The Ethical Dilemma with Short Sale Option Contracts.

Reblogger Fernando Herboso - Broker for Maxus Realty Group
Real Estate Broker/Owner with Maxus Realty Group - Broker 301-246-0001 Broker - Realtor - CEO

 

Maryland Short Sales

Excellent article about SHORT SALES 

A double closing in a short sale is just  a deceptive action to the bank from  the ACTUAL AND CURRENT VALUE OF THE PROPERTY. 

This is one of the reasons that investors get a lot of scrutiny from when they offer for one of my listings? 

 

Original content by Liberty House Realty LLC

My recent articles on this very subject have initiated a firestorm and, I am sure this next article will only throw nitro glycerin on the flames.

Before you read this blog, understand that I have not been appointed as some ethical, moral guardian and, I know that. By no means, do I believe I am going to change your opinion or win you over, that is not my intention. Take what I have written and do with it as you please, I really don't care if you think I am wrong, right or anything else for that matter. This is my opinion and if you don't want to know it, then stop now and don't read any further.

Know this, I feel I am right not because of some statutory legislation or common practice but because I believe in a certain way of doing business and that is what I hope is exemplified in this blog.

First let me explain what I believe a lie is. This will be important to keep in mind when you read the rest of this article. I believe a lie is when someone makes a statement or presentation that they know is false with the intent to deceive.

I believe a lie takes place when an "investor"; as it pertains to Short Sale Option Contracts, tells the bank they will offer them "X" amount of dollars for a property, passing it off as true market value, when they are holding behind their backs higher and better offers with no intention to disclose them to the bank.

I have heard others contend, that as long as you disclose the fact that the "investor" is going to resell the property expeditiously after the closing with the bank, then it's not a lie but, in fact it's full disclosure.

My problem with this argument is that it's based on the premise that the bank knows and agrees to the investor promptly selling the property for a profit from bids that were legitimately the banks but, the bank never had the option to consider. The bank was never able to consider the other higher and better offers because the investor intentionally withheld them. In many ways, I see this as equivalent to a bank heist.

The investor stole money directly from the bank not because of what he said however, because of what he intentionally failed to mention. The investor engages in deception when he misleads the bank into believing the only offer on the table is the investor's offer and it was the only offer received therefore it must be true market value.

This is a lie of omission. Let me explain, for the investor to remain silent and withhold from the bank vital information such as the additional higher better offers, is deceptive in that it gives a false impression to the bank. Basically, this lie subverts the truth with the hope to manipulate the banks decision to the benefit of the investor and not the bank who is already coming up short on the sale of the home.

If we really wanted to have a serious moral and ethical discussion about this type of lie, we need to understand that a lie of omission infringes or maybe even violates the banks right to self determination but, that is a totally different conversation for a different time.

This is also a lie based on misinformation or in other words, the investor is perpetuating a falsehood with the intent to mislead the bank into believing something that just isn't true. The investor is misinforming the bank by claiming they only received one offer and that offer is the one presented by the "investor". This is a falsehood because the investor knows he has higher and better offers but is concealing them.

In closing, I think I have made my points loud and clear. I really don't think any educated counter argument can be presented. I do believe however many "spin doctors" or "investors" are going to come out of the wood work and speak only on bits and pieces of the truth with the purpose to get support for their seriously questionable and in my opinion illegal business practice however, be that as it may.

The truth is, each and every one of you reading this far have to make a decision. I only hope that each of you make the right decision.

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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Why should a bank care what a purchaser does with a property after taking title??

What is meant by the "ACTUAL AND CURRENT VALUE OF THE PROPERTY"?  The bank/seller is fully capable of determining market value of their holdings.  It's isn't the investor buyer's job to protect the bank/owner from undervaluing their holdings.  The buyer must either pay cash or show value to their lender, not the seller.

If the investor is buying a property at a short sale, once it is closed, it's his to do with as he pleases.  If the investor has a purchaser for the property in his back pocket, so what??  If the bank wanted to sell to the same consumer, they have every opportunity to do so. 

