Case STudy: SELLER BEWARE ??

By
Real Estate Agent with TOVIJE Enterprises, Inc.

rat

Mortgage Wizard: "I see by your ad on Craig's List that you are selling your home on your own. Your ad says it is priced way below the appraisal value, that's too bad, but I think I can help you out."

Florida FSBO Seller: "Well that would be great. Are you going to buy my house?"

Mortgage Wizard: "Well, let me explain...I am a mortgage broker who has made a great living over the past several years doing mortgages for people.  My mortgage business has really slowed down, so I have gotten together a large group of investors who are buying properties.  I find 'em, they buy 'em.  Plus we get to help out people like you who are backwards in the market or close to deperate to sell their homes. Would you like for me to tell you how it works?"

Florida FSBO Seller: "Sure, I am interested in selling my home, but I am skeptical...I don't want to do anything illegal."

 Mortgage Wizard: "Everything is legal. I am in the business of making deals happen, not to watch somebody get into trouble. Here's how it works...I can close the deal in 30 days, no mortgage contingencies. Your ad says you have your home priced at $399,000 but have an appraisal for $485,00...is that actually true?"

Florida FSBO Seller: "Yes unfortunately it is true...my mortgage has doubled and so have the taxes/insurance and I just need to get this sold before I go broke.....so, yes.....I am willng to take less than the appraisal"

Mortagage Wizard: "Good. I've had my in-house appraiser do a pencil appraisal on your home and he is coming up with $495,000.  If I can get an appraisal for $495,000 I will buy your home for the $399,000 you are asking. Actually, I will write up the first contract with you, but will have the right to assign it to one of my investors. The sales price will be $485,000 ...but you will net the $399,000 you want."

Florida FSBO Seller: "Wait a minute...I'm ok with the assignment part....but I don't understand how the money part works"

Mortgage Wizard: "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"

Florida FSBO Seller: "I understand that I get what I want...and if you can close in 30 days with no mortgage contingency, that would be wonderful, but this doesn't seem legal to me."

Mortgage Wizard: "Everything is legal. I've done 10 of these deals in the last month...everything is documented and all parties agree to it. You will have no legal issues to worry about on that end.  Now, would you like to get the burden of your home sale off your back or do you want to go bankrupt?  Think about it and give me a call back."

 SELLER BEWARE??  HAS THIS BEEN GOING ON IN FLORIDA FOR AWHILE??  It's a new one on me!  I'd like to hear opinions from Realtors, Mortgage Brokers and Real Estate Attorney's ...as well as Consumers on this one. What do you think about this sales pitch? How would you advise the Seller?  Is it really legal?  Have you run into this guy or one of his cousins? Seller Beware!

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Rainer
61,671
Keith Sorem
Keller Williams Realty - Glendale, CA

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.?

May 11, 2007 03:52 PM #9
Rainer
690
Sonya M. Holt
REALTY WORLD Orlando + Space Coast - Winter Park, FL
I have seen and heard of these "deals" happening... Best advice, if you think something doesn't sound legal, please call the NAR Legal Hotline.
May 11, 2007 04:03 PM #10
Rainmaker
161,442
1SG (Ret.) David Kucic
Hawaii Military Realty, Inc. - Ewa Beach, HI
President and Owner

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!

May 11, 2007 07:09 PM #11
Rainmaker
1,477,933
Maureen McCabe
HER Realtors - Columbus, OH
Columbus Ohio Real Estate

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.

May 12, 2007 01:03 AM #12
Rainmaker
188,958
Susan Milner
Florida Future Realty, Inc. - Cape Coral, FL
Cape Coral Real Estate Broker, FloridaFutureAgents
Yes illegal & yes it's going on.
May 12, 2007 01:16 AM #13
Rainer
122,217
Christy Powers
Keller Williams Coastal Area Partners - Pooler, GA
Pooler, Savannah Real Estate Agent
That stinks of illegal. I can't believe people love to pray on these people!
May 12, 2007 07:03 AM #14
Rainmaker
1,073,964
Gary White~Grand Rapids Home Selling Pro Call: 616-821-9375
Flexit Realty "Flexible Home Selling Solutions" - Grand Rapids, MI
Real Estate Services You can Trust!

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

May 12, 2007 07:03 AM #15
Rainer
131,106
David A. Podgursky PA
THE PODGURSKY GROUP @ Re/Max Direct - Boynton Beach, FL
THE PODGURSKY GROUP - Make the Right Move!

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!

