Short sale scams - Grumpy Old Man's View

Mortgage and Lending with Alterra Home Loans NMLS 306764, CO 100018686




I'm not really a "grumpy old man".  I love puppies, nice sunny days, being alive - being alive, good friends, etc. but sometimes I can't help myself - I hate seeing people in distress get ripped off.  And yeah, I know, Amy might have a different opinion on the G.O.M. deal J


Attached below is a notification from our ‘mother-ship' company, Universal Lending.  It's fairly innocuous in what it states - that even though FHA will grant waivers to its 90 day ownership anti-flipping rule, investors won't buy loans made to the ultimate purchasers of such properties, so we won't make the loans.  Simple enough, huh?


What's behind the curtain, though, is the ugly underbelly of what some call the free enterprise system; which goes something like "if it's not illegal, then I can do it and feel just fine" . . . child - please!


Here's the most common curve-ball that I've seen in the world of short sales:

  1. Real estate agent/investor locates a home-buyer in distress.  Most sought-after are the folks who just want someone to ‘make it go away'.
  2. Agent/investor commences short-sale negotiations with mortgage company allegedly on behalf of the homeowner, but really on behalf of him/herself.
  3. Agent concurrently negotiates a sale of the property with an investor friend or perhaps an arms-length homebuyer . . . at a price substantially higher than the short sale price requested of the homeowner's lender.
  4. Agent/investor arranges concurrent closings whereupon the agent buys the property from the homeowner at a much discounted short-sale price, then resells the property to the ultimate homebuyer . . . at a significant profit.  I've seen as much as $50,000 go to the agent/investor on a $150,000 deal.  It's so simple - original homebuyer owes $130,000; a short-sale is arranged at $100,000; property is sold first to agent/inv. at $100,000, then to homebuyer at $150,000.


Smell something?  How's your tummy-test on this one?


I've had conversations with agents directly involved with this scheme and they honestly believe that they're being smart - not criminal.  "After all", they say, "this is the free enterprise system at its best".  When I asked if all parties to the transaction knew the details, they replied, "sure, what do you think I am?  A crook or something?"  To which I have to reply - who in their right minds would agree to this scam if they really knew the truth?  What lender in their right minds would agree to a $30,000 hit if they knew there was a buyer about to pay enough to clear their current loan?  What homeowner in their right mind would walk away from $20,000 clear after their mortgage was paid?  Who on earth would say "sure, I think it's just fine that I lose my home - have a potential $30,000 deficiency judgement sometime in my future or at least $30 K in debt forgiveness to pay taxes on next year . . . so that you, Mr. agent/investor can walk away with $50,000.

PLEASE!  Do I really look that dumb?


There is legislation winding its way through our Colorado General Assembly now that would make this an illegal transaction without signed disclosures to the lender and distressed homeowner as to the exact specifics of the transaction.  How many of these deals will close once that bill gets signed into law?  How about exactly zero?  Anyone want to place bets on my number?  Let me know.


Here's the memo from ULC


On January 15th, 2010, HUD issued a temporary waiver to their anti property flipping regulation that prohibits issuance of FHA insurance on properties owned by the seller for 90 days or less. Universal Lending Corporation has allowed for acceptance of loans under this waiver, but due to minimal purchase ability of loans meeting this criteria on the Secondary Market, we are now forced to discontinue further allowance of loans under this waiver.

Effective Friday, March 19th, 2010:  Universal Lending Corporation will no longer accept loans meeting criteria under the provisions of the HUD Anti-Flipping Policy Waiver. Any loans committed prior to this date will be allowed to close as originally committed, however, no extensions to loans meeting thiscriteria will be granted. 

Should you have any questions regarding this announcement, please contact Secondary Marketing or Underwriting.


Doug Petz

Manager, Secondary Marketing

Universal Lending Corporation



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Tony and Suzanne Marriott, Associate Brokers
BVO Luxury Group @ Keller Williams Arizona Realty - Scottsdale, AZ
Serving Scottsdale, Phoenix and Maricopa County AZ

Short Sale Buyers and Sellers who ignore the Arms Length requirements risk legal consequences - both criminal and civil.

Dec 16, 2010 01:31 AM #1
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Amy L. Cavender

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