There Isn't a Get Out of Jail Free Card for Real Estate Agents Who Commit Mortgage Fraud

There Isn't a Get Out of Jail Free Card for Real Estate Agents Who Commit Mortgage Fraud

Only twice in my real estate career have I been compelled to call the FBI and report mortgage fraud.  That's only because I have only encountered it twice. Once when representing a Buyer and another time as a distant observer to a real estate agent who thought they had the secret to winning in a Short Sale.

It started with a call from a nosy neighbor who thought it odd that a home on her street had been listed and sold as a Short Sale, but the owners still remained in the home.  Now, two years later, it was listed for sale again, only this time as a regular sale by the same owners. 

Closer investigation into title reveals a tangled web of would-be deception.  The owner, a real estate agent in the market who we'll refer to as John Doe, had purchased the home as new construction during the boom with his wife, Jane.  When it was obvious that the home was losing value a few years after the purchase, John Doe thought fast and had he and Jane deed the home to just himself, John Doe...real estate agent with a big pair of cahones.

Next the home was listed for Short Sale.  Enter Becky Buyer.  She purchased the home from John Doe.  This was the sale the nosy neighbor had referred to when, after the sale was done, John and Jane remained in the home.  And she thought it odd that two years after Becky Buyer bought the home that it was listed for sale again.  This time, Jane Doe was listed as the Seller and it was a regular sale. 

Becky had done the same thing that John and Jane had done earlier in preparation for the Short Sale.  She deeded the home back to Jane Doe, who did NOT sell the home in a Short Sale, and now Jane was profiting from the regular sale.

I saw this and my head nearly exploded.  I was on the phone with FBI Mortgage Fraud squad in a heartbeat.  I was also on the phone with the bank who had approved the short payoff of the mortgage.  I thought they might be interested to know that the spouse of the Short Sale Seller stood to gain from re-selling the property as a regular sale.  Presumably, Becky Buyer had been in business with the Does from day one.

The home never sold as a regular sale, though it was under contract as one for some time.  It ended up being listed as Short Sale and has remained in pending sale status ever since those calls were made to the FBI and the previous mortgage holder.  Since values haven't dropped, I must assume that the forgiven short fall was reapplied as a lien on the property.  I have to wonder if the listing will ever be withdrawn?  Oh what a tangled web we weave...