Short Sale Fraud

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mraoki1_IHB

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Apologize if this was already covered, but any comments on short sale fraud? I've heard reports of brokers arranging purchasers between homeowners who bought at the top of the market and an individual whom they have a trusted relationship with. Homeowner hides all liquid funds, stops making payments on mortgage and property goes on REO. Lists the home for sale, can't find a seller in this market, gets a relative or friend to make an offer way below market and broker negotiates the short sale with the bank. That friend or relative "buys" the house but in reality, the occupier of the home has paid the friend the downpayment and is paying the mortgage and occupies the house and enjoys lower assessment mortgage payments. I know this sounds incredibly risky but i've heard that this may be a popular move? Any thoughts?
 
This is known as a "fraudulent transfer", and in Florida the long arm of the civil law can look back--I think under certain conditions up to 4 years, but check California--and your creditor can snatch anything valuable. Trouble is, when people plan ahead, it is amazingly hard to find their assets. Also, from the bank's standpoint, it doesn't know which short sales are fraudulent and which are not, so doesn't know who to go after; this would be true even if lenders weren't stupid, which they are.

Up to about 10 years ago, the Florida law tracked pretty closely the statute of Elizabeth--that would be Elizabeth the First--with its lovely archaic language. So people have been trying to evade their creditors since then, and as long as we have records. Now the law is dullsville, but very specific.

This is civil, not criminal. I suspect this conduct violates some criminal code, perhaps at the federal level.

That being said, it is extremely common for a Cuban with good credit to lend same to his/her relative who just came over and wants to buy a house. The Cuban with the good credit has the title put in his name, and sometimes transferred later, sometimes not. This has the potential to be a disaster, but actually most of the time it works out--until August 9/10 anyway. The newbie establishes himself, gets credit and eventually re-fis and gets the title in his/her name. The only bad, as in the sense of evil, is that naturally the "buyer" says he's going to live there. And actually, it is owner occupied, only not the owner the bank thinks it is.

I can't get too exercised about this. Compared to all the other cr@p, this is a venial, rather than a mortal sin.
 
During the last downturn, when short sales were prevalent, I arranged a loan for a couple of Middle Eastern descent who were buying a home via short sale from another Middle Eastern couple. I went to the home where the homeowner was "hosting" the purchasing Middle Eastern couple. They all seemed to know each other but, at the time, I was new to the mortgage business and didn't really know what was going on, as everyone was speaking Farsi. Later, when it was all over, the realtor who arranged all this--himself Middle Eastern--admitted they were all related to one another.
 
Lenders have a few ways to protect themselves from fraud:

1. The property has to be properly listed.

2. An appraisal is done to make sure the value is not too below market.

3. None of the parties should be related to each other without proper disclosure.

Basically, if you owe the lender 600K and intend to sell the house at 400K, they will do due diligence to make sure it can't be sold for higher to someone else.

Of course this scheme could work, but lenders aren't that stupid. They're hurting right now, but there's a limit to how much loss they're willing to take.
 
hs_teacher, with all due respect, you're fundamentally incorrect. (1) The property need not be listed. (2) No appraisal is done; only a BPO (broker's price opinion). (3) It's easy not to disclose, particularly if your last name isn't the same as the homeowner's. Properties are purchased from the bank via short sale at 400K and sold immediately thereafter to someone else at a higher price. It's called a "simultaneous" closing and occurs every single day.
 
SoCalGal,

If the property need not be listed or appraised, and no disclosure is required, then the lenders are asking for short sale fraud because they are not doing anything to prevent it.
 
IR,

Very good point regarding short sale fraud against lenders. However, one ought to wonder why lenders allowed (with blind eyes) the old BUYER inflated/cash back schemes in the past; causing an overprice situation and heavy loss to mortgage back security investors?

Now, the old scheme of short sale fraud idea is going full force on the HOMEOWNER mind! I am watching the bank behavior regarding short sale closely as it will drive the market accordingly. So far, it is not at all easy to close a short sale transaction.
 
