California Tops in Short Sale Fraud

LOTUS REALTY GROUP



I was sent an interesting article last week in San Diego Life style magazine from a client of mine and I wanted to share it with you. The synopsis of the story is that the FBI has announced a crackdown in short sale fraud and then Freddie Mac announced they will be teaming up to go after agents who are not operating properly. Freddie Mac short sales have increased from 4% of completed workouts in 2000 to nearly 14% in 2010. The California Department of Real Estate has also issued a consumer alert.



California has become one of the target markets for short sale fraud. Since there are one or more Real Estate professionals involved in a short sale transaction, the goal is to reach out to Realtor Associations in target markets to educate on the top issues in short sales today in hopes to help Realtors avoid short sale fraud. http://www.sandiegolifestyle.info/2011/08/short-sale-fraud/



There were a lot of comments from other REALTORS stating that the information in the article is misleading. Let’s go over some of the possible short sale fraud scenarios.


(Scenario 1)


Falsely indicating on a new short sale listing that there is an offer on a property in order to discourage legitimate offers and protect an accomplice's planned low bid.


Well, we all know that happens a lot in the industry. It is not a big surprise. Here is the bottom line; as a listing agent your fiduciary duty is to your seller and the short sale lender, not the buyer. The lender has a certain amount they want to net that may or may not be realistic but if you have your clients best interest in mind and want to be successful in the short sale then you will market that listing properly. Showing the bank you have had it on the market for a substantial amount of time. Go a step further and show the bank actual data of home sales; how fast they are moving and where prices are going. You can only work with one offer at a time so make sure you can prove it is the highest and best.


Value disputes on properties have become one of the biggest hold ups in short sales. What is even more interesting to me is that there are all of these Real Estate surveys stating that the lenders are holding up short sales. When short sales first came on the market there was a 10% close rate and a 9 month turn time. We are down to 2-4 months. 6 months max. It has been my experience that the top reasons short sales take longer to close are for the following reasons:



a. Home owner not prepared to show documents or hardship.



b. Negotiating HELOCS



C. Lost documents



d. Value issues



e. Non communication between all parties.


It is my opinion that all of these issues are in our control. The only situation out of our control is if a loan gets sold to another lender. Here are some tips to help you to work with the lender:


1. Have your client and the lenders best interest in mind.



2. Pre Qualify your client and make sure they are short sale candidates and are prepared to submit all documentation to show their hardship.



3. Create a listing history with extensive market data.



4. Submit a complete short sale package.



5. Set proper expectations with all parties.



6. Rule of thumb; the higher the offer the more gracious first lean holders will contribute to second lien holders.



(Scenario 2)



Manipulating the short sale listing price by making the house look more distressed than it really is (reverse staging), inflating repair estimates.



I honestly think that anyone who is doing this ruins valuations for those of us trying to do it right. Again, another reason that the short sale process is SLOWER than what REALTORS would like the time frames to be. The answer is quite simple in my opinion. Make sure the repairs you are documenting are VISIBLE. Roof leaks for instance create mold. Unstable foundations may require structural reports from certified professionals and some cases there are termite damages. The short sale lender is not going to cover these repairs. Typically if you have these reports and pictures up front and let a buyer know about them in hopes they will commit to the deal and offer a fair amount they feel good about, I do not feel that is short sale manipulation. I believe that is working smart. Preventing a buyer from backing out after we get approval due to non disclosure or a lender not covering damages.




(Scenario 3)



Flipping Schemes. A buyer buys a house at a short sale without putting down any of his own money and sells it a few hours later to a legitimate buyer at a much higher price.




(Scenario 4)



Manipulating the HUD-1 settlement statements so a flipper can skim away net proceeds from the sale for himself or other parties in the transaction without seller or investor knowledge.




Those of you who follow my events with my Real Estate attorney David Bright and read my newsletters I am sure you can guess my position on scenarios 3 and 4. That is short sale fraud at its finest.




In all of this I want to drive home one key point; the more people try to manipulate the system to make a quick buck the SLOWER short sales will take to close. Due to all of these legal issues it has forced lenders to investigate deeper, create new forms such as the NO FLIP AFFIDAVIT from GMAC and fight values.




I have seen record breaking turn times and in those transactions proper procedure was followed to a T. If we want a successful outcome we need to remember that we have to work with the lender. Not against them. As we move forward into this short sale market there are so many people that need our help. We as agents need to support our families as well. Intention is everything. Are we going into this transaction only for ourselves? Or do we really want to help?



One thing I have seen in this market is a lot of emotional stress and pain. If we are only trying to take from people that are already losing that does not keep clients coming back. I don’t know about you but I would like to set up my revenues for the future. Do right by my clients and build long lasting relationships with them to ensure repeating customers and referrals. And of course, stay under the radar with the FBI.




(Quote) Character is doing the right thing when nobody's looking. There are too many people who think that the only thing that's right is to get by, and the only thing that's wrong is to get caught. ~J.C. Watts



REALTORS, what is in your business plan this year? What are you doing to create a system that will allow you to build your short sale business? How often are you out there prospecting and how do you know if you are taking the listings that are going to be successful and not a waste of your time?




Call us today and let us show you a system that works to help you expand your business and effectively and efficiently close short sale transactions.



LOTUS REALTY GROUP



PROFESSIONAL SHORT SALE NEGOTIATORS



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Call today to find out how Lotus Realty Group can assist you in closing your short sale transactions or go to WWW.LotusRealtyGroup.com