Why do banks think investors are scammers? Why? because of articles like this.

There has been alot of talk about arm's length transactions lately and the banks "new" addenda needed.  There has also been talk of flippers, floppers, scammers, investors etc.

If we want to know why the banks think everyone is trying to scam them, read this article and the thousands of others like it.

Like it or not, this is what we have to deal with.

Scammers always seem to make a buck in tough times

Here are a few paragraphs.

 

'One of the more glaring results of the CoreLogic study was that short sales resold on the same day had an average of a 34 percent gain ($56,947) between the sale prices.'

According to the study, “suspicious” transactions are short sales that might have caused the lender to incur unnecessary losses. “Suspicious” short sales are defined as:

• a new transaction less than one month after the short sale where the new sale price is at least 10 percent higher than the short-sale price;

• a new transaction less than three months after the short-sale where the new sale price is at least 20 percent higher than the short-sale price; or

• a new transaction less than six months after the short sale where the new sale price is at least 40 percent higher than the short-sale price.

The study examined more than 450,000 single-family residence short-sale transactions in the past three years. It noted that some legitimate property rehabilitation and “flips” — where repairs and improvements were made — have occurred within the “suspicious” time frame.

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Permalink Reply by The Negotiator on July 31, 2011 at 4:28am

I am really sorry if that was all to much .. go to that lawyers website to read it if you want ... the links are below the articles.

I guess my point was to make it clear that Coreclogic are cooks themselves trying to scare banks into buyer their "services."

Permalink Reply by Elizabeth Meyer on July 31, 2011 at 4:29am
I'm not saying there aren't scammers, surely there are.  But isn't a home that is a short sale inherently worth less than a traditional sale?  A buyer can find a traditional sale, make an offer and ostensibly close in 30 days.  But with a short sale, a buyer finds a house and then waits and waits and waits with everything up in the air.  In the meantime, the buyer can't plan where to enroll kids for school or enroll in a gym because he doesn't know if he'll even get the house.  Banks have devalued short sales by their inefficiencies.  I am not surprised that houses sell for more once they are a traditional sales and I don't necessarily think it is always due to malfeasance.
Permalink Reply by ALLAN ARTHUR on July 31, 2011 at 4:29am
You are Dead on Core Logic IS NOT your friend!

The Negotiator said:
Monday, June 6th, 2011 at 10:19am

The Ill-Logic of CoreLogic: Suspicious Transactions

Posted by Ron Ballard

It’s easy to make headlines when you control the data, the definitions and the conclusions.

That’s what CoreLogic did last week – as an unwitting disservice to the double dipping real estate market, ethical real estate professionals and the legitimate private investors who are providing necessary liquidity into distressed markets that banks refuse to touch.

Washington Post syndicated columnist Kenneth R. Harney appears to have been duped by a promotional brochure produced by CoreLogic in writing an article dated June 3 that has filled my email box with questions.

The article can be found at http://wapo.st/ssalarm .

It opens with the alarming question: “Are banks and distressed home sellers getting rooked on a massive scale in the booming short-sale arena, leaving hundreds of millions of dollars on the table for white-collar criminals?”

The resounding answer is “NO.” Certainly not based on the “study” Harney writes about.

CoreLogic is a Santa Ana, California based “real estate and mortgage data research firm.” That means it sells data and research services, particularly to deep-pocketed banks. It is an affiliate of the gargantuan First American financial services and title insurance conglomerate.

At the end of May, CoreLogic released its “2011 Short Sale Research Study.” How can you get the study? You need to go to a CoreLogic marketing opt-in page and give them your contact information at http://bit.ly/clstudy . (The study says it cannot be redistributed, so I’m honoring that even though I feel its newsworthy character overrides the restriction on every page.)

The purpose of the “study” is to show banks that they need CoreLogic’s service designed to detect “suspicious” short sale transactions in order to avoid “potential” and “unnecessary” losses. This sounds seductive if you’re a banking executive looking to blame losses on someone else, like residential real estate investors.

And it could be helpful if the study’s methodology was explained deeper and rang true and legitimate. Unfortunately, it was designed to sound alarming in order to sell data research services.

The alarming conclusion is that lenders MAY incur up to $375 million in “unnecessary losses” in short sales. How are these losses “unnecessary”? Because CoreLogic would like banks to think the losses could be avoided by purchasing their data services.

This marketing sizzle is created by the dubious definitions upon which the study is based and the resulting creative conclusions.

The study coins yet another term for short sale resales: “suspicious transactions.” Then it creates study parameters created to capture pretty much every short sale resale that takes place within six months of the initial sale.

