Are you willing to overpay for your home in New Milford, CT right from the start?
Is it fraud? Is it just a way to make money? Is it ethical? Is it legal?
I was wound up inspired by Realtor® Bill Gassett, Metrowest Massachusetts Real Estate about short sale fraud. I have written about this myself and gotten spanked by investors and real estate agents alike who told me, in no uncertain terms, I was wrong. I applaud Bill for 2 wonderful posts he wrote on the subject, and now it is Bill's turn to get spanked. He is holding up well I might add. You should check them out. And please, be sure to read the comments on the second blog of Bills. My cork popped...
Short Sale Realtors vs. Short Sale Investors/Do Lawsuits Wait in the Wings?
Beware of the Short Sale Investor/Short Sale Fraud
There are many different scenarios to this play. Let me be very brief with one simplified example.
- Homeowner has a short sale to sell.
- Investor will purchase home for 150,000, proves to lender this is all it is worth.
- Property is still being marketed at a higher price, say 190,000.
- Buyer comes along at some point in time and agrees to pay 190,000.
- Investor closes on property for 150,000, resells the same day to buyer for 190,000.
Many talk about full disclosure, as long as there is full disclosure there is no fraud. I believe this will shake out in time, we shall in fact see. But what is full disclosure?
Here is what I believe to be full disclosure. Put it in the listing, put a notice at the home. Make sure the buyer understands that you got the lender to agree to a lower price, that the lender BELIEVES the lower price is fair market value. (Remember, someone had to prove to the lender it was worth the lower amount.) I want to know BEFORE I take my buyer to this type of listing. I am direct and ask the agents before I show it to my buyer. I have not once seen anything that states, "investor is purchasing this property for 150,000 and will resell the same day to a buyer who is qualified and pays anything over 190,000". That to me, is full disclosure, up front.
Bottom line? Not one, I repeat, not one of my buyers wanted to see any of these homes. Let me make that a bit more clear, just in case...
NOT ONE OF MY BUYERS WANTED TO PAY MORE FOR A SHORT SALE THAN WHAT THE LENDER HAD AGREED IT WAS WORTH.
If you are currently thinking about purchasing a short sale in the greater New Milford, CT area, make sure you know what is going on. You may find yourself in for a big surprise when you fully grasp the concept that you paid THOUSANDS of dollars more than the lender agreed to sell the house for.
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14 Comments on Are you willing to overpay for your home in New Milford, CT right from the start?
Andrea the banks are finally getting more astute and are not just letting investors steal properties as they once were. This is why investors want complete control so they can continue negotiating to see if they can get to something they find acceptable. Of course this does not benefit a seller! Seller's should pick an offer that makes sense and has a high probability of being accepted without negotiating.
Bill, I have a short sale now where the lender has informed me, in no uncertain terms, that when my sellers accept an offer they will send out a certified appraiser. They do not expect to negotiate with the buyer, they will not speak to anyone other than me, or the attorney we are using. They also had a conversation about it not being a fire sale. They expect the agents who represent the homes will remember that it is in the clients best interest to get as much for the home as possible. I appreciated the fact that the home will be appraised by a certified appraiser and not a BPO from an out of town real estate agent. They expect me to know my market, to price it to sell, according to condition of both the home and the local market.
Andrea, I will not leave as long a comment as I left on Bill's blog, but fraud is fraud and it is high time that those in this industry wake up to that, and hopefully they will if more of us put out information like this to make them aware of it.
This is another reason why the Flip Rules exist.
Andrea: Having reported one of these to the FBI and the fraud department of the mortgage company in question, I can assure you that the US Attorney, and banks, are adamant that there needs to be disclosure to them of the higher contract between the investor and their buyer. It's not just disclosing to the buyer who is paying the higher price. The higher price is market value. Not the lower price.
George, I will have to go and read your comment. I am adamant about this being fraud, and have been told by some I don't know what I am talking about. So here is my view from the other side of the coin.
Chris, I agree 200%, just giving my point of view when I represent buyers. The lenders need to know, but even if they agree, I disagree with it for the buyer. And if the home were priced at what the lender would take it would sell far faster. Saw one that closed on the same day, to investor to buyer for 300,000 more. You tell me how the hell that is fair. And it took the seller a long time to sell, over a year. Criminal.
I work on Short Sales and REO properties here in Texas. I am also active in 3 investors clubs so I have lots of discussions about the transactions around a short sale and REO's. I say that to say I can't imagine a bank (REO investor) agreeing to a price and not closing the transaction. Investors want bad loans off their books and you can get steals at time. I just can't imagine the Bank allowing a property to be sold at a higher price. I have seen closings and sales done in the same day, but that is a different scenerio. The federal government has some rules about this, but I am not sure if MA has accepted the Fed rules for resale of a foreclosure, or have you written your own laws. I know that Texas wrote their own code and since this is a state's right issue the state supercedes the fed law. Thanks for the post.
Larry, I am in CT, but doesn't matter. This practice, so far, is allowed if the lender is aware. I am shocked but what can you do. They call this a contract purchaser, to me it is the sleaziest thing going. When done like this.
But...
What I am saying here is that I don't care if it is allowed. What buyer, in their right mind, would overpay for a house by that much.
And there is nothing wrong with making a buck, but do something for it. Hold the house, fix it up, on and on.
Hi Andrea, I wrote an offer in April for a first time home buyer on a home listed at $58,000 subject to bank approval for a short sale. The buyer was hopeful for the first time home buyer credit, the deadline passed, but the consolation was it would still be a pretty good deal on the home, but after 3.5 months of waiting, the counter offer from the bank was they had to NET $68,000. Withdraw - Good bye!
Hi Andrea!
MOOOOOOOOOOOve over unethical practices!
I believe NAR sent out a blast to all REALTORS(r) on this called "Flopping." I read thru that publication and that sounded much like you're describing here.
They also had the legal staff weigh in where brokers "feel" like they are off the hook to continue this unethical practice, and the legal staff's clear rebuttal on that. I will email that document to you right now, Andrea.
Andrea I'm reading this a few days past - but it drives me bonkers that agents don't understand this is fraud. And there will likely be lawsuits by the big boys at some point. Keith is correct in the 'flopping' term NAR sent info out and I just discussed this very thing with one of our attorneys and he told me about quite a few 'flopping' issues that are poping up here in AZ. It's the latest scam around and it will become more well known within the next year or so - when the correct info gets out to the public and agents.
I have seen quite a bit of this in our market here in the DC area. I agree that in time there will be consequences for those who participate in fraudlent deals - that is if it can be proven and the investors are able to be found.
Marilyn, I don't understand what they are thinking, when we try to do the right thing, they say no. When someone comes along who is not trying to do the right thing, they say yes. Go figure.
Keith, thanks, that was a great read. I tried to get something from our legal counsel, got a bunch of crap as far as I am concerned. It is a shame, isn't it?
Hi Anna Banana, it is rotten business. I have been very vocal about it since I first ran into it this winter. It stinks, I want no part of it.
Dan, I hope that we see the dust settle and this practice come to a screeching halt. And those that profited should have to pay into some fund that will help those that are struggling.
I haven't seen anything like this around here, but I have seen investors get some great deals on houses to rent out. Until someone puts there foot down, this will continue to happen though.
JL, can I hope that someone will please put their foot down and squash this horrible practice?
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