“Owner recently obtained property and is working towards gaining clear title.”
Is it any surprise that this seemingly innocuous little bit of verbiage, which has started creeping into private Realtor remarks, seldom appears in the public description of a property listing? Flipping properties is not an unusual phenomenon, but the transference of title, insured by an underwritten policy, is part and parcel of virtually every legitimate sale of Real property in the state of Arizona. When a Realtor learns that a seller does not have possession of clear title to the property they are attempting to sell, Circus Circus sized flashing lights and shrieking alarms erupt in said Realtor’s little noggin.
An unfortunate advent of any market, but an unstable one in particular, is the proliferation of the creative types who seek fortune in the margins of chaos before the powers that be fully grasp the nature of the exploitation. Rather than effectively working the market to provide value to the consumer, such professional card counters work the market to merely line their own pockets, often to the detriment of an unwitting public. In their zest to shift into the next great money maker based on the market forces currently at play, the grifter will siphon an usurious profit under the guise of a savior.
In seeking out the desperate demographic of homeowners who are at risk of losing their homes to foreclosure for one reason or another, unscrupulous predators in our midst are not satisfied with simply collecting a fee for helping facilitate a short sale. No, that doesn’t lead to the immediate and egregious wealth that is promised in weekend seminars and from late night gurus. For some, it too closely resembles work.
And what, pray tell, are the insidious schemes I decry? While the various masks worn by disingenuity are too numerous to count, one in particular has really drawn my ire. Certain agents/brokerages who shall remain nameless, if not blameless, have taken to convincing sellers who are behind on their mortgages to deed their properties over to them. Thus, they are effectively the new “owners,” though they do not have clear title due to the mortgage liens on the property (in addition to possible property tax liens, HOA liens, etc), and never intend to take possession of the property. At this point, the home is listed for sale on the MLS. Interestingly enough, even though a quick check of the tax record readily shows that a Trustee’s sale (foreclosure) has been scheduled because the mortgage remains in arrears, nowhere in the listing is the pre-foreclosure or short sale status reflected. Nope, just that one little line at the top of this post.
So from where does the potential profit windfall arise? From the margin the new “owner” can create between the negotiated short sale with the bank and the price attained on the open market from an unsuspecting buyer. One price is represented in the MLS while a far lesser price is negotiated behind the scenes with the bank. To the broker in the middle of the high wire act go the spoils.
Sound like an ingenious way to earn a buck in this market? Wondering where the harm is if the seller is able to unload the problem property and the buyer purchases it for an agreeable price? The issue is two-fold. For starters, the listing agent is playing Russian roulette with the seller’s future financial well-being. Owner of record or not, the seller/client is still responsible for the mortgage(s). What happens if a short sale cannot be negotiated with the bank at a low enough price to create the necessary margin to carve out a profit? Rather than simply, and honorably, working to sell the home for a price agreeable to the bank, the risk of losing the home and one’s credit is increased exponentially when profit is sought by inflating the end price to the relatively shallow buyer pool.
Secondly, on top of the risk to the client, a gross misrepresentation is being made to the ultimate buyer. Not only is the buyer often unaware that they will be paying for inspections and appraisals, giving 30 days notice on their apartments, etc for a property that is less likely to close because of an unrepresented short sale situation, but they would not be too keen to learn that they actually paid well over and above the price that the bank would ultimately accept.
In these sixteen-shades-of-grey transactions, the buyer ends up paying far more than would have been necessary without the third party involvement of the duplicitous agent/broker, while fiduciary obligations to the client are flouted. The duty to fully represent the best interests of the client is one that most agents take seriously. Realtor clichés aside, I seldom encounter the fellow professional who does not. Driving a potential wedge between the goals of your sellers and misrepresenting the full Technicolor picture of the transaction to the buyer falls woefully short of the minimum standard of care to my way of thinking. Full disclosure is paramount to any Real Estate transaction. Falling far short of that requirement, expect to see future litigation from such transactions from the damaged parties involved (even if the damage is only perceived).
Sellers: Don’t walk, run from any would-be knight in shining avarice that demands you deed over your property as a pre-requisite to the service provided. When you do so, you lose the rights to the property while maintaining the responsibilities. If you find yourself behind on payments and in danger of losing your home, locate a short sale specialist and speak with a Real Estate attorney before making any rash and ill-conceived decisions. For the record, I DO NOT specialize in short sales, and this is not a solicitation.
Buyers: In 2010, you cannot take anything represented in a listing as gospel. Even those that are 100% factual may contain intentional omissions that are hazardous to your purchasing health. You need professional guidance from a trusted resource now more than ever. I have become quite adept at isolating potential problem purchases in this topsy-turvy market, and in this capacity I AM soliciting your business.
We’re not in Kansas anymore, Toto, and that brick road leading towards your salvation may be yellow for a reason. Forget the ruby slippers, and throw on your cross-trainers. You'll need them to get past the flying monkeys.
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