jenny to leave the house on the market. Jenny gets another offer for $195k, gives it to SSE who never submits the second offer to the bank.
The bank approves the short sale at $125k. It closes, and the same day SSE’s buyer sells the house to the buyer who was willing to pay $195k, netting a very nice profit, which is presumably shared with SSE.
Realtors beware. I am sure there are some wonderful short sale experts out there, but if it does not pass the sniff test, I would walk away as quickly as you can.
[tags] short sales, short sale, short sale fraud[/tags]
Photo courtesy of Chris Boyle
Written by Maureen Francis
SKBK Sotheby's International Realty, 248.430.4450
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Frank Wible 06.13.08 at 8:16 am
The one big problem is getting the $125K approved. Being an “SSE” and a foreclosure Realtor I would NEVER let this get past me. The truth is; it’s very hard to influence the BPO that much. As much as this could happen, it’s really hard to get it done. However, great article, because people should always watch out for these scams! Even if they hide $1000 from the lender, it’s a scam!
Maureen Francis 06.15.08 at 2:09 pm
Frank,
I don’t think all short sales experts are bad, that is certain. Hope I did not paint it that way.
As far as influencing the BPO, I don’t think it is that hard, to be honest. At least not from what I have seen. The listing agent should be present when the BPO agent shows up. Hand them a set of comps and explain the differences. I think that is a first step in getting a deal done.
I just completed a short sale where 2 BPO’s were about 50k apart on a $300k property. Quite the spread, if you ask me. The higher bank was persuaded (by me) to accept the lower bank’s BPO and the deal went through.
There are agents, like yourself, who have more experience in working with banks. For a seller facing foreclosure or requiring a short sale, this experience is essential. I get asked all kinds of questions from agents who have not been down the bank path before, and it concerns me to think that their clients are not getting sound advice.
Thanks for stopping by.
Heather Barr 07.08.08 at 11:21 pm
Great point and well written post. I actually had a seller client hire on an SSE who flat-out told me that’s what he did. He was also a licensed Realtor who claimed to ‘make his profit on the spread between the sale and the resale’ and he’d ‘respect my commission’. The spread was only about $20k but still. Funny enough, when the BPO was done and the bank was near to approving the deal, all of a sudden my commission was cut from 3 to 1%, he was getting 1% and making profit on the resale. Jeesh! Luckily this story has a happy ending. The bank denied the sellers’ short sale but immediately agreed to a loan workout. Happy, happy sellers are still in their beloved home and shifty SSE was sent packing by my broker. Thanks for your post!
MG 07.25.08 at 1:42 am
Utah has been devastated by the scams you’ve referred to in the post. However, the Division seems to have put the bad guys in jail and there has been a huge weeding out of bad brokerages around here. The only ones standing are the honest ones.