Flipping is not fraud - unless you "trick ... the lender to accept the offer" as you put it. Then, I guess the lender would be misled or deceived. Maybe out in MA the lenders are ok with that, but here in the southwest, where prices have dropped 50% or more since late 2006, the lien holders are requesting, and receiving, fair market value.
If your offer and the BPO are within the right tolerance for the lender, you'll get an approval. If it falls THAT far below, as you suggested, you'll be denied. It's simple math.
Thanks for bringing this to the forum. At a recent event hosted by Bank of America, this type of sales strategy was discussed. In the industry it is often refereed to as a straw sale and highly frowned upon by the banking industry. I'd report the agent to the Arizona Department of Real Estate and have them determine if he/she is violating the conditions of their license and endangering clients.
It is important that we all work together to remove people who do not operate with integrity.
You also must consult an attorney and an accountant regarding the implications you may have prior to listing your home. Make sure a short sale is the right choice for your situation. Feel free to email me your contact information and I can send you a list of three attorneys and accountants.
As far as the agent having "their" investor buy it--this is definitely a red flag, and I would suggest you find another agent to represent your best interests, not "theirs".
Best wishes to you.
and...list elsewhere. By selling to his/her investor, the listing is really not on the open market and is defrauding the lender.
Agent Found Liable for Short Sale Fraud
The U.S. Bankruptcy Court for the District of Utah determined that a real estate agent and investment group misled a client in a short sale transaction.
By Robert Freedman | September 2010
In re Fabbro
U.S. Bankruptcy Court for the District of Utah
A Utah real estate agent was found guilty of fraud for steering his client into a short sale with a phony buyer and then later flipping the property for profit.
The client had a $380,000 mortgage on her house and listed it for sale but couldnâ€™t find a buyer at her $399,000 asking price. Her tax adviser referred her to a real estate agent with short-sale experience, who brought in an investment group. The agent didnâ€™t disclose that he was also a member of the group.
A representative of the investment group met with the client and obtained her signature to list the property for $344,900. The wife of that representativeâ€”without disclosing her relationship with him or her involvement with the groupâ€”came forward with an offer to buy the property for the asking price, even though she lacked the financial means to actually buy it.
The investor group presented the $344,900 offer to the lender, which countered that it wouldnâ€™t take less than $352,000, the appraised value. The representativeâ€™s wife upped the offer to that amount; the lender agreed. The real estate agent subsequently changed the listing status from contract pending to active to attract a buyer.
Eventually the property attracted an offer for $441,111. The investors used $352,000 of the proceeds to complete the short sale and shared the remaining profit.
The client then filed for bankruptcy. As part of the bankruptcy process, the Chapter 7 trustee filed an action against the investors and sought to void their purchase. The agent and the representative were accused of fraud, breach of contract, and other violations.
The U.S. Bankruptcy Court for the District of Utah found, among other things, that the agent and the investor representative misled the client in multiple ways. The court ruled that the bankruptcy trustee could void the investment groupâ€™s purchase, and that the agent and investor representative may be liable for punitive damages. The court scheduled a hearing to receive further evidence.
Scott Miller, Realty Associates, Boca Raton, FL
I believe listing within range 10% above to 10% below the current approximate value is within an acceptable range.
Who knows, if she keeps her house immaculately clean and presentable, it might fetch such a good price.
YOU WILL LOSE YOUR HOUSE TO FORECLOSURE IF THE SALE PRICE OF YOUR HOUSE IS NOT WITHIN 95% OF THE APPRAISED VALUE OF YOUR HOUSE.
WE HAVE 50 SHORT SALES. I don't always talk in caps. but people who think a lender will avoid foreclosing on you for the "privilege" of taking $50K less then they would if they just booted you and sold it for fair market value is smoking crack.
If you want it to take awhile offer them fair market value and then it WILL take a while because they will take you seriously and not THROW OUT your offer and just FORECLOSE on you.
This is pure collusion, very uncool, stay away or you'll be implicated....the higher the property sells for, the better for you. Less deficiency judgement to deal with and have to negotiate-down in the end.
FIND ANOTHER AGENT!!
Scott Miller, Realty Associates, Boca Raton, FL
Given that you've already voiced concerns about this selling "scheme", my suggestion will resemble Doug's (below) that you find an agent that puts YOUR interests first (not the interests of other clients). Short sales are tricky simply because it requires negotiating with the bank to accept a "loss" on the home at sale. Listing the home for far below the market price needlessly complicates the sale, making it more likely that the bank will not agree to the sales transaction especially when the sales price is compared with the bank's own appraisal or BPO for value.
Anyone who would jeopardize your short sale or suggest selling your home in a manner that makes you feel less than confident is not the agent for you!
