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Same Game, Different Name

By
Real Estate Agent with Exit Realty Metro

A recent article in the Minneapolis Star Tribune, "Straw Buyer deals fuel tidal wave of foreclosures", discusses a problem that has been big for over a decade.  Back in the 1990's, it was called the "Flipping Scandal".  It involves property sold at inflated prices to unsuspecting buyers

 

In this story, a 22 year old woman was sold 10 houses in 90 days, with none of her money down, accumulating $2.4 million in debt.  Less than 18 months later, she was losing all the properties to foreclosure.

 

Flipping became such a bad word that it seems to have dropped out of the local vocabulary.  I've seen "flipping" defined as "buying a property and then selling it at a profit in a short time period.  If you think about it, despite its negative connotation, there is nothing wrong with that. However, it becomes unethical if it is sold at above fair value.  It becomes illegal if fraudulent loan documents or appraisals are used.

 

Every Realtor knows that the problem would be prevented if buyers were represented by a good Realtor.  Unfortunately, not all buyers realize this.

 

Things to look for:

 

If seller, Realtor, mortgage broker, title company etc..., are related or all know each other, this is a red flag.  But it is common for professionals to refer you to other professionals they know and trust, so it doesn't mean you should avoid the deal, just keep your eyes open.

 

If the seller recently acquired the house, it is a red flag, but again, it may be a perfectly good house at a fair price, so don't run, just keep your eyes open. 

 

If you are asked to sign any documents that are incorrect, or if any financial part of the transaction is not reported or is misrepresented on the HUD settlement statement, this is a big red flag.  Run!  And then contact the authorities.  In Minnesota, that would be the Department of Commerce.

 

In all cases, it's a good idea for buyers to seek advice from their own Realtor.

Comments (3)

Vera Gleason
KW Vaca Valley - Vacaville, CA
Determined to Move You in Solano County
What if the Realtor is also the lender?  This is fairly common in CA., but doesn't necessarly mean fraud.  Maybe a seller should at least do some investigating here too.
Jun 22, 2007 11:12 AM
Pat Paulson
Exit Realty Metro - Minneapolis, MN
Realtor Minneapolis, Minnesota
Thanks for your response and question, Vera.  The laws vary from state to state, but Realtors can be lenders in MN too.  If it is an ethical person, there shouldn't be a problem, and fortunately, most of the people in our industry are ethical.  The common thread in the type of fraud I described is the seller is in collusion with the lender and appraiser.  There may or may not be a Realtor involved.  In the case described in the article, the seller was the lender.  In Minnesota, a buyer encounters many people in the process of homebuying, and they can all be very helpful.  But usually it's only the Realtor that the buyer has signed a buyers rep agreement with that has the fiduciary duty to act in the buyers best interest.
Jun 22, 2007 01:45 PM
Nalliah Thayabharan
Expert Building Inspections Ltd - Markham, ON
Home Inspector - Commercial Building Inspector Toronto

Hi   Pat !

Thanks for sharing this info with us. Keep posting !

Jun 22, 2007 02:10 PM