Short Sales Fraud On The Rise In Florida

The incidence of fraud relating to short sales is expected to rise by 25 percent in 2012. The loss to lenders and servers is projected to be more that 375 million dollars. Unfortunately, Florida is one of the states that is most at risk.

The Federal Bureau of Investigation prosecutes mortgage fraud. Their definition is, “Any material misstatement, misrepresentation, or omission relied upon by an underwriter or lender to fund, purchase, or insure a loan.” The reason that short sales have become attractive to those wishing to perpetrate fraud is that the loans are held by the second lender without any equity. In order to make any money at all on the transaction, they must either receive a portion of the payment made to the primary lender, or be paid a fee by the seller. Sellers and buyers are often in a hurry to close, and so are susceptible to giving in to the demands of the second lender, especially if they are not supported with the knowledge and experience of a real estate professional.

One technique is the back-to-back closing, in which a property is resold on the same day as the original closing. For this to occur, there must be two unrelated contracts, one for the short sale lender and a contract with a third-party for purchase of the property. The contracts are processed in the reverse order, so that only the most alert Escrow agent will notice anything suspicious.

Some unscrupulous investors will list a property that they have no authority to list, at a price that is lower than a lender will accept as a short sale. The intention is to create a bidding war, select the highest bid while negotiating a low price with the lender. The investor then completes a back-to-back closing and keeps the difference.

Other suspicious transactions include those with a sale price of 10 percent or more higher than the prior, short sale price within less than a month; a sale price within three months that is 20 percent or more over the short sale price; and a transaction within six months that has a price of 40 percent or more than the short sale price. Some of these transactions are legitimate, when a buyer has had the revenue to undertake and complete improvements on the home.

Homeowners looking to purchase, as well as those looking to sell, a short sale property must be aware of the different types of fraud that are being perpetrated. Agents and other real estate professionals must be educated about them as well, because they are the best resource for protecting buyers and sellers from falling for fraudulent practices.

For the reasons described above, it is most often the junior or second lenders that are involved in fraud. All investors and lenders used should be assured as legitimate by checking their license status and reputation. An “arm’s length affidavit” should be prepared, which attests that there are no undisclosed agreements between any parties. This document is required by many primary lenders.

To Meet or Not to Meet…. The BPO agent

       There is no simple ”yes or no” answer to this question. Over the years I’ve tried many different approaches when it comes to handling the BPO agent. When I first started out in this business I would meet them at the house and provide them with a CMA on the property. I found that some agents would appreciate this while others resented the effort and they took it as me trying to tell them what to do resulting in a very high BPO. Other times I would provide them with a contract with the price that I wanted it to come in at. The challenge is to find out what kind of personality you’re dealing with because everyone’s different. Some agents are compassionate towards other people and when you explain the situation about the seller’s hardship and how you’re trying to help them, then they will also want to help. These agents will go the extra mile to try and get you the price you need in order to help the seller and get the deal done. However, there are other agents that are like dealing with robots. These agents don’t care, don’t want to know, and couldn’t care less about what the situation is. When I encounter someone like this, I don’t offer them any paperwork at all because not only will it not help but they will probably go out of their way to make the BPO higher than it should be.

        Another approach I’ve used that has worked well for me is to tell the BPO agent that the bank wanted me to do my own BPO report in addition to the one they’re doing. Remember, the BPO agent usually gets hired by an agency and they have no idea what the situation is. They can’t get mad or offended because you’re there to do a job just like they are. It’s very common these days for the banks to order 2 BPOs anyway and if they see me taking pictures of every single piece of damage in the house to put in my report, then what do you think they are going to do?  They don’t want their report to look less complete than mine so you can bet they won’t miss a thing either. In this situation you may even get a chance to share and compare notes.

        One of the most effective techniques I’ve used and still use sometimes is to be nice, play dumb and ask a lot of questions on how the process works. By doing this, I find out for sure if the agent is doing what he or she is supposed be doing. I will ask them things like “so you’re here to give a value according to a quick sale price right?” or “So what happens next after you complete your inspection?” This approach in non offensive and you will find out a lot about what type of personality you’re dealing with. I will even ask them at what price they think it will come in at if I feel comfortable enough with them. They worst thing they can say is “I’m not allowed to tell you that”.

        There are certain agents however, that no matter how nice or cooperative you try to be with them, they are just disgruntled and bitter on life and will actually go out of their way to mess up you’re deal. After a while you know exactly who they are because if you do a lot of short sales in the same areas you will get the same BPO agents over and over and it’s very easy to track which ones are good to work with and which ones are not. What I do with the bad ones is put them on my “Black List”. That way everyone in my office knows that when one of these names come up it gets handled differently. Whenever I get one that’s on my blacklist, I just don’t cooperate. When they call to set an appointment, I will usually tell them that the seller is out of town for a week or some other reason that will force them to turn it back over to the agency or bank since these reports are usually due in 72 hrs from the time they get assigned. Don’t get me wrong, this doesn’t happen that often and there are only a handful of agents on this list. However, if I know for sure someone is out to mess me up then they will be treated the same way.

       I hope I didn’t offend any BPO agents with this post but short sales are a lot of work and at the end of the day we should all be working together to clean up this housing market. The BPO is an intricate part of doing a successful short sale and if you are doing BPOs, you should understand that the banks are pretty much clueless and they are depending on you to help get them get the deal done. Try and find out about what the situation is from the agent and be part of the solution not the problem. 

You HAFA Give It A Try!

Many of the agents that I speak with wait to start the short sale process until they have an offer. Big mistake!! Why wait?... Why not try and make some headway with banks before you even have an offer? Maybe the seller can go HAFA (Home Affordable Foreclosure Avoidance) program. The HAFA program offers full deficiency release, $3000 seller for moving costs once approved, and the bank is able to make a decision 10 days after they get an offer. Unfortunately, inexperienced agents would rather wait to get a buyer before even considering HAFA. Don’t wait…get the ball rolling, this will help you to put time on your side not the bank’s.

        

          Once you get a short sale file, research the options that are available for that seller and get moving on something. Most people aren’t even aware that the HAFA program exists so you should definitely find out if you can get them qualified. Even though I’m always the buyer on my short sale deals, I still try to exhaust every option I can to do what’s best for my client. Even if it means that I will make less money on that deal.

           In my experience I’ve found that if you make it not about the money…in the long run you’ll make more money. I’ve gotten countless referrals over the years by going the extra mile for people.