Fraud! RE Agents ARRESTED for alleged short sale fraud.

CNNMoney.com has an article about unscrupulous real estate agents who are short selling their short sale listings. The agent will 1st get an offer from a legitimate buyer, then an accomplice will write a lower offer which is presented to the bank. The legitimate and higher offer is never given to the bank. Once the lower offer is accepted, the agents then flip the house to the legitimate 1st offer, netting thousands of dollars in the process.

According to Corelogic.com, these same day resales average a $50,000 profit for just a few short hours of work.
  • July 17 2011 - US
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Answers (31)

Profile picture for wetdawgs
Yikes!   And I wonder how this will help the professional image of agents?
  • July 17 2011
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Profile picture for shasta_steve
I have been yelling the whole short sale process is mostly a fraud for a long time.  I am sure most agents are playing by the rules but really the whole foreclosure/short sale process has to be about one of the easiest things you could think of to scam.   With the paltry number of arrests in this whole fiasco it has to be one of the safest to pull off too. 

I know when I was looking for a house I saw them come on the market all the time and by the time you could get a bid in they were gone.  You had a couple of "super agents" who controled most of a certain banks listings.  They got to act like God when they decided what offers they would take.  It seemed to me many were going to their friends clients and in my case I was threatened with getting my deal killed if I did not use their friend's loan officer.  The banks don't care because they don't actually own the loans they are foreclosing on.  They are usually only servicing them for Fannie or Freddie.  Really there is a huge amonunt of money changing hands and really no one is minding the store. 

As for short sales I have not noticed any houses getting flipped in my neighborhood but almost all short sales are priced way under the current market.  They might not sell for that price but they get lots and lots of attention.  Really why should they try and price them where they should be.  All the agent wants to do is get a sale and the seller is not going to make any money anyway.  My biggest gripe is the agents who go door to door around here trying to talk people into short sales.  It may not be illegal but certainly does call their ethics into question.  In the end the whole system is just way too easy to scam and has been for a very long time. 
  • July 17 2011
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Profile picture for Dunes....
"On July 7, 2011, NAR President Ron Phipps met with FTC Chairman Jon Leibowitz to discuss the problems caused by MARS. On July 15, 2011, The FTC announced that it will forbear from enforcing most provisions of its MARS Rule against real estate professionals who assist consumers in obtaining short sales from their lenders or servicers."
Link
  • July 17 2011
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Profile picture for lamaSr
Before the age of Zillow, I had a friend who moved suddenly due to a job change and put his NC home on the market.  He had to manage the broker remotely.  The broker told him that she had received a "reasonable offer".  He was too busy with the new job to check up on the transaction at the time.  About 9 months later he discovered the place had sold twice within a week.  His sale to the broker's friend was about $30k less than the flip sale.
  • July 17 2011
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@Shasta_steve:  there are no "super agents" when it comes to short sales because short sales aren't controlled by banks, but by the sellers - they don't become controlled by the bank until they're foreclosed upon.  The offers are first presented to the sellers, then to the bank(s) who have the mortgage(s).  And there's a reason why the listing price is often so low ... most banks won't even consider a short sale until an offer is presented.  Agents will often list the home for an artificially low price in order to generate offers.  While I don't agree with this practice, it *does* happen ... frequently.

@lamaSr - I don't understand how your friend could have let this happen.  Didn't he sign the sales contract?  Or did he (foolishly) give a POA to the broker?    
  • July 17 2011
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Profile picture for wordsmth
Have to agree with Shasta. The system is ripe for abuse. And it's being abused by all parties--sellers who see it as an easy way to get rid of lots of debt (the amount the house is upside down), Realtors (who sometimes seem to eager to talk owners into doing a short sale, rather than presenting other options), investors (those who misrepresent the values to lenders and others), and so on.

I'm not saying that all, or even most, transactions fall into these categories. But with so much money floating around, and with so many glitches in the system, there's a lot of abuse going on.
  • July 17 2011
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Profile picture for shasta_steve
@Glenda:  You are correct I should have been more clear I was talking about buying a forclosure.  I do know why they price short sales way  under market but I do find it unethical.  They basically cut the throat of others selling nearby, who are trying to price their property correctly.  Let's face it they are going to get many more offers if they are priced so low.   It also is basically a bait and switch for potential buyers.  The sellers agent knows the bank will never accept such a low offer but often times the buyers do not.  They get in contract on a house they can never hope to get for the price.  The selling agent hopes the bank will even accept a short sale and that the buyer will feel enough pressure to raise their offer. 