A short sale by definition and undeniable market behavior is a “distressed property sale,” which means that it will sell at a discount compared to non-distress sales because the seller usually has to sell or face foreclosure. There are credible, independent (non-product selling) studies quantifying short sale discounts as easily ranging between 10% to 25% depending upon the particular local market and date. The average of the studies I’ve seen is easily 15%. (Unfortunately, my email box is so full of messages asking about the CoreLogic “study” that I’m not taking the time in this article to conduct a survey of the independent studies of short sale discounts, but I’m sure readers commenting on the article will add their experiences and knowledge.)

For the purposes of this article, I’ll assume a range of 10-15% as being a conservative consensus of the magnitude of distress property discounts for short sales. So how does CoreLogic define “suspicious”? It offers three parameters for “suspicious” short sale resales:

1.   Resales within 30 days with a 10% or higher resale value; or
2.   Resales within 90 days with a 20% or higher resale value; or,
3.   Resales within 6 months with a 40% or higher resale value.

See how clever the definitions are?

If a short sale by nature has a discount of 10% or more, then a resale as a non-distressed sale property will NATURALLY have a price increase of 10% or more. To CoreLogic the mere fact that a resale occurs apparently makes it “suspicious.” The study tags 1 in 52 short sales over the last three years as “suspicious.”

This sounds alarming, but it’s merely a reflection of natural market behavior.

If a home buyer purchases a property at a 10% discount, then it’s natural that it can be immediately resold for a 10% increase. Considering typical resale costs of 7-8%, a 2% gross profit is not particularly alarming. But when did buy low and sell high become illegal? It’s the basis of all commerce.

The longer resale intervals are largely a natural reflection of changing markets and the likelihood that the property has been improved (“rehabbed”). In many cases, investors purchase properties for which banks will not approve traditional loans due to disrepair. The inability of typical retail buyers to purchase the property creates an even larger discount (20% or more) by reducing the pool of potential buyers. It may take as little as $5-10,000 of cosmetic improvement and relatively minor repairs to make a home eligible for a loan, but neither a distressed seller nor typical retail buyer will invest that money in advance, especially without a short sale approval at a known price.

If the investor can sell the property for 20% more, then I think the majority of investors would take the opportunity. If the property has a relatively small increase (or a loss – yes that happens!), then the investor may rent out the property until the particular local market recovers. The investor will avoid selling at a loss if possible, so “bad” investments don’t show as suspicious transactions, only good ones. Bad ones become a “hold” in which the unlucky buyer overpaid and the bank had an “unnecessary gain.”

A resale of a short sale property does not CREATE a loss to the lender, it merely QUANTIFIES the discount. (I’ve studied this in depth in an earlier article at http://bit.ly/3myths .) If a buyer does not resell a property in the 6 month parameters of the study, then the “loss” is not quantified by the study parameters. Under the study’s methodology, the discounts obtained by EVERY home buyer who lives in the house and every investor who holds (either to rent or to avoid a short term loss) is not defined as “unnecessary.” Yet the “loss” (discount on short sale) still occurred. The bottom line to the bank is the same if there is a resale or not.

“Unnecessary” is neither defined in the study nor is the method of quantifying it explained. That leaves the reader to make assumptions. Here’s mine:

1. The loss is “unnecessary” because CoreLogic assumes that the seller could have obtained the investor’s buyer and sold at the higher price.
2. The loss is calculated as the difference between the short sale and the resale.

Both of these assumptions are typically inaccurate.

In a legitimate investor resale, the short sale contract is made at one time and the resale contract is made at a much later time. Two different sets of market circumstances apply. Moreover, the marketing for the first contract is for a distressed sale in which the seller must sell and the property is encumbered by liens in excess of value. If the investor has purchased the “right” property, the resale is marketed close to, or after, the short sale approval is granted and the property can be marketed as a non-distress sale.

This reveals a simple, irrefutable truth: A distressed seller (and, hence their lender) can never eliminate the distress sale discount, only a subsequent owner who cleared the liens can. Hence, a subsequent owner should always have a higher resale price that offsets the short sale discount. There is nothing “suspicious” about that. It is undeniable market behavior.

By defining irrefutable market behavior as “suspicious,” CoreLogic is able to dupe an otherwise reputable journalist into becoming its marketing mouthpiece who parrots an unwarranted alarm into a newsworthy headline.

That is not to deny that fraud occurs in short sales. But ordinary market behavior is not fraud.

The alleged behavior of the Connecticut real estate agents in Harney’s article is improper. Many of us in the industry refer to what they did as “front running.” The unscrupulous listing agent interjects their own buyer at a lower price in front of the independent, higher offer and then withholds the higher offer for their own benefit. That is wrong and is not what legitimate investors and their agents do.

