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Short Sale Tomfoolery and You

By
Real Estate Agent with Homesmart

 

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. 

Real Estate Vulture

 

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.

Real Estate High Wire ActSound 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.

 

Start your Scottsdale Home Search today!

 

Comments (15)

Susan Mangigian
RE/MAX Preferred - West Chester, PA
Chester & Delaware County Homes, Delaware and Ches

Paul, this is nothing short of brilliant.  If I was looking to purchase a home in your area, or if I had a friend relocating in your direction, you would be the ONLY agent I would recommend.  Very well written post about a practice that paints us all in a color I would rather not wear.

Jan 04, 2010 08:40 AM
Michael O'Donnell
Berkshire Hathaway Home Services Arizona Properties - Scottsdale, AZ
GRI, ePRO, Accessible Homes

Whew.  Long post, but well worth the read.

It's my understanding that ARMLS is looking at ways to curb this non-disclosure disclosure in Arizona, particularly as the data will go unfiltered into cyberspace with the initiation of the VOWS (virtual office website) agreement.

Otherwise this "shell game" will have no professional intermediaries to warn off buyers and sellers as you have in your post.

Thanks again.  (BTW, will I get 3 credits CE for reading your post from beginning to end?)

Jan 04, 2010 08:53 AM
Mara Hawks
First Realty Auburn - Auburn, AL
Inactive-2012 REALTOR - Homes for Sale Auburn Real Estate, AL

You are clearly the expert in directing folks out of the Land of OZ and into the Real Land of AZ. Always a joy to read and think about, adding a huge wingspan to perspective as you stretch the reader's thinking...although I wondered if PRAY TELL was a typo for PREY TELL...

May every day of this new year be one of your best, Paul. Cheers!

Jan 04, 2010 10:38 AM
Gary Woltal
Keller Williams Realty - Flower Mound, TX
Assoc. Broker Realtor SFR Dallas Ft. Worth
Paul, deed in lieu in of foreclosure I agree is playing Russian roulette with the Owner.
Jan 04, 2010 11:23 AM
Melina Tomson
Tomson Burnham, llc Licensed in the State of Oregon - Salem, OR
Principal Broker/Owner, M.S.

They are deeding houses over to agents?  Ick.  I am so glad that I am not dealing with those issues.  That is just so bad for consumers.

Jan 04, 2010 03:32 PM
Kate Elim
Dockside Realty - Spotsylvania, VA
Realtor 540-226-1964, Selling Homes & Land a

Hi Paul...It never ceases to amaze me at the ways some come up with to make a fast buck.  No matter how unscrupulous an action is, there are those that will take that path.  It is not for me.

Thank you for enlightening others.

Kate

Jan 04, 2010 03:44 PM
Paul Slaybaugh
Homesmart - Scottsdale, AZ
Scottsdale, AZ Real Estate

Common sense and my own broker advise steering clear of these scenarios for the stated reasons, in addition to the rumor that a few of the more prominent participants have fallen under investigation.  Whether it proves to be a case of me jumping at shadows or a true case of smoke indicating fire, it simply doesn't feel right, to say the least.  Too much vested interest for the agent and too much exposure for the client, nevermind the lack of complete forthright honesty with the other party.  Just bad juju all the way around.  When I see the sentence mentioned in the post, I advise my buyers we look elsewhere.

And Michael, everyone who makes it to the end deserves some CE credit.  Believe it or not, I actually intended this to be a short post.  Ran out of time for editing ;)

Jan 04, 2010 04:09 PM
Russell Lewis
Realty Austin, Austin Texas Real Estate - Austin, TX
Broker,CLHMS,GRI

Nondisclosure? Wow, have things gotten that bad?

I hope people take the time to read this through. In Austin we have been very fortunate to have missed a lot of the problems so extreme in other parts of the country but I have seen it before with every downturn. These problems bring out the carpet baggers and hucksters in droves hawking more get rich schemes to folks too lazy or easily led into the prospect of easy riches. Yeah...a few make some money and the rest make their dough with the "Guaranteed Program". (including the so-called experts selling specialty designations for short sales, REO's, etc.)Hmmm...this just leads to an embarrassingly large group of realtors who mindlessly participate. Your statement:

"Too much vested interest for the agent and too much exposure for the client, nevermind the lack of complete forthright honesty with the other party."

...is ignored by those who are just in it for themselves. I seem to have gone on a tangent in this comment but it applies in every part of the country to some degree these days and I hope (and know) that better days are coming for you my friend!

Jan 04, 2010 11:35 PM
Robert L. Brown
www.mrbrownsellsgr.com - Grand Rapids, MI
Grand Rapids Real Estate Bellabay Realty, West Mic

Great post. There are agents who do that here. It sounds way to scary to get involved.

Jan 06, 2010 06:44 AM
Valerie Spaulding
Windermere Peninsula Properties~Allyn~Belfair~WA - Belfair, WA
Allyn-Belfair-Hood Canal-Local Expertise!

We ran into this exact situation the middle of the summer last year and we cried foul! but to no avail...The sellers lender is being screwed by this act as well which ultimately screws the seller.  We knew something was bizarre when all of a sudden there was an addendum issued from the other side asking for a "simultaneous closing" with a disclosure that all of a sudden there was a "first right of refusal" being put into play.... RED FLAGS BIG TIME....   we did not walk away - we RAN away as fast as our little feet would take us!

Jan 08, 2010 04:36 AM
Russell Lewis
Realty Austin, Austin Texas Real Estate - Austin, TX
Broker,CLHMS,GRI

Well...*%#&!it looks like this was too long for those with the attention span of a fruit fly. Of course that's the type that needs to read and understand this post...Then again, maybe there were too many big words?

Jan 08, 2010 06:58 AM
Paul Slaybaugh
Homesmart - Scottsdale, AZ
Scottsdale, AZ Real Estate

To be honest, Russell, I barely myself made it all the way through this one without falling asleep ;) 

Jan 09, 2010 08:40 AM
Eric Murrietta
Homeowners Financial Group USA, LLC - Scottsdale, AZ

Paul - I can honestly say this came up last year and the most interesting part was dealing with the "seller" or rather new owner of record.  When we as the mortgage company started asking questions, they were like the banks when a borrower asks what it takes to modify a mortgage.  They gave one line and nothing more.  They, being the owner of record, even gave me the line to the underwriter but we all knew it was a shell game. 

Long story short...we had to deny the loan on what was the ethical determination that the seller was full of crap. 

Sad part of the story...the buyer was dead set on the house and they found a lender that would do it and they charged almost $12K more in fees to complete the deal. 

In the end the person who took most of the beating was the unsuspecting buyer. 

Jan 14, 2010 08:02 AM
Paul Slaybaugh
Homesmart - Scottsdale, AZ
Scottsdale, AZ Real Estate

That's just a bad deal all the way around, Eric.  I wish more professionals, lender, Realtors and title officers alike, would abstain from this type of nonsense, but that will always be a pipe dream when there's cash on the barrel.  Good to hear from you.  Hope to do some business together in 2010.

Jan 15, 2010 11:21 AM
Sandra Carlisle (Ayers)
Berkshire Hathaway California Properties - Newport Beach, CA
Real Estate Marketing & Sales

Is it ok to run past the monkeys in red ruby sneakers???  Just askin...

Feb 06, 2010 05:57 AM