@wordsmith:  I agree with everything you said 100%.  Unlike others on here I do not hate agents and would not be good at doing your job.  I just think that the profession needs to self regulate or I am sure it will be done for them.  I also don't blame agents for most of the housing crisis.  I think that can be laid squarely at the foot of the mortgage industry and the government agencies who should have been looking over them.  It just kills me how we keep rolling along, one fraud after another, and nothing has truely been done. 
  • July 17 2011
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I can say that I am not surprised.  The whole shortsale thing is unregulated and a big waste of time.  I think it should be fraud to list the homes at a price that everyone knows will never happen.  Like when every house is the neighborhood is selling for over 300k and they list it for 200k.  Then buyers get excited thinking they have a chance at that house and realistically they hav none. 

Just my opinion...
  • July 17 2011
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The banks could easily stop this if they cared. Simply, record an additional lien against the new owner, for $50,000 if the home is resold in the next 12 months. That's all it would take. The banks are too stupid to believe...
  • July 17 2011
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Profile picture for Michael Helton
Woooooow.
  • July 17 2011
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Profile picture for Michael Helton
Now that I think about it I am not surprised.  The whole Shortsale process is shrouded in such secrecy that it is very easy for this sort of thing to happen. 

There really needs to be more transparancy in the process.
  • July 17 2011
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Profile picture for Connie Klemme
what's odd to me is the fact that in addition these events, banks are now dropping the requirement for the "arms length transaction" (not just dropping the proof requirement but the actual requirement).

this is where I would say...How does this make sense, but silly me.  why do we expect such things to make sense.
  • July 17 2011
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Profile picture for lamaSr
Glenda,
You got it.  He gave the broker PoA.
  • July 18 2011
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Profile picture for Sharon Lewis

Sadly this is the way business is, not just in real estate, everywhere, so kick off those ruby red slippers, it aint Kansas anymore Dorothy!
However, I expect all of you on these boards to take the high road, do the right thing, because we lead by example.

  • July 18 2011
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"The banks could easily stop this if they cared. Simply, record an additional lien against the new owner, for $50,000 if the home is resold in the next 12 months. That's all it would take. The banks are too stupid to believe..."

Actually, I'm starting to see this on many bank-owned (REO) homes now - 60 day deed restrictions against re-selling the property. I don't think they can do that in a short sale case because they don't have granting access to the deed in a mortgage case - the seller/grantee does. (someone tell me if my logic's wrong here) I don't see why they couldn't in a Trustee deed, though. Many short selling banks also require "arms-length" and anti-flipping disclosures (and threaten litigation) before approving a sale, to prevent this. Banks are also sticking faster to the appraisal (which is not lined up by the agents, but by the bank).

AB-BC investor transactions have been around as long as there have been short sales. They can be legal (flipping, not necessarily double-escrowing) as long as it is being disclosed to all parties in the offer that the investor is re-selling and doing it for a profit, and all offers are being presented to the seller (not lined-up higher buyer). That doesn't mean I think AB-BC transactions are right - I believe in win-win - and these transactions risk both facing the seller with a greater potential of going into foreclosure, less "profit" for the bank, and in government-backed loans, money out of our taxpayer pockets. However, if the home has a lot of deferred maintenance that requires repair in order to be marketable to a new buyer, I can't think of any reason why an investor couldn't fix it up and re-sell it at a profit. That would be win-win, and the banks shouldn't try to stop it. JMHO.
  • July 18 2011
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Profile picture for shasta_steve
Sadly this is the way business is, not just in real estate, everywhere, so kick off those ruby red slippers, it aint Kansas anymore Dorothy!
However, I expect all of you on these boards to take the high road, do the right thing, because we lead by example

The fact that you think this is just business as usual is pretty disturbing to me.  No no matter how much you want to tell yourself differently the amount of corruption and fraud in the whole real estate industry has gone far past the point where you all just need to take the high road.  We need to have "real" licensing requirements and real penalties for violating rules.  No Dorthy most business does not get the free pass to lie and steal the way the real estate industry has the last few years. 

I have several friends who are agents and they are great people, as I assume most agents are but you have huge number of outright crooks in the industry too.  Unfortunately the cream does not always seem to rise to the top.  Another problem with the whole business model is messed up.  It is very common for an agent to have to choose between giving good advice and getting paid.  Really how many agents are going to tell thier client to kill a deal, especially if it means they will not soon do another?  Now I don't know what the answer is but it is pretty obvious that the mortgage industry and the real estate industry are not able to police themselves and I really can't think of another industry that has done more to hurt the economy.   And it just keeps going and going. 
  • July 18 2011
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Profile picture for RapidShortSales
There is nothing UNSCRUPULOUS about it if full disclosure has been written into the contracts.

