More short sales bring new scam: flopping
To realize a big profit from this type of fraud, an investor, agent or middleman must first push down a home's price. That means driving down the broker price opinion (BPO), the estimate of value that servicers get agents to provide for short sales.
While the vast majority of these estimates are probably free of influence, many aren't. Short-sale facilitators or other middlemen often contact these agents with lowball comparable sales that they would like to see used in the valuation, such as mobile homes or major fixer-uppers. In one case, Hagberg says, he was told of a negotiator leaving two envelopes for the agent coming up with the BPO: One contained the comparables to be used in the valuation; a second contained two $100 bills.
Another way to drive down the price of a short sale and pack more profit into the flip is by making the house look as though it is in worse shape than it is. Borrowers or negotiators brought in by the borrower will submit false repair bills for shoddy pipes, wiring or lead paint.
"A lot of times these repairs are for things Realtors are not qualified to assess," Hagberg says.
Hagberg has even seen cases of "anti-staging" or "reverse staging" in which a house is sabotaged to look weather-beaten, vandalized or smelly.
How can someone gain access to do this? Many times, an underwater borrower will give his negotiating rights – and access to his home – to a short-sale negotiator who will conduct all communications with the lender and allow other investors to manipulate the sale for a kickback.
"Many times, borrowers don't know about the flip" that's coming, Hagberg says. "And frankly I don't know if there's a whole lot of concern on their part. They are seeing the same loss anyway."
There haven't been very many indictments for this type of short-sale fraud. But such fraud can be punishable by up to 30 years in prison.
To catch a thief
Servicers are slowly trying to improve their systems and give paperwork more scrutiny to prevent short-sale fraud, Fulmer says. Prevention is more practical than prosecution, given the limited resources of law enforcement.
And, in the past, it has been hard for investigators to get servicers to cooperate in efforts to crack down on this fraud.
Glenn Gulley, a real-estate fraud investigator with the district attorney's office in California's Stanislaus County – one of the nation's hot spots for mortgage fraud – recalls calling servicers repeatedly about fraudulent deals and never getting a call back.
"In 4½ years, I've never had a bank call me and say we've been defrauded," he says, though he adds that they're slowly starting to respond as they put more staff in charge of mitigating these losses.
Instead, most of the calls he gets about this type of fraud are from thwarted homebuyers who read published sales transactions in the newspaper.
"I'm getting people calling and saying, 'I offered $300,000 for a house that sold for $200,000.'"
And those are the ones who actually make an offer. Many more people are discouraged from bidding when the listing agent for a short sale puts it up on the MLS at 9 a.m., only to list it as "sale pending" at 9:01.
"Then you know the same agent double-ended it" and is bringing in his own buyer, Gulley says.
Indeed, Hagberg says, some resales from the short-sale buyer to a third party actually close before the deal is negotiated with the bank, giving them the money to satisfy the lender on the short sale. In some cases, the buyer used a proof-of-funds letter generator found on the Internet to vouch for his ability to close the deal, Hagberg says, without actually having the money at the time.
Of course, some lower-priced short sales are legitimate, pitting cash deals against homeowners with financing or repair demands.
The whole problem could be solved if lenders had a better idea what properties were worth, Gulley says. Fulmer and others say they aren't sure that BPOs should take the place of full-fledged appraisals.
"There are no real standards for how to pick the comps to establish the value that you receive," Fulmer says. "You can pick the lowest of the low balls and skew the results."
Whom does it hurt?
After the recent mortgage meltdown, few are shedding tears for lenders over these short-sale losses. Fulmer says that when she talks about this type of fraud, a common reaction is, "So what?"
But people should care, she says, because we're all ultimately paying the tab for it.
"A lot of these loans are insured by the Federal Housing Administration or bought by Fannie (Mae) and Freddie," Fulmer says. "These excess losses are translating into losses that taxpayers are going to have to make up for."
Moreover, this type of fraud pushes down neighborhood values, potentially putting more people underwater on their loans. In other cases, the fraud is part of a larger network of schemes that leaves the house sitting empty and open to theft and vandalism.
"Once a neighborhood gets caught up in fraud, it can get recycled in fraud indefinitely," Fulmer says. "I saw one house that was flipped and foreclosed, flipped and foreclosed for 10 years."
So I tried to post and it was blocked accusing me of a hyperlink or similar to spam. Wow, I was just telling it like it is. So only "certain" comments are allowed. there was no hyperlink (don't know how to hyper link anyway, and most certainly wasn't spam, I only said I was an appraiser.