As in all of business and of crime, timing is everything. When a higher, legitimate offer is obtained first and a lower subsequent offer is fabricated to supplant it, then fraudulent activity occurs. But when the higher offer is received as a result of the investor’s marketing after the property is under contract, then normal economic behavior occurs (a higher price results from the removal of the short sale stigma against the property).

CoreLogic doesn’t identify even one “fraudulent” short sale in which this kind of improper practice occurs to label it as “unnecessary.” Mr. Harney’s research uncovered one case (albeit well-known in the industry).

Neither the CoreLogic study nor the product it promotes does anything to distinguish between ordinary, unavoidable market behavior that it identifies as “suspicious” and actually fraudulent transactions.

The study’s methodology creates an unconscionably inflated valuation of “unnecessary losses” by applying a calculation that fails to distinguish between fraudulent transactions and legitimate resales.

The calculation of actual resale price minus short sale price places a value on a difference that banks, by definition, can never realize. The bank cannot remove the short sale stigma, so the bank cannot receive the benefit of a non-distress sale. To calculate this difference as a “loss” is academically dishonest. But a sales brochure masked as a “study” does not need academic credibility.

One “statistic” from the study stands out as totally incredulous in today’s market and transactional environment. On page 6 of the study, CoreLogic states that short sales “resold on the same day have an average of 34 percent ($56,947) gain between sales prices.”

Now that would certainly have legitimate investors salivating and stampeding into the market if possible.

In California, county recorders do not permit title insurance and escrow companies to record two deeds for the same property on the same day. So this alarming statistic is not physically possible in California. Moreover, it’s not practically possible in most other states when the end buyer needs a bank loan. Most Lenders require that the property seller actually hold record title before they will update the appraisal and prepare loan documents. Hence, the fastest resales typically take a week or more.

The “study” includes three years of transactions. The “same day” resale data is a red herring transaction that could have been accomplished three years ago but is virtually impossible now. To the informed reader, CoreLogic suffers a dramatic loss in credibility by even making the point.

Nowhere does CoreLogic state the size of the data pool for this alarming “fact.” It could have been ONE short sale for $110,544 that resold for $167,491. (This calculation fits the “average.”)

CoreLogic has been creative in dubbing legitimate transactions as “suspicious.” This leads journalists seeking to write interesting articles to label entrepreneurs who are bringing necessary liquidity to the housing market as “white-collar criminals.” It sounds intriguing but rings hollow because the study is a sales brochure and a non-story.

If a credible journalist like Mr. Harney has been duped by this kind of information, how much more so have other journalists, government regulators, and lawmakers?

Only the ONE short sale resale fraud case Harney discusses has received national industry attention. If short sale fraud were truly a rampant problem creating hundreds of millions of dollars of losses, there surely would be more publicized fraud cases. Legitimate independent studies are needed. Not self serving sales brochures.

 

From: http://californiashortsalelawyer.com/2011/06/ill-logic-of-corelogic...

Permalink Reply by The Negotiator on July 31, 2011 at 4:32am
"This presents a fact that is astounding to many uneducated observers: The very same house CAN have two different values on the same day. When the day begins, the house is a pre-foreclosure property with encumbrances in excess of value. In the morning, the initial buyer pays off the discounted lien for an amount to which THE BANK AGREED AFTER CONDUCTING ITS OWN INDEPENDENT PROPERTY VALUATION which considers the short sale stigma. Now the property is no longer a short sale or a distressed property. This eliminates the pre-foreclosure/short sale discount and the property returns to market value (in reality most short sales are in poorer condition than non-distress properties so the rebound probably isn’t to full fair market value). In the afternoon, the new end buyer is prepared to pay full value because they don’t have to deal with the delays, hassles, unpredictability and uncertainty of a short sale."

Lev Mills said:

I have Investors that have their own Mitigation depts. and say they offer full disclosure.  What I don't understand is... what bank is going to agree to accept thousands less on a house than what a Buyer is willing to pay?  It doens't make sense.  Would one of the Short Sale Investors please explain to me.. with "full disclosure," how you convince a bank to accept an offer lower than what you flip it for.

 

Lev

Permalink Reply by Smitty on July 31, 2011 at 4:32am

Jeff, you know my position on this.  For me, it's like beating a dead horse most days.

What I've come to understand is most agents that call investors scammers without NEVER sitting with an investor and going through their process, are "fearful" - It's easy to throw out names, when you really don't have a grasp of what an investor does.