Anyone who believes this BS, needs to read the article written by Attorney Ron Ballard.  It's VERY eye opening considering Corelogic is being sued for Appraisal Fraud...the very company that publishes marketing collateral for short sale fraud.

[hotlink removed by Zillow moderator]

Could a highly publicized "study" warning of $375 million of "unnecessary" loan losses in "suspicious short sales" be manipulating figures just to sell more of its author's services?

Prepare to read the following in depth analysis and I'm confident you'll find that the answer is obvious.
[hotlink removed by Zillow moderator]

  • August 12 2011
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There is nothing UNSCRUPULOUS about it if full disclosure has been written into the contracts

Too bad you didn't legally represent the two agents who have plead guilty to the crime you say is non existent.
  • August 12 2011
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Shortsales are basically another form of Wholesaling. Unless there is a legitimate owner occupant. What type of seasoning period should pass before the property can be sold at a profit? Can real estate agents be legitimate investors ?

  • August 12 2011
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Profile picture for hpvanc
I would say they can be legitimate investors, but not legitimate if they are buying making no significant improvement and immediately flipping it to someone who had made a higher offer that was never submitted to the original owner/bank. 

Did you read the original article?  Who is going to disclose that they are colluding with an investor and/or other agents ,and already have another buyer for the property at a higher price to the seller and their lender?  Maybe you can cut them in on a percentage of the action too.
  • August 12 2011
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This scenario really bothers me. I'm thinking in terms of the underlying intent of this whole short sale process... This scam probably doesn't hurt the short sale sellers, thank goodness, but by hurting the banks, we hurt ourselves (as a country and as an industry):

The bank's intent is to accede to a sale of the property for current market value, and accept the "hit" for the difference between the sale price and the actual value of the mortgage owed. By taking some loss - but limiting the loss to a sale at "fair market value" - the banks (and the rest of the real estate economy) work through this default crisis. Hopefully we avoid hobbling our economy too much in the process.

When people game the system, and skim money off the process (whether or not there are legal loopholes) the system gets upset, and the banks take a greater hit. I don't love banks, but the more folks "game them" and skim money off sales through sketchy or illegal schemes, the deeper we (as a country) dig ourselves into the current default mess. After all, the bank's shortfall will surely come out of all of our pockets one way or another. (Does anyone disagree?!) I'm not interested in seeing our real estate industry hobbled any further, in exchange for the ill-gotten riches of a few sleazy folks.

I'm so disappointed when I read about agents who make the rest of our profession look sleazy. Ugh!
  • August 12 2011
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Im not suprised. This is no different than getting a high appraisal (say 300k) and selling it for less (say 250k) netting 50k. The powers that be found a way to eradicate that scam. Maybe if enough realtors take advantage of this short sale loophole, it will force the powers that be to do something about how screwed up the short sale system is.
  • August 12 2011
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Profile picture for RapidShortSales
"I never said it didn't exist.  I'm saying the amount of ACTUAL SHORT SALE FRAUD is minute.  You cannot use sources like the Corelogic report because they have a GAIN from it.  The report is nothing more than a glorified marketing manual to get more lenders to buy their software.  If you want TRUE NUMBERS, you need to go to the FBI website.  People LOVE to throw around the term fraud, flip, flop, but do you realize HOW many actual cases of short sale fraud there have ever been? The ONLY case that I'm aware of is the Connecticut case.  That was clearly fraudulent because the agents DIDN'T DISCLOSE to the lender their "INTENT" on reselling immediately for profit.
From Attorney Ballard's findings:
"It's easy to parrot this fantastic conclusion. It's another thing to analyze it. On Monday, June 6, I wrote my first article analyzing the study and found significant holes in it.

When looking deeper, one finds even more.

I understand that most journalists aren't investigators and don't have the time and resources to dig deeply into studies like this, particularly when the study's title is so authoritative and the data looks so extensive.

Unfortunately, policy makers and regulators rely on information like this to make critical decisions.

What's the result? Garbage in. Garbage out.

