Short Sales-Welcome the New Straw Buyer

By
Real Estate Agent with Integrity Real Estate Group

Short Sales-Welcome the New Staw BuyerEvery jaw in the room dropped as the story unfolded.  The story was about a local agent who created "straw buyers" for their short sales to help move the approval process along.  Instead of waiting for a real offer to appear they would write up an offer and send it to the bank so that the BPO would be completed and the file processed to a negotiator.  Once the file had approval the "buyer" would withdraw their offer and the agent could now advertise their listing as an approved short sale.

Thinking this must be just a crazy invention by one agent and after a heated discussion regarding ethics I put it in the back of my mind.  Today while looking through responses on a national real estate forum there was an agent suggesting to a home owner that they could put them in touch with an agent who had "investors" who would write an offer on their property to get the short sale process started. 

Good grief there is more than one agent that wants the Virginia Real Estate Board to take away their license.  Short sales are what they are.  They can be difficult, they can be time consuming and they can be frustrating but they are not worth losing your real estate license for. 

What these agents may not realize, as it was clearly pointed out to us by the attorney leading our discussion, that once an offer on a property is withdrawn the approval process often starts all over again.  An approval on one offer does not always translate to an approval on the next offer.  In a few rare cases, depending on the lender you may be able to substitute a new offer at the last minute but it is a guarantee.  However if you are following our local board rules of changing the status to under contract, how are you getting that second offer in the door? 

Meanwhile the homeowner who hasn't make a payment in two, three or more months gets closer and closer to the delivery of the foreclosure notice.  The idea of a "straw buyer" for a short sale listing shows how far some agents are willing to go in today's market to potentially make a sale.  

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If you are interested in learning more about the Northern Virginia Real Estate market including Alexandria, Arlington, Fairfax and Prince William Counties give Cindy Jones and Integrity Real Estate Group a call at 703-346-2213.

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Rainmaker
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Bob Wilson
Access San Diego - San Diego, CA

"What these agents may not realize, as it was clearly pointed out to us by the attorney leading our discussion, that once an offer on a property is withdrawn the approval process often starts all over again"

Absolutely. Unless you have an inside track with someone, that is frequently the case. It is automatic with Fannie and Freddie.

Feb 22, 2009 07:28 AM #13
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Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
Pentagon, Fort Belvoir & Quantico Real Estate News

Michael-my thoughts exactly.  I had yet another call last night from an agent who had an even different scheme going on with investors buying foreclosures.  No wonder our first time buyers keep getting out bid on homes.

Feb 23, 2009 12:01 AM #14
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Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
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Jim-it certainly has raised red flags for me.

Feb 23, 2009 12:01 AM #15
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Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
Pentagon, Fort Belvoir & Quantico Real Estate News

Vanessa-absolutely many short sales take to long to complete.  However if you have to go back to square one with the lender when you get a new offer what is the point of the "straw buyer?"

Feb 23, 2009 12:02 AM #16
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Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
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Patricia-this was how I felt about it too.  If I knew directly that an agent was pulling this scheme I wouldn't hesitate to report them to our local board.

Feb 23, 2009 12:03 AM #17
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Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
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Richard-thanks for your professional view.  It is always refreshing to know that there are other agents who work ethically.

Feb 23, 2009 12:04 AM #18
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Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
Pentagon, Fort Belvoir & Quantico Real Estate News

Kathy-I'm sure if the VREB ever gets a case like this in front of them that we will all read about it in the newsletter and magazine.

Feb 23, 2009 12:05 AM #19
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Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
Pentagon, Fort Belvoir & Quantico Real Estate News

Valarie-after I finish with AR this morning I'm on the phone to the lender on my short sale listing to see what else I can do to speed up the process...the right way.

Feb 23, 2009 12:06 AM #20
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Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
Pentagon, Fort Belvoir & Quantico Real Estate News

Kimberly-it is up to us to report anything like this scenario to our brokers and our local boards to make it stop.  This type of activity could hurt everyone who is trying to deal with short sales.

Feb 23, 2009 12:08 AM #21
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Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
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Brian- your draw would drop even further after the conversation I had yesterday with an agent about some foreclosures in our area.  All I'll say is "insider trading."