IR

My partner and I closed a Short Sale week before last. It took 7 weeks to get an answer then the bank wanted a 14 day close with no inspections, no repairs, and charged excessive escrow fees.

They are not easy or pleasurable to deal with. I think the average non experienced person would either give up or get taken to the cleaners on shorts.

Enjoy!
 
x,

Why would anyone buy a place with no inspection? Short sale or no, that doesn't sound like a good idea. Why would the bank demand "no inspection" ?
 
IrvineRenter, what's the benefit to the bank of listing the property? How does an appraisal help the bank? In their view, a BPO is sufficient. How does disclosure of the parties' affiliation help the bank? The lie of "We are not related" is so easy to do, anyway. A lie detector test certificate attached to the offer might help. The bank just wants to get the loan off its books. With a short sale, they usually get 80-85% of FMV, anyway. I don't see the benefit to short sales for an investor, but it may be a good retail deal if a consumer is willing to run the gauntlet put up by the bank. The hassle of it all is why people pay me to do it. :-)
 
"what's the benefit to the bank of listing the property? How does an appraisal help the bank? In their view, a BPO is sufficient. How does disclosure of the parties' affiliation help the bank?"

If it is listed on the open market, it may solicit competing bids. This is one method of ensuring the sale is at market.

An appraisal also helps to establish market value by someone who does not have a reason to lie in order to secure a transaction and get paid.

Many brokers are corrupt, and they will provide a bogus opinion of value if it either facilitates a transaction or gets them a kickback. The incentives are there to cheat and lie.

Disclosure of affiliation makes fraud easier to document. If you say the buyer is not in your family, and it turns out they are, you have committed fraud, and there is a paper trail. The fear of being caught will prevent some from attempting the crime.
 
Trooper, et all,

The house was about 1.5 years old bought as a "flipper" by a mother for her son-daughter in law who got a divorce. Dramn-Drama-Drama.

It is a fairly new home in a master community built by a public builder. They hadn't even put in landscaping yet and had lived in it for a short period. There were back taxes and HOA dues as well as the HOA hounding the seller (bank) to get the landscape in within the time period required by the CC&Rs.

The buyer is a sophisticated person who took a good look at the property, checked out the appliances, plumbing, and figured there wasn't much to worry about.

There were no non permitted improvements or old decks or the normal problem areas of older product. One could probably "strong arm" the builder for some customer service but that is another story.

The bank was playing "hard-ball" as they do in short sales so it was take it or leave it. Original price was 1.2 mil, short sale price $990K, and we offered $980K.

The bank had an independant apprasial which came in at 1.040 mil so the buyer felt the deal was in his favor even without the inspection. My client wants to install the pool and yard to his liking so it was the perfect home near his business and almost new. The problem with the apprasial was for us to determine the incentive that the builder is currently offering since they are marketing a later phase at this time. We decided that it was around $75-80K and this is not reflected in the closed comps.

They also reduced commissions and used a very expensive escrow company. If you think buyers have lots of leverage with banks it just isn't true in the real world. They must not read this blog.

Banks don't want to play easy on shorts or REOs so to get one a buyer has to be willing to take some chances. Like I said in other posts to some people here looking to do Shorts/REOs they better get their "war face" on and be prepared to play tough because the banks will tell them to a hike. They can walk away but then they didn't get the good buys as the risk takers will. Later they will look back and say "we should have".

This fits exactly into the perameters that SoCalGal explained. We were at about 80% of independant apprasial price and the bank said take it or leave it and close in 14 days.

Regards
 
xsocal land merchant wrote: Like I said in other posts to some people here looking to do Shorts/REOs they better get their "war face" on and be prepared to play tough because the banks will tell them to a hike.

Also, in my experience, the banks' loss mit reps can tell if a hopeful buyer is a retail consumer or an investor's short sale negotiator with 60 other short sale files to work on. For the former, they'll squeeze you for every penny; with the latter, they know you're probably their best hope, right here and right now in front of them. Still...unless the house is trashed, 80-85% of FMV is what I'm seeing.
 
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