The CoreLogic Study reportedly examines over 450,000 short sale transactions for single family residences (apparently excluding condos and coops, which in my clients' experiences have a much lower level of resales and would skew the data downward) occurring over the last three years and categorizes them into "suspicious" and "not suspicious." CoreLogic uses three parameters to categorize "suspicious" short sale resales:

1.    Resales within 30 days with a 10% or higher resale value; or
2.    Resales within 90 days with a 20% or higher resale value; or,
3.    Resales within 6 months with a 40% or higher resale value.

Bear in mind that there is no legal basis for establishing these standards. No law sets forth an amount of "allowable profits" on real property resales. CoreLogic's standards conceivably could be argued based on national averages, but real estate values are local. RealtyTrac is another large data provider. It's study of pre-foreclosure discounts (short sales) for the first quarter of 2011 found a national average discount of 9.49 percent.  HOWEVER, the discounts for California and Arizona were 20.2% and 8.4%, respectively. Tennessee came in the highest at 34.9%. These numbers are affected by the overall decline in property values in a specific market. For example, if prices in Arizona have already dropped more than 50% from their peak, then the current discounts will be smaller because prices can't go much lower."

  • August 12 2011
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Profile picture for sunnyview
"Maybe if enough realtors take advantage of this short sale loophole, it will force the powers that be to do something about how screwed up the short sale system is."

That sounds dishonest to me. I would feel pretty uncomfortable hiring an agent that felt like committing fraud was a good way to change the system. Maybe that's a bit Pollyanna of me, but that's how I feel.

  • August 12 2011
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If you want TRUE NUMBERS, you need to go to the FBI website.

Well HERE you go. The FBI released their 2010 Mortgage Fraud Report today. The number of active investigations of mortgage fraud has gone UP the last three years, with over 3000 cases being investigated by the FBI.
  • August 12 2011
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Profile picture for SoCal Engr
As long as we're piling on, here's an article in the San Diego rag on FBI take on mortgage fraud.

p.s. If any four of you follow the link, it will quadruple the hits on that site and make the Trib very excited.
  • August 12 2011
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Profile picture for RapidShortSales
Michael, MORTGAGE FRAUD encompasses a WHOLE LOT of fraud. HOW MUCH short sale fraud was there?
  • August 13 2011
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Unfortunately the FBI doesn't break out short sale fraud from their statistics.

And despite your dislike for Corelogic statistics, the FBI quotes them in their report.

Is ANY amount of short sale fraud acceptable, no matter how small?
  • August 13 2011
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Profile picture for sunnyview
RapidSS you seem to be taking the position that there little fraud in short sales. These articles here and here seem to disagree. Freddie Mac here and the State of CA here disagree. This site has a lot stories linked about short sale fraud and it's impact here.

Not sure why you would argue that the short sale process is a fraud free zone when the evidence to the contrary seems credible. I suppose that people used to argue that the world was flat and that NINJA loans were a good idea too, but that didn't make it so.
  • August 13 2011
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Profile picture for RapidShortSales
Guys, NO WHERE in my post did I say there was NO FRAUD.  Robert Hagberg, a fraud investigator for Freddie Mac recently has said clearly in a NAR Podcast that he couldn't put any numbers on short sale fraud.  I would put the link up, but my links are being removed to the articles I'm referencing.

The POINT I'm trying to make is everyone is FLIPPING out about a report that Corelogic did that when it was deciphered LEGALLY showed it was nothing more than a well developed marketing ploy.  Corelogic has EVERYTHING to gain by scaring the crap out of everyone about flipping, flopping, fraud and whatever else you want to call it.

The fact of the matter is there is NO LAW that says you cannot legally buy and sell the same property on the same day.  THERE ARE LAWS that say if you misrepresent in any way it's fraudulent.  So for those few who still want to buy and sell on the same day, I say go for it SO LONG as there is proper disclosures in all the contracts. 

To answer your question, NO amount of fraud should be tolerated, but you have to seriously meet tough criteria if you're going to be brought up on charges for fraud.

Show me...better yet CITE me where buying and selling on the same day is illegal, and I will listen.  CITE ME the actual law.  You can't because there isn't one.

There are elements to civil fraud that must be met
1) An intentional or reckless false statement -
2) The false statement involves a material fact
3) Is made with INTENT to defraud
4) Is reasonably relied upon by the victim
5) and results in damages

The agents arrested MISREPRESENTED to Regions Bank.  Their intent was to defraud.  If a buyer of a short sale property does not misrepresent, and discloses to the lender their intentions on reselling the property IMMEDIATELY for profit, fraud is not being committed.

  • August 13 2011
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