Work with a trusted agent like Doug below. I wish you very good luck!!
Grace Morioka, SRES
Area Pro Realty
San Jose, CA
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HomeSmart Real Estate
Arizona Homes for Sale by a Guy from Iowa
I agree with several other of the agents. I would interview other agents. The house should be listed at market value or just below. The bank will have a bpo done so they will know the value. Also get advice from a cpa for your tax concerns. Thanks
Golden Real Estate & Investments
I've seen these deals before and when the investor backs out because the banks BPO's are for a much higher value, you are the one who will loose the home potentially to foreclosure as the clock runs out on finding a new buyer to sell the home short to at a fairer market value that the bank will accept.
John Hall & Associates
You must have a legitimate hardship-loss of job, divorce, death of spouse to be eligible for the bank to do you the favor of a short sale. There are two documents you need to have the bank agree to. First is the release that says the bank allows you to sell the house for less than what is owed and 2nd, the mortgage satisfaction letter. Bank's might say sure, you can sell but you still owe money for the deficiency. If AZ is a recourse state, they can send collection agencies after you! The satisfaction is where the bank pushes back and if you have any assets they want you to bring money to the table.
FHA is wise to tricks like selling the house below market and renting it back from the buyer to stall foreclosure process. Another example of what not to do, sell your house to a brother in law for less than what is owed and asking the bank to write-off the shortage. As mentioned, this must be an arms length transaction and if not you could be party to fraud.
Call the bank and tell them you cannot afford the house and why. Saying you are ticked that the house isn't worth what you paid and don't want it anymore isn't a hardship. They probably have a short sale package they will send you and instructions for you to process the application.
You need an attorney familiar with short sales and bankruptcy law in your area.
Dual agency on short sales might be a problem with HUD. Don't list your house with an agent only because he might have an investor that has expressed interest in homes such as yours. If that investor truly is interested, he will buy it with that same agent if your house is listed by someone else. Interview several agents, ask each for a distressed BPO analysis, not a normal CMA to determine value.
You can even walk away with $3,000
To find out if you can do a HAFA, check out this blog article attached.
Don't wait too long to take action. Banks are more tight on postponing auction dates. The Short Sale will take at least 90 days in most cases, even if you have an offer to purchase the house.
In defense of the other agent to a bit, once I know of a home that may become available in a short sale, I am already contacting my resources trying to find a buyer. With a Short Sale, time is of the essence and as a listing agent I want as many offers as possible.
Regardless if the cash buyers submit an offer or not, the bank has the ultimate decision on whether to accept the offer or not. If its too low the bank will counter back.
As far as looking for another agent, I would look for an agent that holds the CDPE designation, they will likely have more experience than a regular agent in regards to a short sale. Believe me you want the agent with the best experience to be handling this situation for you. Short sales can be difficult and some agents do not know the process or timelines that need to be achieved in order for the sale to be successful.
I hope this helped.
I say work with the agent you trust and will work for your best interests regardless. Best of luck!
If you owe a little more than $75, say $100K then $75K is not such a bad offer. Not to mention, the buyers must be aware that they may have to counter offer and if they qualify or have the funds if the bank comes back at a higher offer.
You also need to know if the agent you're using has been successful selling short sales because there's a lot more involved than the standard sale. Walk into an office and ask the broker for a qualified agent.
As complicated as this industry is becoming, you certainly cannot rest with mediocre abilities.
Do your own due diligence.
First Team Estates - Newport Beach, CA
Tweet me @RealDealwithDru
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The bank will dictate the price- the buyers can offer what they want but the end result is "what will the bank take"
You do not have to accept the first offer- maybe you want to give a deadline of accepting offers.
Most important- if you do not feel this Agent is not on the "up and up" go with your gut!! Do you have a CPA you can talk to to find out what the tax implications will be? you may want to contact them also.
Best of Luck!
Unwavering Commitment to Service
The deal you are talking about may be fine but it does not sound like an arm's length transaction and your mortgage company must approve it too. Maybe talk to another agent and see what the value is. Get several opinions and talk to your accountant.
If market value is $125K your mortgage company probably won't approve $75K. We had a contract for 132500 and the BPO came back at 135000 and we had to up the price to the buyer we had or get another buyer.
Second, protect yourself from exposure to deficiency judgements. Perhaps you can accept the cash offer only if the bank will consider waiving the deficiency. This will create a tax issue for you - the waived deficiency becomes ordinary income on which income tax is owed. Talk with a CPA - there are ways to avois this as well.
If the deal seems "shady" or the bank will not waive the deficiency, then I would recommend using another Realtor and gettignthe highest price that you can for the property - that is in your best interest.