Short sale fraud plagues the housing market

[ramrod]

No shortage of scams, whatever the situation.



Short sale fraud plagues the housing market

By Les Christie July 14, 2011: 4:26 PM ET

NEW YORK (CNNMoney) -- Just as the housing market began to collapse near the end of 2007, a real estate agent in Bridgeport, Conn. asked Regions Bank if it would accept a $102,375 bid on a home that was underwater on its mortgage. Under the impression that this was the best offer on the home, Regions agreed to the short sale and released the mortgage it owned on the home.

Later that same day, the new owner -- an investment group owned by another real estate agent -- resold the home to a buyer who had been lined up before the short sale transaction went through. The final sale price: $132,500, netting the seller a cool $30,000 -- a profit that should have gone to Regions.

In this latest twist on short sale fraud, scammers have found a way to rip off mortgage lenders by tens of thousands of dollars -- sometimes in a matter of hours.

The scam artists, usually real estate agents, will secure a legitimate bid on a home, one where the borrower owes far more on the mortgage than the home is worth. Then they arrange for an accomplice investor to make a lower offer on the home.
Foreclosures for sale: Big supply, low prices

The agent then presents the lower bid to the lender and asks them to forgive any remaining balance owed -- without disclosing that there was a higher bid made on the home. Once the short sale is approved, the scammer then sells the home to the higher bidder, often on the same day.

"These same-day resales are on average nearly $50,000 greater than the lender agreed upon short-sale price," said Tim Grace, senior vice president of product management and analytics at CoreLogic (CLGX), a financial analytics company based in Santa Ana, Calif.

Such transactions are expected to cost lenders more than $375 million this year, up more than 20% from last year, according to CoreLogic
The anatomy of a scam

Most of the time, pulling off one of these scams involves a real estate agent and an investor acting as a "straw buyer." Sometimes, the owner of the home is involved as well, but not often, said Robert Hagberg, an investigator for the mortgage giant Freddie Mac (FMCC, Fortune 500).

"In most instances, the sellers are apathetic; they've, basically, already lost their homes," he said. With nothing to gain or lose, they allow agents to handle the entire deal.

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[kerdasi amaq]

boo hoo hoo. I feel so sorry for the banks. I just wanna cry!:s11:

[Auracle]

if the banks really wanted the most for "their" property, let them find the best seller. why should a real estate agent give money away to banks. alls fair in capitalism, right?
I dont see the scam, at least the way I see the scam of banks lending money and putting people into slavery for money the banks dont even have.

[gringott]

When this all begain my son was looking to buy [back in early 2008] and he investigated several foreclosed homes in our area, which is not a badly hit as many places. The banks did not take care of the homes in any way, most had burst water pipes, mold damage, vandalism etc.
They ended up purchasing a normal 'fixer upper' as the condition of all the foreclosed homes was much, much worse with little price reduction. As for the scams by real estate agents, who would have thought it possible? Aren't they all of the highest moral character and only looking out for the interests of the buyer or seller they represent? Right? Hasn't that been most people's experience?

Hahahah.

[Goldhedge]

As for the scams by real estate agents, who would have
thought it possible? Aren't they all of the highest moral
character and only looking out for the interests of the
buyer or seller they represent? Right? Hasn't that been
most people's experience?
Hahahah.

FYI I sold real estate for 15 years before the bankers screwed the pooch.

I never scammed anyone. In fact, if we become aware of a scam, we're
legally obligated to report it to the real estate board.

I turned one such scammer in and he lost his license. The scam was this...

He sold a family a new home. He said 'don't worry about getting your old
home sold, I'll rent it out until it sells.'

He pocketed the rent money (telling the owners he was making payments)
and the tenants he rented to were fresh off the border. He'd keep them in
the rental until he could find them a home to buy. It was a landing strip. It
didn't help matters that they didn't speak English as their first language.

Rinse - repeat for at least a year. They found out when the bank finally got
a notice to them.

The sad part was the family who owned the rental had fixed it up very nicely
to sell and the renters (and the agent) didn't care about the damage done
by the transients. You should have seen the look on the owner's face when
they entered the home...aghast!