Investors buy and sell real estate for profit.  Or, investors buy to rent for profit.  The bank's business is holding deposits and lending money.  When the bank forecloses on the security for a loan, they want to dispose of it and get it off their books.  Once it's sold, they are rid of it and what the purchaser then does with the property is none of their busienss.

When selling to an investment buyer, what does the bank think the investor buyer is going to do with the property, move into it??  If they did they wouldn't be investment buyers.

Now, if an investor buyer obtains a preferred interest rate on their loan by stating that they are residential owner occupant buyers, that's mortgage fraud. 

Other than that, I don't understand where there is a problem. 

Telling an investment buyer that they can't resell the property for profit is like telling a residential buyer that they can buy a home but only if they agree to keep the same color paint in the living room. 

 

Sep 21, 2009 10:23 PM #1
Rainer
42,882
Diane Donnelly
Keller Williams Flagship - Annapolis, MD
Anne Arundel County, MD Real Estate

It is not the purchasers job to convince a bank that he is purchasing a home at the current market value.  It is the banks job, in conjunction with the realtor, to determine what the current market value is.  Further, it is the bank's responsibility to determine what their bottom line is regardless of current market value.

Sep 21, 2009 11:02 PM #2
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Fernando Herboso - Broker for Maxus Realty Group
Maxus Realty Group - Broker 301-246-0001 - Gaithersburg, MD
301-246-0001 Serving Maryland, DC and Northern VA

Ok, let's  put it this way

You are a homeowner in distress. .and hired me to do a short sale on your property, 

I advice you of the ACTUAL MARKET VALUE of your home . .  between 200K and 225K

You agree and trust me  and you let me list it for $225K

An investor comes and puts an offer for $100K

You reluctantly agree to send it to the bank because we maybe running out of time. . .and we want to stop the foreclosure.

The investor does HIS/HER magic with the BPO and it gets accepted

FULL DISCLOSURE?

Closing day:

You become aware that this is a double closing. . and you realize that your home is being SOLD for $200K to another party. . .and quietly ask me. .Fernando, what's going on?

This investor is making  $100k ON MY HOUSE?

WTF?

You are missing the point. . 

The reason why there is so many homes in distress and your own home is not worth what is worth before. .because the same tactics was used on the AMERICAN PUBLIC

The lenders made you believe that the price of your home was x amount when in reality is was thousands less. . you purchased and your net-worth is now on the floor.

When is this cycle  going to stop? 

What do I tell my client. . don't worry about it. . I'm saving you from a foreclosure shut up and sign?

If you are an investor and want to do a double closing on one of my listings. . you have a better chance of winning the lottery. .

I'm not going to let you use my client's misfortunes for you to do your fortune!

 

 

 

 

Sep 22, 2009 01:38 AM #3
Rainmaker
227,314
Jackie Hawley
Coldwell Banker Professionals - Oxford, MI
Southeast Michigan Real Estate

I don't have a problem with an investor buying a short sale, foreclosure or "regular" sale and re-selling at a profit. It was done often in a good market. Investor would buy, update, values were continuing to go up while they were updating and they would re-sell at a profit. Or buy and split up the land, re-sell the house on a smaller parcel and part out the land. No big deal.

My problem is when the listing agent IS the investor or closely connected to the investor, and it results in a double closing. That's skanky and doesn't seem legal (or shouldn't be legal).

Sep 22, 2009 10:05 AM #4
Rainmaker
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Satar Naghshineh
Satar - Amiri Property and Financial Services Corp. - Irvine, CA

Lenn is correct. I want to add that the investor does not determine value. The lenders conduct BPOs and their value is based on their BPOs. Also the purchase contract is between the seller and buyer, not the lender. If the seller wants to sell it at $1, then that's the seller's business. The bank will then need to see if $1 makes sense and accept the short sale or not. The seller need not disclose anything to the bank about having a higher offer.

 

Sep 22, 2009 07:09 PM #5
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301-246-0001 Serving Maryland, DC and Northern VA
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