" The biggest problem is everyone is looking for a short cut and there should be system of checks and balances in place, primarily an appraisal done to determine fair market value. My sis bought a short sale and I was blown away by the process. First step of any short sale should be an appraisal by an independent appraisal familiar with the area. The scope of work for that assignment should include "forecasting" to determine what trend is evident in the market. Secondly the bank should be settting the list price and range of potential sale prices, then and only then should a realtor be hired to actually list the property. Her deal and so many others here, have list prices set by agents/brokers which may or may not reflect the "market". BPO's just don't cut it anymore, appraisers are subject to a lot more disciplinary action than others in this industry and are to be unbiased, most of us can't be bought!! The deal I witnessed was a listing, originally above the range applicable to the area, then a $30K reduction in price. An offer was made and accepted with a 15 days escrow (it was all cash) BUT if the buyer is financing then an appraisal is done for that new loan but the seller and seller's financing company have to right to the info. If it was really to be done right, both lenders (buyers and sellers) should be having an appraisal which should be within 5% of each value, if so then proceed with the deal, if not there's something rotten in Denmark. (I am an a appraiser and live in the Central Vallye, near Stanislaus"
This is exactly why people do not trust real estate agents. It should be the responsibility of the Broker to keep the agents honest. A practice lost long ago and upheld by some lenders.
Seems to me that there was a lot left out in her story and you all are blaming Real Estate Agents because you need a target but not because you actually know what your talking about.
Fact - Banks decide what amount will be taken for an offer.
Fact - Banks have communication procedures in place that discourage Real Estate Agents from actually communicating ALL offers to them - and then take DAYS to get back to Agents.
Fact - there are legal recourse procedures in place in Florida if you feel fraud has happened and you can report this directly to FREC - Florida Real Estate Commission.
Fact - This is a buyers market and Market sets the price - Economics 101 - Supply and Demand sets your price. If a neighborhood has 20 active listings and 2 sales a year - where do you think prices are going to do - go up??? NO they are going to go down!
manipulative marketing has destroyed the real estate industry....but almost necessary
when the housing market was good there were a lot of bad real estate loans thru greedy
realtors that practiced no ethics...got hooked up with bad lenders just to get their deal thru
allowed foreign buyers to drive down the prices in almost every neighborhood by putting
the choke hold on homeowners I was a former realtor in Oklahoma , we had a wealthy
group of Asian buyers from California that wanted to buy rental properties here... It seemed
good for a while but we would find some very nice homes in good areas ...fairly priced
when we would call them forward all the information on the market value condition everything
email them pics...they would tell us to make them an offer 30k less sometimes than the asking
price...we didnt want to do that ...but didnt want to lose the sales either.. we would make
the embarassingly low offers and soon developed a bad reputation among our fellow realtors
It wasnt long till we dropped that group we just couldnt do that to people...a lot of people took
the offers because the economy was so bad ....we would see them in the closings very sad
that they sold the house but walked away with very little .... Its just not the way to treat anyone
And don't doubt for a minute that investors are paying cash for homes, especially in Las Vegas where values have dropped so much. In the LA area we're seeing entire neighborhoods being bought one property at a time -- all in cash, even where homes sell in the millions. They're mostly foreign investors who offer way under market value, but owners are desperate for the sure thing because sellers (and their agents) know how tough it is for regular buyers to get a loan. It's really scary to think how easy it'll be for these landlords to buy off the politicians in a couple of years and get those inconvenient housing regulations revoked; we'll all be living in slums.
I've been thinking something like this went on with the house we were interested in. We couldn't put a bid on it because we lived out of state and didn't have a job in the state, yet (sad). But, we know the neighbors. The house never officially listed, the neighbors were told an individual had to buy it, we were told if we wanted to get a co-signer we would have to bid $15-30,000 over asking, and another neighbor bid just above asking. It ended up being sold to what we were told an individual...later we found out that it was an investor and they were bragging about how they got it for less than asking. I've been wondering how the investor got the house for under asking when the other neighbor put a bid in for more. Now it makes a ton of sense! I wonder if the 1 in 52 is higher in AZ with their record selling months in June/July of this year?
Those of you who want to paint all realtors with the "scum of the earth" brush -- please consider that the vast majority of us are ordinary, middle class people who are struggling to keep a roof over our heads and food on the table -- just like everyone else. The average agent closes about three transactions a year, and once we've paid a percent to our broker and royalty fees to our brand, and covered our business expenses, and replaced the signs that were vandalized or stolen, and paid for private health insurance (assuming we can afford to carry the coverage -- many can't), and set aside 15-20% for income and self-employment tax, we're way below minimum wage for the number of hours we work. Additionally, many of us are homeowners in the very communities we serve, so to get involved in unethical dealings that further depress property values is NOT ONLY criminal, it's also incredibly stupid.
Still, with all that being said, I do believe there is shady cr*p going on out there -- and most of the questionable transactions seem to involve dual agency. Personally, I'd like to see the practice outlawed; I don't think it's humanly possible to fulfill fiduciary duties to both parties in the transaction. It wouldn't solve all of the (many) problems in this industry, but it'd be a decent first step. And at the same time, if Lynne Wright or anyone else has evidence of criminal or unethical behavior, there's absolutely no excuse for not reporting it. We're either part of the solution, or we're part of the problem.
And how many thousands of these properties that wound up being a short sale with the banks taking it in the SHORTS would >>NOT HAVE BEEN SHORT SALES<< had the greedy, pig laden, fat porker banks WORKED with the homeowners on trying to modify their loans so they could have KEPT THEIR HOUSES IN THE FIRST PLACE. But no, they wanted the houses back, apparently, because they couldn't foreclose fast enough on these people the instant they were late on a payment.
Banks getting exactly what they deserved. SCROOGED.
Very little sympathy.