How we caught him is they wanted him gone and the rental 'deposit' paid
back to them...my suggestion. He stupidly wrote the check from his personal
account.

"Commingling funds" and he was as good as dead. I copied the check and
turned it over to his broker - who knew nothing of the scam because the
guy was running it outside (also against the law) of his brokerage.

I'd say like most things it was the 80/20 rule? There's bad apples in every
bunch. Just don't throw them all under the bus...

[gringott]

I have never dealt with a real estate agent that was upfront and honest about everything. I am not saying Goldhedge was not, but I have never met such a person. It may be as slight as 'acting surprised' about a problem on a home, not fully disclosing the financial implications of your pending deal, holding back information about referral profits they make off you, etc. Many of these things are not technically 'against the law' but are certainly not ethical. If there isn't a God, and there is no final judgment or consequences for a person's actions, then I am sure there is no problem. But just like used car salesmen, I don't see how a real estate agent can be 100% honest and compete with the other crooks. I have seen it all, from outright lying to the pretend ignorance. I understand that there is a big difference between fraud and ethical deception. I just don't approve of either end of the scale.
I tell anyone that asks me about real estate to only use an agent you don't know, don't trust them, and do your own research on every aspect. Trust is something every salesman tries to exploit, and the best salesmen are or pretend to be your 'buddy'.

An example from the 1990's: I was looking at houses for about a year. I had bid on 4 houses. Each bid was turned down. The real estate agent said I was bidding too low. These were all unoccupied homes, the owners had moved out of state, they were paying mortgages plus maintenance [by the way, none had mowed lawns etc, the service just pocketed the money]. I questioned what she said about my bids, I stated I believed I had bid correctly based on the homes and the local market. She came back with "every home you bid on sold for the asking price". I said I did not think that was true, please show me. The next time we met she showed me the listings. Well, she hadn't lied about the asking price, they did sell for that. However, ALL FOUR sold for the same or less than the bid I had made, at a later date. They lowered the asking price to what I bid or less.
I fired her immediately.

I never met a real estate agent that didn't try to oversell a client. Have any of you? How ethical is that? Who hasn't dealt with a real estate agent that tells you how to manipulate your finances so you can get a bigger loan [bigger commission for them, plus another sale when you can't pay - quick turnover]?

My experience with real estate agents, including my older sister, indicates Goldhedge's 80 / 20 rule may be right, but I think the percentages are 80 bad 20 not as bad. I don't think a Saint could be a real estate agent and not starve to death.

I also disagree that the bankers 'screwed the pooch', in that they had plenty of help from real estate agents, mortgage brokers, all the way up the chain. I was at a job fair in 2006 and they were hiring mortgage brokers 'no experience necessary' for big bucks, the booth was manned by skinny early 20's types in shiny suits. At that point I knew the housing bubble was just about to burst. That was preceded by stories on the radio [NPR!] about the Black P Stone Nation street gang in Chicago, among others, committing mortgage fraud with the collusion of real estate agents and brokers, mortgage brokers and bankers. We all hate the bankers, but they had plenty of willing help in destroying the housing market. I guess if you took your profits and walked away, you can feel better about yourself, and point at the banks if it makes you feel better.

[Not Sure]

boo hoo hoo. I feel so sorry for the banks. I just wanna cry!:s11:

When you do it, it's a "scam." When banksters do it, it's "business."

[Lore]

I submit that the ratio is closer to 95:5. It's incredible how people show their true stripes when blasted money is involved. People will shaft their friends, family, you name it - just to make a buck.

Conversely, I have a family member working in real estate who is amazed at the scumminess exhibited by various clients. Again, the love of money seems to be the root of evil.

Interesting article. Everybody's looking for an 'angle.' Figure it's only going to get worse as conditions worsen.

[Goldhedge]

An example from the 1990's: I was looking at houses for about a year. I had bid on 4 houses. Each bid was turned down.

In Colorado, you would have gotten a signed refusal from the seller.