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Here in the Palm Springs Valley of California, the past 4 years have seen a pile of Short Sales listed and closed.  Unfortunately, there have also been some questionable methods to this short sale madness.  This article sums up some of the Short Sale fraudulent practices that are showing up more and more frequently.  If you are considering a Short Sale, be sure to use a list Agent that is experienced in your area and bone up on the Short Sale Law in your state.

Don’t let your Short Sale turn into a Lemon..

Short Sales are here to stay for another couple of years.  The Deficiency protections afforded to Sellers of Short Sales in California is ecpiring 12/31/2012.  Will it be extended?  Nobody knows for sure.  It would be the smart thing to do  in our non-recourse state to avoide a slew of Foreclosures..but Lenders are not know for their “smarts”..rather their bottom lines on their books.

There is alot of Short Sale fraud happening.  Be careful about your List Agents and document everything!

.  Orange County Register

Short sale fraud “heating up,” expert says A panel of short sale experts presenting at CALIFORNIA REALTOR® EXPO 2012 in Anaheim last week said that “fraud is heating up like a wildfire right now …” and “we’ve got to be aware that this fraud is changing directions, jumping containment lines.”

• Short sales involve the selling of a home for less than is owed on its mortgage.
• Among the most common forms of fraud are: Flopping, non-arm’s length transaction, side agreements, and false information.
• Flopping: Scammers arrange to buy a home at an artificially deflated price intending to flip it immediately at its actual value.
• Non-arm’s length transactions: The buyer in a short sale is related to the seller by blood, marriage, or some type of business or personal affiliation.  This istypically arranged by an underwater borrower to regain ownership of the property free from the mortgage debt.
• Side agreements: In addition to payments included in a lender’s “approval letter,” the buyer and seller have side agreements to pay off junior liens, short sale negotiators’ fees, or other third-party fees.
• False information: The transaction includes phony details in the closing settlement statement, or HUD-1, to hide buried costs and fees.

I will do NOTHING that is not disclosed on the HUD.  Sellers and Buyers may not have ANY knowledge of each other.  Short Sales must be taken very seriously..

I just had to share this.

I had just gone to the post office to pick up my mail in the morning, after that I was on my way to my office. When all of the sudden a block away from there, I see an attractive For Rent sign.  It read, "House for rent, 3bed 1 bath and 2 car garage, for $1,100 a month" Considering the area, and the features of the house it seemed like a very good deal. I wanted to rent it myself. Right away I called the number, and the man who answered wouldn't give me the address of the house. He told me that he'll tell me the address when he get's to the house in 15 mins.  He called me and showed me the house, the house was near by. When I saw it, I was impressed; the house was in great condition. I told the guy that I wanted it, but he wanted for me to give him cash, cashiers check or money order. I made an appointment with him, at the end of the day so I can show it to my wife, to see if she liked it too. Also to give him the money.
 

I was still thinking of the house the rest of the day, but I saw that it had combo lock boxes, and an electronic box keys that Real estate agents use, but not a for sale sign. He had told me that they were there for other agents to show it and rent it. Still when I got home, I logged on to the Home Search system and looked it up. Turns out it was For Sale, I called the listing office and they said: IT'S NOT FOR RENT, IT'S AN REO LISTING". Man I was so mad. I told the listing office of the situation, so they put a for sale sign back on right away the next day. The guy wanted to scam me for my money!!!!  He wanted first months rent, last months rent and $1,000.00 for cleaning deposit. That was a total $3,200.00. I got to be careful next time.

Now, this is one of the first things I tell people who are looking for a house to rent. Be aware.

After that, 3 weeks later, one of my clients calls me and tells me to look up an address for him, to see if the house was for sale. I looked it up and it was for sale! Then I noticed his his reaction. He said, the house only had the post, but not the for sale sign, and that he had given $1,800.00 cash to rent this house, to this man that showed him the house, they didn't do a contract or got his information, they just did a verbal agreement for the mean time and a contract later. So this guy just got the money and disappear, so he got away. My client tried calling him but hi's number all of the sudden got disconnected. TOTAL SCAM ARTIST!!

Now, I'm advising all my clients, renters, friends, realtors and also REO agents,  about these scams, BE CAREFUL OUT THERE.

From the FAR newsletter:

I got an offer in January from an out of area Realtor on a duplex I had listed as a short sale.  I thought this was kinda strange they never saw the property that I knew of.  I figured maybe they where related to a tenant.

The beginning of April we had gotten approval. With no deficiency to sellers.  My seller had been difficult to deal with from the beginning, getting info to submit price changes, signing the offer, ect.

The buyer/Realtor told me she was new to all this and she was very confused.  She had been licensed since 2007 and I'm guessing not doing much in Real Estate.  I asked if they would be doing an inspection of the property.

The week before closing I was still trying to get the lease agreements from the seller.  During that time I had sent the buyer/Realtor an arms length affidavit. Two days later I was told the deal was off buyer/Realtor decided not to continue with the purchase.  By this time I had been pulling my hair out of my head getting the seller to co-operate.  One unit had no lease just month to month, I thought this was the reason for buyer was not going forward. Seller also stated no rent was received for April there was no security deposit and no last months rents paid for the unit with no lease.

I sent the buyer an email asking if they would reconsider if the tenant would sign a lease agreement.  We then got notice they would close. So I asked if we where still on for inspections.  I understood the buyers husband would be present and the hired inspector.  The morning of inspections I spoke to the tenant to clarify he never paid Aprils rent, no security deposit and no last months pre paid he told me that was all untrue.  Oh did I mention the buyers never showed for the inspection.  I had the tenant write a statement of the facts. The other tenant made a comment that she thought the sellers mother was buying the place, my comment was I wasn't aware of that.

Meanwhile I thought these people where crazy this inspector has no clue of what be was doing. I had never met this guy so I thought he must have been from the area where the buyer/Realtor is from. Then again was that my business? The property was bringing in a 14% cap rate and I thought that's why they where wanting to purchase.  This was Friday morning closing was for Monday afternoon.

That day (Friday) I got a fax from the seller stating she was as frustrated as I was and didn't appreciate my petty comments and I had a fiduciary to her.  Note I'm a transaction broker.  I didn't understand the comment of petty remarks.  If begging and pledging to get the seller to co-operate is petty then OK.  At this point I took all my info and her fax and sent it to our lawyer who was doing the closing and said until I hear back from you I will not respond to this seller.

Monday morning I find out from the attorney that the buyer/Realtor is the sellers aunt, the inspector was the sellers step father (not a home inspector) and the step father was purchasing this also because they had formed an LLC, that they wanted us to change names at closing to this LLC.  The closing agent at this stage said she quits.  At this point I could careless if it didn't close I felt total deceived by the buyer and seller.  At this point there was no arms length affidavit from either party.  Gee I wonder why? 

The buyers husband shows up to closing acting as he knew nothing and brings a definition from some ask search, what the IRS claims is an arms length transaction is.  Mean while he has the arms length affidavit  with the signature of the Realtor on it. I take this and make a copy, then tell them I will NOT sign this.  Then they tell me that I knew this all along supposedly the seller had told me this in February.  If I had known do you honestly think I would have worked so hard to get no where? 

I feel this Realtor/Buyer has major ethic issues and I would like to go forward with an ethics complaint would you?