If are just going this series, following what happened to one of my Buyers when he entered into a Contract with an Undisclosed Short Sale Flip, here are the links to the previous posts to get you up to speed.
Short Sale Flip Volume 1: The Snowstorm
Short Sale Flip Volume 2: The First Red Flag
So without further interruption, let's dive back into the twisted tale of this Undisclosed Short Sale Flip.
THE GOOGLE SEARCH
After being informed by a trusted settlement agent (Scott) that my Buyer was involved in anything but a regular sale, I couldn't sleep. I was totally on edge. I couldn't figure out why a woman (Trustee Lorraine), unrelated and otherwise uninterested in the Property, would have the upside down in his mortgage Owner (Mehdi Mohammed) sign over title to her in a trust. What was the point? Why not just buy the house herself and THEN, when she owned it free and clear, hire her agent (Jane) to help her sell it. This level of complication was frying my brain. And clearly, since foreclosure proceedings had begun, Mr. Mohammed was missing mortgage payments.
I had done my due diligence upon first learning of the situation in contacting my Broker, and between us, speaking with company attorneys and trusted Settlement Attorneys. The Settlement Attorney and company attorneys agreed that this suspected same day Short Sale Flip was legal provided that 1) Lorraine, in her purchase from the mortgage company, used her own funds, and that 2) the release of the mortgage lien that was paid short was recorded PRIOR to my Buyer buying. Not doing the first would raise issues with the Wet Settlement Act and settling before the release of the lien was recorded would raise make title uninsurable for the Buyer. So we communicated once again with Jane, the Listing Agent, and were told that by the time this was sold to Vince, that it would be a regular sale. Still, something felt off. So when I couldn't sleep a couple nights after learning of the investment flip, I pulled my notebook computer onto my lap and Googled away. I searched for the Trustee, Lorraine.
Let me say, if you are planning to do something that is illegal, it is probably a bad idea to film yourself bragging about how much money you make doing said illegal acts and posting them on the Internet. There Lorraine was in all her glory describing the situation that lived in my worst fears. "I've made millions buying and selling real estate without using a dime of my own money." That last phrase really stuck with me because THAT was the violation of Virginia's Wet Settlement Act. Seems Lorraine planned on using Vince's money to pay for her purchase, which in Virginia is completely and utterly illegal. And if she were going to do that, she would fight Vince's wish to use Best Title, as that company would not allow her to violate the Wet Settlement Act. She'd have to buy the house she planned to sell first.
All I got from Jane was denial after denial about this being a short sale flip. And when I finally brought the Google search I did to Jane's attention, the next thing I knew, I was ambushed by a conference call with Jane's Broker, Jane and Lorraine. Lorraine was as smarmy as you would imagine. She used the frequent repetition of my name to try to win me over. The crux of the call was this. WSCE, Lorraine's title company, didn't know how to do a split settlement and if Vince wanted the house he would have to settle with WSCE. When I told her Best Title could walk them through it, it was then a matter of privacy issues with the family trust that could not be made public. It was at this point I took great joy in explaining that the title transfer to the Trust was public record and we knew it all. I also told her I knew what she was doing and that, no one cared how much money she was making on the flip, but two things needed to happen. 1) She had to use her own funds to pay for the property first. 2) Best Title at the very least needed the Short Sale Approval letter if the sales were happening the same day. They needed to be sure that no clouds were put on the title, restricting immediate transfer. This was the only way the title insurance underwriter's would insure the title.
Lorraine assured me that all of this was perfectly legal, and laughed that I had been the only Buyer's Agent to "figure out" what she was doing. She found it hysterical which got under my skin. She reveled in the naivety of my fellow Realtors®. Apparently she had a Short Sale contract for $240,000 on the Property, against the $380,000 owed. She stood to make $45,000 before paying the agents and 
settlement fees when she flipped it to Vince for $285,000. She also made a point of telling me that she was a millionaire and would never think to use Vince's money for the purchase of her real estate. Oddly enough, further title searches indicated Lorraine's own home was in the beginnings of foreclosure (yes, a millionaire in foreclosure.) However she had an alias that the title examiner uncovered so I don't think any of us would be shocked to see her alias pick up the property pre-foreclosure. Talk about a dirt bag!
Not as annoying, was Jane's Broker saying there was no disclosure needed when an investor bought a Short Sale the same day they sold it. I'd not talked to anyone of any authority who felt that was true. I bet the mortgage company would love to know that Lorraine was pocketing $45,000 in a simple exchange of real estate when they were taking it in the pants over the already large loss from the original loan. This disclosure thing was also sticking in my gut.
Unfortunately, as our new Settlement Date in mid-March loomed ever closer we found Lorraine needed more time to get her "payoff letter." Through it all, she and Jane refused to call it a Short Sale Approval Letter. We extended settlement to April 3rdand learned that Best Title wasn't going to be able to insure title after all with just the Short Sale Approval Letter. If Vince wanted the house he had to use WSCE. It was time to call for reinforcements. As Vince said, "If they are screwing around and doing this illegally, they picked the wrong buyer to f*** with."
Next up, Short Sale Flip Volume 4: Speaking with the Authorities.
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