 

Most articles on the internet that throw out "supicious" - "scammers" "fraudsters" etc., usually have some other MOTIVE for publishing the info.  Corelogic perpetuates fear because it keeps them in business.  Imagine for every article of "research" (and I use that term loosely as it's more marketing material) they pick up 10 more lenders to service monthly utilizing thier software.  I mean Corelogic is already being sued by the FDIC...so we know for sure we need to question ANYTHING that comes from that camp.

 

Most political figures bolster their careers when taking an "investors are hurting society" position.

 

Most LENDERS that publish info are ONLY looking out for their own losses.  We take what the lenders publish as LAW and it's not law...again they are marketing to minimize their own losses.

 

Realistically the ONLY information I've ever taken seriously was from the FBI as I couldn't see they had any other motive than awareness. Everyone else has a motive that benefits them.

 

We've all been so conditioned to fear the "flip" - even the word, sets people up freaking out.  It's almost always simultaneously used with "fraud", so it's no wonder people can't see past the words and look at the substance of what is going on.

I can gaurantee you the number of "suspicious" short sales is no where NEAR the number of actual fraud and I don't care what profit margin the investor made.  When an agent or investor is convicted of short sale flip fraud, BELIEVE ME, we all know about it pretty quick.  It spreads like wildfire.  The internet is laced with propaganda about short sale flip fraud, and very short of FACTS.  We all know the Connecticut case, but how many more cases of conviction or charges can you count on ONE HAND of actual flip fraud?

 

Look at who published the info and see what they may have to gain before jumping on the flip fraud bandwagon.  Disclosure is the key peice.

Permalink Reply by Smitty on July 31, 2011 at 4:42am

@ The Negotiator - Good info.  Ron Ballard is dead on

@ Lev -

Lev, the house can have MANY different values on the same day.

Easy and I've already discussed in other threads.

FMV-BPO price - $400,000

Bank accepts 80% of Value $320,000

Investor buys and resells for $350,000

 

Look - 3 different values for the same property.  As agents, when you valuate a property does it sell for that EXACT number all the time??? NO - we do a RANGE of values based on comps.  If a house has a RANGE of value then it can be sold or bought in that range...therefore same house has many different selling prices WITHIN A RANGE.

Permalink Reply by Wendy Cutrufelli on July 31, 2011 at 4:54am
The glaring omission in the statistics provided in the Core Logic study is that they don't include the investment dollars (often significant) that the "flippers" spend to upgrade and improve the property in order to gain the higher sales price.  The faulty underlying assumption is that the home is being resold in the exact same condition.
Permalink Reply by The Negotiator on July 31, 2011 at 5:01am
agreed

Smitty said:

Jeff, you know my position on this.  For me, it's like beating a dead horse most days.

What I've come to understand is most agents that call investors scammers without NEVER sitting with an investor and going through their process, are "fearful" - It's easy to throw out names, when you really don't have a grasp of what an investor does.

 

Most articles on the internet that throw out "supicious" - "scammers" "fraudsters" etc., usually have some other MOTIVE for publishing the info.  Corelogic perpetuates fear because it keeps them in business.  Imagine for every article of "research" (and I use that term loosely as it's more marketing material) they pick up 10 more lenders to service monthly utilizing thier software.  I mean Corelogic is already being sued by the FDIC...so we know for sure we need to question ANYTHING that comes from that camp.

 

Most political figures bolster their careers when taking an "investors are hurting society" position.

 

Most LENDERS that publish info are ONLY looking out for their own losses.  We take what the lenders publish as LAW and it's not law...again they are marketing to minimize their own losses.

 

Realistically the ONLY information I've ever taken seriously was from the FBI as I couldn't see they had any other motive than awareness. Everyone else has a motive that benefits them.

 

We've all been so conditioned to fear the "flip" - even the word, sets people up freaking out.  It's almost always simultaneously used with "fraud", so it's no wonder people can't see past the words and look at the substance of what is going on.

I can gaurantee you the number of "suspicious" short sales is no where NEAR the number of actual fraud and I don't care what profit margin the investor made.  When an agent or investor is convicted of short sale flip fraud, BELIEVE ME, we all know about it pretty quick.  It spreads like wildfire.  The internet is laced with propaganda about short sale flip fraud, and very short of FACTS.  We all know the Connecticut case, but how many more cases of conviction or charges can you count on ONE HAND of actual flip fraud?

 

Look at who published the info and see what they may have to gain before jumping on the flip fraud bandwagon.  Disclosure is the key peice.

Permalink Reply by Gina Serra on July 31, 2011 at 5:05am
Please let me know if you invest in MN. I would love to work with you on our short sale and investor properties.