Feb 23, 2009 12:09 AM #22
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Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
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Perrin-if it had happened directly to me or I knew more of the details you can be sure that I would be filing a complaint. 

Feb 23, 2009 12:10 AM #23
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Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
Pentagon, Fort Belvoir & Quantico Real Estate News

Bill-I couldn't agree with you more on that one.  We had enough agents doing double dealings when the market was hot and now we get a new group doing it when the market is cold.

Feb 23, 2009 12:11 AM #24
Anonymous
Andy

I've done more than 40 short sales and obviously straw buyers are illegal and shouldn't be used. 

But for most situations every agent working a short sale should submit a low investor offer first.  If the investor intends to close the deal then it isn't a strawbuyer.

There are several reasons for this.  But ultimately it makes really good sense and it will improve your close rate.  Your duty is to be lawful and as long as you are being lawful your duty is to act in the best interest of your short sale seller and get his loan paid off. 

I have found many banks that claim you will have to start the process over with a new buyer but that is not my experience.  I have never seen a lender require you to start at the beginning process if you present a new buyer after the short sale acceptance letter has been issued.  They would however ordinarily require a new pay off letter to be issued which usually takes less than 2 weeks to get and sometimes less than 24 hours.

Why is this??? It is because the time intensive home work has allready been done?  Do you honestly think a bank is going to start from the begining and spend another 100 dollars to get a new bpo?  No... they allready have all the necesary calculations required to issue a new acceptance letter on file.  And if they suddendly are getting an extra 20% proceeds above what they expected I can assure you they won't give you any trouble.

Feb 23, 2009 01:04 AM #25
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Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
Pentagon, Fort Belvoir & Quantico Real Estate News

Andy-I don't know if you have completed these short sales as a listing agent or as a buyers agent.  If the BPO does not support the value of the offer then I'm not sure that I am working in the best interest of my client to start the process with an offer that the bank will not accept.  If I submit a realistic offer, supported by the comps then I can and have gotten deals to close in less than 45 days.  Different philosophy in the way to handle short sales.

Feb 23, 2009 04:38 AM #26
Rainmaker
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Todd Kevitch
InterContinental Capital Group - Boca Raton, FL
Mortgage Loan Officer - I get deals done!

Definitely news to me.  I'm sure there'll be more stories about this one!

Feb 24, 2009 01:18 PM #27
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Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
Pentagon, Fort Belvoir & Quantico Real Estate News

Todd-I had hoped not but I had  another conversation with an agent this weekend that made me cringe about buying foreclosures "off the books" by investors. 

Feb 24, 2009 01:21 PM #28
Rainer
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Ginger Sala
Wilkinson & Associates, Wilmington NC - Wilmington, NC
Wilmington NC Real Estate & Relocation~

Cindy, The consumer and honest agents are getting the short stick in these scenario's because the unscrupulous charachters feel they can get away with their unsavory tactics. Many in the realted professions turn a deaf ear or a blind eye. Reporting offenses of this magnitude is the only way these practices will stop. Like you I say: BOOK EM DANO!

Feb 28, 2009 10:53 AM #29
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Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
Pentagon, Fort Belvoir & Quantico Real Estate News

Ginger & Roger-Should I personally run into an agent who says this is what they are doing I will report them.  I had a call from another agent who indicated he is working on "insider trading" with REO properties.  Another blog is coming on this one.

Feb 28, 2009 11:32 PM #30
Rainmaker
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James Downing - Metro DC Houses Team REALTORS®, CRS, GRI, ABR,MRP, MilRes
Real Living | At Home - Washington, DC
When Looking to Buy or Sell - Make the Right Move

Cindy-  Last fall when I was taking my GRI classes.  One of the agents in my class mentioned something like this.  Every agent in the room had their jaw hit the table.  I think I saw the instructor's (a top Broker/manager from L&F) eye fall out of her head.

 

AMAZING!

Mar 03, 2009 01:01 PM #31
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Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
Pentagon, Fort Belvoir & Quantico Real Estate News

James-someone or maybe more than one are going to lose their license over this type of activity before our real estate market recovers.

Mar 03, 2009 11:07 PM #32
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