May 12, 2007 07:03 AM #16
Rainer
47,149
Louann Nudi
TOVIJE Enterprises, Inc. - Indianapolis, IN

Adrian: I don't think the property is over-priced in this situation. It does seem that the investor is getting the short end of the stick, if he doesn't know about the back end transfer to the property management company (unless he is part of that company?)

Lenn: Sounds like you ran into the Mortgage Wizard's cousin

Maureen: In your particular scenario then, the Seller was apparently not in any sticky-wicket? Was there any published follow up on this scam as to which parties were held accountable? 

David: Since you are an MBA in the biz, can you tell us the ramification to each of the parties in these scammy deals? 

Gary: Thanks for the thoughtful commenting. From what I know, the appraisal has not been hiked up. Everything is going to be on the HUD (or so I was told). The Seller is agreeing to the price he set in the ad AND agreeing to transfer the differnce to the management company--who is not related to the mortgage wizard, but is one of the mortgage wizard's investor group. So if the lender hasn't been defrauded....what exposure does the Seller have to legal ramifications?

May 12, 2007 08:05 AM #17
Rainmaker
1,477,933
Maureen McCabe
HER Realtors - Columbus, OH
Columbus Ohio Real Estate

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.

May 12, 2007 09:17 AM #18
Rainer
47,149
Louann Nudi
TOVIJE Enterprises, Inc. - Indianapolis, IN
Thanks Maureen. That was enlightening. I hope others will post information like yours that will help us all be more aware of the scope of these dealings.
May 12, 2007 12:51 PM #19
Rainmaker
307,518
Ryan Hukill - Edmond
ShowMeOKC Real Estate Pros of KW Elite - Edmond, OK
Realtor, Team Lead

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.

May 12, 2007 03:25 PM #20
Rainer
17,916
Morgan Brown
Inman News - Laguna Beach, CA

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.

May 12, 2007 04:12 PM #21
Rainer
131,106
David A. Podgursky PA
THE PODGURSKY GROUP @ Re/Max Direct - Boynton Beach, FL
THE PODGURSKY GROUP - Make the Right Move!

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

May 14, 2007 03:22 AM #22
Rainmaker
1,477,933
Maureen McCabe
HER Realtors - Columbus, OH
Columbus Ohio Real Estate

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.  

May 14, 2007 03:50 AM #23
Rainer
137,413
Rich Kruse
Gryphon USA, Ltd. - Columbus, OH

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.

 

May 15, 2007 11:31 PM #24
Rainer
47,149
Louann Nudi
TOVIJE Enterprises, Inc. - Indianapolis, IN

Hey Ryan, Morgan, Mott, David Maureen and Rich,

Thanks for the comments these are all very helpful...it made me visit with my acquaintance who is involved in this and provide this update on the scenerio for you to think about and comment on, if you would, please.

WHAT IF:

The appraisal isn't fraudulent or inflated...it is the same amount the seller got a few month's earlier from a different appraiser.

The Loan application is not fraudulent--the guy is a bona-fide investor.  The property title will be in the buyer's name, not the property manager's name.  It is a 100% loan, however, and the purchase price is just short of the appraisal price. A certain amount of the difference between the seller proceeds and the purchase price will be distributed to the property manager for "repairs, etc."  All parties agree in writing to this distribution at closing.

The property manager already has a highly qualified renter to lease the property the week after it closes. The property manager did not find the renter. They were secured by a third party company recommended by the seller.

The seller just wants out and is willing to take far less for the property.  The seller did not know the buyer or the mortgage company prior to this transaction.

Given this information...how would you change your comment above? Where is the fraud here?

May 22, 2007 02:06 PM #25
Rainmaker
1,477,933
Maureen McCabe
HER Realtors - Columbus, OH
Columbus Ohio Real Estate

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. 

May 23, 2007 12:44 AM #26
Rainer
47,149
Louann Nudi
TOVIJE Enterprises, Inc. - Indianapolis, IN

Maureen,

The seller has relocated and is over a barrel. He just needs to get the mortgage off his plate. At $399,000 he is still making a considerable profit on the home which he feels is fair. His perspective is that the market (and appraisals) on homes are ridiculous and it is the buyers who are getting ripped off.  Everybody has their own perspective, I guess.  Interesting situation, to say the least.

May 24, 2007 12:37 AM #27
Rainmaker
223,300
Rick & Ines - Miami Beach Real Estate
Majestic Properties - Miami Beach, FL

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.

May 27, 2007 05:25 AM #28
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