The Negotiator said:

As a short sale flipper, I am proud to say that I have made short sales happen when a traditional short sale would have sent the homeowner to auction, guaranteed. We can do things that nobody else can't... for example:

1. I paid 5k at closing that the lender wanted from the homeowner. My profit went from 8k down to 3k .. NO PROBLEM!

2. I increased my offer 50k in order to get full satisfaction for the homeowner. MY profit went from 60k to 10k .. NO PROBLEM!

3. A homeowner had an auction set inside of 45 days and they were NOT going to postpone. My investor offer went in immediately, got the title cleared, the letter of approval and offered a fast closing to a buyer who lived next door. I did not make a dime on this one because we had no time. NO PROBLEM! A traditional short sale would have never closed in time, because how long would you have to wait for a buyer?

4.THE LIST GOES ON!!!

 

The point is simple. Would a retail buyer increase their offer 50k? Would they pay 5k at closing for the homeowner? Would you the agent pay 5k at closing (60k sale?) The answers are simple .. NO! But, because an ethical investor like me was in charge and doing things the RIGHT WAY, deals are made possible where they would die without me.

 

Whats the average short sale closing percentage now? Last year, nationally, less than 25% closed because of problems in my examples... maybe YOU should work with an ethical short sale investor like me! (In Florida!)

 

P.S. My agents make 6-9% commission and do not touch the dirty negotiating work when they would only make 3% without me AND do all the negotiation work! It's a win-win-win-win-win-win-win-win-win

Permalink Reply by The Negotiator on July 31, 2011 at 5:05am

Sometimes they are, Wendy. Again, I will post this..

 

"This presents a fact that is astounding to many uneducated observers: The very same house CAN have two different values on the same day. When the day begins, the house is a pre-foreclosure property with encumbrances in excess of value. In the morning, the initial buyer pays off the discounted lien for an amount to which THE BANK AGREED AFTER CONDUCTING ITS OWN INDEPENDENT PROPERTY VALUATION which considers the short sale stigma. Now the property is no longer a short sale or a distressed property. This eliminates the pre-foreclosure/short sale discount and the property returns to market value (in reality most short sales are in poorer condition than non-distress properties so the rebound probably isn’t to full fair market value). In the afternoon, the new end buyer is prepared to pay full value because they don’t have to deal with the delays, hassles, unpredictability and uncertainty of a short sale."

 

Ask yourself this. You pull into a cookie cutter neighborhood with a buyer. You see 2 identical houses side by side. "A" is a traditional sale (not a short sale or REO) asking $150,000. "B" is a short sale asking $135,000. Which would you show your client first and urge to buy? BE HONEST!! :)

2 different prices on the same day is possible and is quite obvious.


Wendy Cutrufelli said:

The glaring omission in the statistics provided in the Core Logic study is that they don't include the investment dollars (often significant) that the "flippers" spend to upgrade and improve the property in order to gain the higher sales price.  The faulty underlying assumption is that the home is being resold in the exact same condition.
Permalink Reply by Lev Mills on July 31, 2011 at 5:07am
I see your point.

The Negotiator said:
"This presents a fact that is astounding to many uneducated observers: The very same house CAN have two different values on the same day.
Permalink Reply by Wendy Cutrufelli on July 31, 2011 at 5:11am
An excellent point.

The Negotiator said:

Sometimes they are, Wendy. Again, I will post this..

 

"This presents a fact that is astounding to many uneducated observers: The very same house CAN have two different values on the same day. When the day begins, the house is a pre-foreclosure property with encumbrances in excess of value. In the morning, the initial buyer pays off the discounted lien for an amount to which THE BANK AGREED AFTER CONDUCTING ITS OWN INDEPENDENT PROPERTY VALUATION which considers the short sale stigma. Now the property is no longer a short sale or a distressed property. This eliminates the pre-foreclosure/short sale discount and the property returns to market value (in reality most short sales are in poorer condition than non-distress properties so the rebound probably isn’t to full fair market value). In the afternoon, the new end buyer is prepared to pay full value because they don’t have to deal with the delays, hassles, unpredictability and uncertainty of a short sale."

 

Ask yourself this. You pull into a cookie cutter neighborhood with a buyer. You see 2 identical houses side by side. "A" is a traditional sale (not a short sale or REO) asking $150,000. "B" is a short sale asking $135,000. Which would you show your client first and urge to buy? BE HONEST!! :)

2 different prices on the same day is possible and is quite obvious.


Wendy Cutrufelli said:

The glaring omission in the statistics provided in the Core Logic study is that they don't include the investment dollars (often significant) that the "flippers" spend to upgrade and improve the property in order to gain the higher sales price.  The faulty underlying assumption is that the home is being resold in the exact same condition.

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