A series of news reports over the last few years are covering a problem that has hit the Short Sale Market. As in any market, if there is an opportunity, the opportunist go to work. This time they are trying to create screaming deals out of Short Sale properties. Beware of Short Sale Flipping
These flippers target houses on the verge of foreclosure and persuade banks and mortgage companies to accept lowball buyouts, sometimes by using questionable appraisals and not disclosing that a quick sale at a higher price has already been arranged, experts say. (source: Herald Tribune The New Flipping:Short Sales)
If you are having trouble with your mortgage, have been trying to get a Loan Modification and you have fallen behind in your payments, now is the best time more than ever to be skeptical of anyone who approaches you about your home.
Once you get behind on your loan payments, here in California it won’t be long before your lender will file a Notice Of Default (NOD). The NOD is a public record filed at the county recorder’s office and there are several private companies that mine these records and provide a subscription to interested parties. RealtyTrac and ForeclosureRadar are two of the better known services. Investors, home buyers and real estate brokers subscribe to these services.
- Real Estate professionals use the public filings on properties in foreclosure to find more business as a means to see if those in foreclosure would like to try and Short Sell their homes.
- Investors are looking to get homes below market value so they can clean them up and put them on the market for a profit.
- Home buyers typically believe they are going to get a home significantly below market if they can contact a home owner in foreclosure directly.
Once an NOD is filed against your property, expect your phone to ring and possibly people come to your door. If they are offering to buy your house and help you avoid foreclosure this should be a very big red flag. Let’s assume your house has a market value of $400,000 and you owe $500,000. You have know way of knowing the true market value of your home without getting an appraisal or broker price opinion (BPO) from a disinterested third party. The person standing at your front door or calling you on the phone is coming to you directly cause they want your property below market value and the farther below market value the better for them.
Here is the rub, if they promise to handle everything and work with the bank to short sell your home, if they then can convince the bank to take an amount significantly below market value, that could be seen as defrauding the bank. In this article from Bloomberg, Banks face fraud from short sales as home flopping spreads you can see that the banks and FBI are catching on to this scheme.
Two Connecticut real estate agents found a way to profit in the U.S. housing bust: Buy low, sell fast. Their tactic was also illegal.
Sergio Natera and Anna McElaney are scheduled to be sentenced in Hartford’s federal court in August after pleading guilty to fraud. Their crime involved persuading lenders to approve the sale of homes for less than the balance owed –known as a short sale — without disclosing that there were better offers. They then flipped the houses for a profit.
The Federal Bureau of Investigation, the California Department of Real Estate and mortgage finance company Freddie Mac have warned that such schemes may be spreading after a plunge in values left homeowners owing more than their properties are worth.
When you get approached directly by people trying to make deals, they aren’t at your door for charity. Also other promises such as selling you back the property, letting you stay as a renter or that they will give a cash incentive after escrow closes are all signs of more trouble. Every single Short Sale transaction I have worked on in the last year has involved a document from the Short Sale Lender, that is signed and notarized by both buyer, seller and all real estate agents involved. This document has all parties acknowledge that the transaction is at “Arms-Length” and that the Buyers are not getting money at or after closing (there is one exception I will explain later), there are other terms as well.
If a Real Estate Professional approaches you to help you with Short Sale, then interviewing properly is very very important. A Short Sale transaction is complex and not for just any agent. Those of us who have completed many Short Sale Transactions will tell you that each and every one is different. In my opinion there is no possible way to claim to be an expert or specialist in Short Sales because no two short sales are the same. Experience, closing percentage and the agent’s support structure are some of the better indicators to show if the agents you are interviewing can get the job done. Unknown to the consumer, real estate agent email in-boxes receive offers for short sale training every week. Each course offers a designation of “specialist”. While there is value in these classes, nothing beats the experience in putting these transactions together. There is no cookie cutter formula, it is good old fashioned negotiating and doing the legwork necessary to get an approval.
I have experience in closing HAFA and regular Short Sales with most major banks, including Wells, Chase, IndyMac (One West), GMAC, HBSC, HOME EQ etc. I have closed Short Sales in as few as 60 days from offer to close of Escrow with the typical short sale talking 120 to just under 180 days from offer submission to closing. I use a third party negotiator who is a licensed Real Estate Broker and practices Real Estate Law. We have closed every single one of our Short Sale Transactions we have worked on together. It takes a coordinated effort to keep the loss mitigator’s attention on my client’s file and be able to deliver information in a timely manner to assist the bank in expediting an approval decision.
I have represented buyers on Short Sale purchases and this is why I believe I am qualified to offer the advise that not every real estate agent is cut out to work on a short sale. I wrote about Short Sales from a Buyer’s point of view in Simi Valley Home Buyers 3 Important Concerns with Short Sales Offers
A good review would include:
- What is a Short Sales & Can I Short Sell my home?
- Understanding Home Valuations – Broker Price Opinions (BPOs)
- Simi Valley Short Sale Information
If your trying to modify your loan, contemplating a Short Sale and you are getting calls from investors and real estate agents to help you with your house, proceed with Skepticism and Caution. Consider that if you are in danger of losing your home to foreclosure, what benefit is it to you to help someone pull a fast one on the bank so they can get control of your property and flip it for a profit? We are seeing, as in the articles I quoted above that the FBI and the banks are watching, is it worth the risk? If Short Sale is your only other option beside a foreclosure, I can help you move through the process discreetly. Many times my clients have not want for sale signs in their yards and want to keep this part of their financial life as low key as possible and I try to accommodate that where I can.
Disclaimer: Seek advise from a Tax professional and Attorney as there may be issues related to Loan Modification, Short Sale or Tax Implications. Keller William Exclusive Properties & Ted Mackel is not associated with the government, and our service is not approved by the government or your lender. Even if you accept an offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.