Case STudy: SELLER BEWARE ??

If it walks like a duck, sounds like a duck, and smells like a duck...

It's a slimeball, low down, good for nothin' scam grabbine, hem hawin' son of a gun.

Not seen nothin' like that 'roun' these here parts....'course, that could change.?

That sounds too good to be true.  I agree with Keith, If it looks like a duck and quacks like a duck then it probably is a duck.

Aloha!

Louann this sounds similar to a scam in Central Ohio.  Here money above and beyond the list price was collected for improvements.  The checks were cut to a contractor.  The contractor was a sham company, I believe set up by the buyer or friends and family.   

Most of the homes that were identified were new or almost new and did not need remodeling. When it was in the paper no one had moved into most of them.  

Recently an agent in my office noticed a house sold for $100,000 over list so she called the MLS input only agent and asked about it. The seller just called and told her what price it closed at, she was not involved in the negotiation.

This does have a bad taste, but if everything is on the HUD 1 from the lender, and the appaisal is not hiked up to defraud the lender, the seller can take less less than value, pay off his note and give a clear title.  Because the seller is in a bad way does not mean they can not sell for less.  It also does not mean the buyer can not turn around and sell the property for more.  I have a hard time believing investors would not do their own checking on the purchase price by their "mortgage buddy"!

I think there may be more than what is laid out in this situation.  Of course any "hiking of the appaisal, not paying off the note ect would constitue fraud.  The mortgages today are catching a lot of people since they all have that "due on sale" clause.  Meaning sell and pay me!  Just a little different look at this subject.  Walk softly, the hole you step in may be up to your neck!

Gary White

I have seen it going on as well... had someone try to pull it on me and my company... brought in 8 contracts all at once - including one commercial...

it just doesn't work that way!

Last Saturday there was an article that three people were indicted the buyer (I think he may have been the loan officer too?) , the appraiser and the title agency clerk.  May 2007 - Columbus Dispatch

November 2006 - Columbus Dispatch said "A lawyer for the central Ohio chapter of the Building Industry Association warned group members in October to steer clear of such deals. Even sellers could be held liable if deals turn out to be fraudulent, he said, reminding builders of the danger of lawsuits or criminal racketeering charges. "

I've blogged about it a couple of times on Active Rain, one has a broken link to the newspaper article in it now unfortunately.

If you're wondering about the legalities of such a deal, just go check this out:

http://www.mortgagefraud.org/display/ShowJournal?moduleId=78225&categoryId=15938

This is a case that's still in the air. Several indictments have been handed down already and sentencing for several of the participants is in the works. The realtor mentioned is one of the heaviest hitters in our area who I would estimate was doing somewhere in the neighborhood of $50m a year. She is no longer licensed in the state and we're told she will be serving time. The scenario you described sounds very familiar to the scam here as I've had it explained to me. I'd run as fast as possible from this deal and would advise the same to any seller. Good luck.

Hi Luann,

 I wonder how the title is going to be held on the property? If the property management company is on title and then uses an "investor" for the loan, then the property management company takes the income, doesn't rent out the property, the duped-investor can't afford the house.  The house get foreclosed on, the property management is free and clear, only the investor's credit is ruined and the bank is stuck with another REO property.  The property management company can keep doing it as many times as it finds investors who are undoubtedly getting a cut as a payoff on their investment.

This definitely smacks of fraud/illegitimacy.  My two cents.

I think the whole "Mortgage Wiz" type is a fraud in and of itself... I don't think it is a mortgage person at all, I think they're using that to gain entry into a transaction

the MBA at the end of my name doesn't make me a lawyer though :)

the deal is to make these work you need 2 realtors on board, 1 loan officer, 1 appraiser, 1 buyer, 1 seller, 1 underwriter, 1 lender rep, 1-2 attorneys, 1 title processor, 1 loan processor... so let's say 11 people

all of them face jail time for their part in this

sometimes there are straw buyers ... or buyers who use straw buyers' credit and buy in LLC

anyway it works, fraud is fraud and it takes EVERYONE agreeing to form the collusion needed to break the law here

I believe David's formula has at least one flaw  David P. wrote:  " the deal is to make these work you need 2 realtors on board, 1 loan officer, 1 appraiser, 1 buyer, 1 seller, 1 underwriter, 1 lender rep, 1-2 attorneys, 1 title processor, 1 loan processor... so let's say 11 people"

There is no need for any REALTORS® at all.  Real estate agents may or may not be involved in these transactions but they certainly don't have to have membership in NAR to be involved in something like this.  In fact I would hope those that follow the NAR code of ethics would be less likely than a real estate licensee who is not a member to be involved in one of these transactions.

Not that membership in NAR means one is a saint.  The first time I read about this in our market I assumed it was a non member of NAR kind of real estate licensee. I was shocked that someone in the board could be involved.   Looking at the history the striking thing was how few of his transactions involved another agent.  He had both sides of most transactions,  a few were with his broker and I believe only one included an agent from another brokerage.

There is a "team" approach but the less people on "the team" I am sure the more likely it is to work. The FSBO seller that Louann used is probably more susceptable to being approached.  The mls input only listings where the listing office is not involved in the negotiation... there would be less people who would have to be on 'the team" to make it work.  

I see something shady almost every week.  Most of the offers are submitted by agents that are Realtors and members of the local board.  Almost every time I see something really goofy it has a condition of closing at the title company that is "preferred" by the investor/buyer.  We always suggest that closing occur through our preferred vendor simply because the title work was probably started before we listed the property.  A real red flag is the buyer insisting to close with the small title company that nobody has ever heard of.

Maybe it is not fraud,  but if the property is worth $485,000 why can't the seller find a buyer for it on the open market for $470,000? $450,000, $425,000 why would the seller be offering the home at $399,000?  The appraisal is supposed to be a measure of the market, isn't it?  

If the contract between the seller and buyer contains all the terms including: "Well I also own a property management company and I will be renting and managing the property for the investor. You will net your current asking price and agree to allow everthing above that price to be directed to my management company so I can continue to keep the place looking nice, get it rented and have a reserve in case any big repairs come along.  I'll even pay for your doc stamps, etc. on the part of the sales price that is above the $399,000.  It's a win-win"

And everything shows up on the HUD and is approved by the underwriter then it may be kosher. 

Louann, thanks for directing me over here - IMO, even if everything is clearly stated in the HUD, it does not mean it is legal - there are certain Fanie Mae guidelines that need to be followed and those have gotten very strict - NO longer 6% contributions for 100% financing for example.

I hate the fact that so many are falling into these traps out of pure ignorance.  If you are not sure, ask an attorney, one who knows Real Estate Law....and please don't ask the shady investor's lawyer.