Property Concierge

Real Estate and Fraud, Milk and Honey

Posted on April 17th, 2009 by Doug Willis

Just when we think the lid is being tightened on real estate fraud, something else surfaces. You simply cannot have one without the other, as they seem to go hand in hand. We assumed (incorrectly it seems) with tighter lending controls in place and with home buyers bringing cash into the transaction, fraud would begin to fade away and become a distant memory. Just like 15% annual appreciation in the Southern California housing market. Unfortunately some things just don’t go away. The human spirit is amazingly creative and can envision certain scenarios enabling a perpetrator to stay one step ahead of the regulators, at least temporarily.

The latest “I’ll get mine before the bank” approach has to do with the aforementioned short sale. When a property is sold “short” it means the lender is agreeing to accept a payoff for less than the amount owed on the property. This procedure is widely viewed as an acceptable alternative to a foreclosure. In the current environment, a short sale seems to be more acceptable and banks are more willing and cooperative in avoiding a costly and timely foreclosure. It’s best to step up and face the lesser of two evils, because the alternatives just seem to get worse. The loss does appear to be minimized, saving the bank additional time and money down the road.

This past week, our office presented an offer on behalf of our clients on a particular property that was sold as a short sale. The proper process is to disclose this fact, since additional time is involved. It also lets everyone know your agreement is dependent upon bank approval and they have the final say. Before presenting the offer communication was reached with the seller’s agent. The previous accepted offer had now fallen through as is often times the case. Buyers decide to move on, instead of waiting and waiting while the bank goes through its bureaucratic process of obtaining signatures on the transaction. Then the other agent played the “nibble” tactic. Except it wasn’t a nibble, it was a mouthful. He let us know that his seller required an additional sum of $15,000. And oh yea, by the way, this is an agreement outside of escrow and the bank is not to privy to the agreement.

We now have a situation where nothing is in writing to confirm this statement of the seller’s agent. Just our word against his. We could have a chosen to ignore this, but we can’t. A call will be made to his managing broker, providing the details and we are also exploring our contact with the lender to inform them of the proposal made to us.

There are at least two issues here: 1) the seller is not to receive any money in a short sale transaction and 2) not disclosing the terms in the purchase offer is a fraudulent act, not to mention the IRS would probably be interested. I have a low tolerance for cheats and an even lower tolerance for crooks in our industry. They make it harder on the ones of us out here who are trying to run ethical businesses. If this was a precondition of the seller in order to list the house for sale, this agent should have just walked away. Surely it’s not worth losing your license for. The other complicating issue provided we do have the best offer on the property, is they are under no obligation to accept our offer or submit it to the lender.

We may soon see the laws changing in regards to properties in default. The financial institutions that are taking huge monetary losses will require that each and every offer be submitted to them for review. The burden of decision will now be in the hands of the bank who have a vested interest and not in that of the delinquent homeowner, who is hoping to just make an exit.