The new guy named Jeremy wandered into the discussion about short-sale fraud the other day, and found that long-time readers here don’t take kindly to scams – and scammers. But we’ve seen how short-sale fraud has run unabated, and that it has practically become a badge of honor among realtors. Nobody in the industry is motivated to stop it either.
Here are a few examples:
- At the top of the last article, Jeremy’s friends were filing notices that mortgages were paid off when they weren’t, which is outright fraud. But the second half of the article mentioned the typical example of short-sale fraud, where a straw buyer purchases the property at a below-market price, and then spoons it to a waiting buyer who pays retail. The banks who got shorted on the first sale might have caught the fraud with better appraisals, or if they just had a strict policy. I’ll never forget the one case where the perpetrator caught wind of his own story here on the blog and left a his comment. He said they included in their contract to flip the house immediately to the shorted bank. They then flipped their short-sale buy on the SAME DAY to a retail buyer for a $100,000+ profit. If the banks have knowledge and turn their head, then it’s on them.
- A short-sale that’s fully furnished. The seller makes the furniture sale mandatory so he can squeeze some cash out of the deal – he sells the ‘furniture’ to the buyer for $50,000 to $100,000 outside of escrow, in exchange to agreeing to a low-ish sales price for the house. Usually these are cash sales only.
- Listing agent twists seller’s arm to take his buyer, rather than one of the two higher cash offers. I turned this one into VP of Fraud at the Bank of America, who said that because the lower price was still within their acceptable range, he’d let it go.
- There were the investors who approached naive listing agents and insisted on negotiating their own deal with the bank. If they could get the price approved low enough to flip immediately, they’d complete the purchase.
- Both short sale and REO investors engage in ‘reverse staging’ to make a property appear in worse condition than it is, including the removal of kitchen-cabinet doors, garbage left lying around the home, and sometimes old fish hidden behind refrigerators to create pungent scents. Sometimes BPOs include false property stigmas such as high crime rates, or claim the home was a meth lab that would need to be entirely gutted.
- Parents buying their child’s over-encumbered house as a short-sale. A favorite among realtors themselves.
Thankfully most of these are in the rear-view mirror!
I loved the reverse staging stuff. There would be 3 pictures in the MLS all just showing piles of trash and maybe a broken window. The description would include stuff like “might have some soil issues” “possible mold abatement required” etc… Yet it would be pending the same day with no return calls from the listing agent.
The other common one was listing the house in the LA county MLS but not the San Diego one. It would show up on redfin, but unless you searched for the house in LA MLS you’d never see it. There were a couple guys from the Valley that did that one with a lot of Carmel Valley condos.
Wow! You could probably write a book about crap like this and it would sell very well! Not just to educate buyers/sellers, but also as entertainment.
Truth is stranger than fiction!
I wish the banks would simply control the short sale offers then tell the listing agent which one to accept rather than the other way around. All they’d have to do is…
1. Bank defines a low starting point for where they’ll accept short sale offers.
2. Bank defines in the listing how long they’ll be excepting offers. (15 days, 30 days from X date)
3. State that all offers must be in XYZ format and sent to the banks office. (not the listing agent)
4. Pick and choose from the potential buyers.
5. Let the listing agent handle everything after a buyer has been selected. (with duplicate forms sent to the bank so the agent can’t make it hard for buyers they don’t want to purchase the home.)
I’ve been screwed out of buying multiple short sale properties because of short sale fraud. Including 1 this week!
I don’t understand why banks are letting all the fraud occur. They’ll sue your for a penny but let realtors run away with bags full of cash.
Strategy #2 above … Check out 621 marine view Ave deal mar , ca
https://www.redfin.com/CA/Del-Mar/621-Marine-View-Ave-92014/home/7501470
We put in an offer 1.1M 2 years ago short saled for 900k with furniture sale mandatory at 200k. It magically got listed this week for an 800k flip no work done. The broker should be thrown in jail.
Funny, when the in-laws had to short-sale, the bank had lots of paperwork they had to sign attesting to the fact that there were no side deals and no personal property sales etc… broker had to sign a whole bunch of stuff too attesting to market exposure and listing all the offers that were presented etc… I guess the bank on the Marine View property wasn’t that sophisticated, or maybe….
…or maybe they signed and did it anyway, knowing the chances of getting caught were close to zero?
The paperwork mentioned was added late in the game, and it felt like it was just a placebo with no effect intended.
Paperwork just to build a file and check off boxes. Just hope there is no audit committee around. But why would there be? A bank is going to spend more time and money administering loan files that are already off the books. Not likely. The AG is going to take up the cause that will end up helping the poor defrauded banks, hahahahahah.
We went after the broker, and he immediately had his attorney step in. Guess he knew he was doing something illegal. They even had a sham Open house, and I recall the agent emphasizing that everyone who came in “must” sign in. I guess that is your evidence of proper market exposure. Agent broker double ended the deal. Seller got 200k for some shabby furniture, bank lost out, and the buyer got a property close to $500k under market.