Can you stop a short sale that involves fraud by the agent, his broker and the lender?

Asked by Tnp, 92405 Tue Oct 12, 2010

On9/8/10 I made an offer on a short sale. On 10/04/10 I learned that the property has a NTS recorded on 9/24/10. On 10/5/10 my broker spoke to the agent who said he had an extention on the NTS and he would present my offer that day and call back. On 10/6/10 I emailed the agent and asked what was going on. He told me that the seller had chosen to go with someone else. That they had taken an offer for less money because it was cash and the NTS.

In nosing around I found that the agent had got the listing on 8/17/10 but did not put it on the MLS until 9/7/10.
I also found that owner had bought the house in 1997 and calculated (based on 1997 interest) that with 5% down he probably owed less than 85K in principle. Based on the assessed value of 145K the new buyer would stand to make 60K.

Space doesn't permit here but I believe that this scenario can be shown conclusively.

What would I need to stop the sale?

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Margaret S L…, , Rancho Cucamonga, CA
Wed Oct 13, 2010
Dear Cosumer,
Not having additional specific details it is difficult to draw a conclusion. I am assuming that NTS stands for Notice of Sale/Foreclosure. If your offer was not signed and accepted by the Seller, the seller is not in breach of contract. If the agent did not place the property in the MLS and the Seller was in accord, the agent did not breach his Fiduciary obligation to his client/the Seller. How much the Seller owed his bank/s is not relevant if by definition "Short Sale" we already know he/she is negative, meaning he owes more than the property is worth. The Seller can decide if a cash offer is better than one with Financing if the property might not pass the buyer's lender appraiser's inspection of the condition of the property.
Now if the property was in good shape, your financials were in order and you were a fully qualified buyer; the only reason I would advice my client/seller (if I was the listing agent) to go with the cash offer instead is that time would be crucial in a NOS (Notice of sale) situation. The seller's bank only extends the NOS for a short period.
I hope this helps.
Margaret Lopez,
Century 21 King
(909) 770-4384
1 vote
Matt Taylor, , North Carolina
Tue Oct 12, 2010
I think you are stretching here. Asset managers take reduced offers for cash all the time. Also, agents can not always list the property the second they get it. They need to do repairs, BPO's and sometimes evict the tenants.

Also your assumption of loan balance is assuming they didnt cashout refi at any point in time.

Plenty of inventory out there, move on to another property.
1 vote
Stephen McKee, Agent, Riverside, CA
Tue Oct 12, 2010
Not sure how it could be a short sale if the property is worth more than the seller owes.
1 vote
John Souerbry, Agent, Fairfield, CA
Fri Nov 26, 2010
As soon as you use the "F word" (fraud), you need to be advised by an attorney, not agents or brokers. How-some-ever, the comments you received below are all accurate given the situation you describe and I think retraction of the F word is in order. Short sales work differently and the note holder (bank) can take whatever offer they want, they are not bound to take the highest $$$ amount if they like the terms of a lower offer better. Regarding your comment on the MLS, most MLS systems do have a requirement on when a property must be posted after the listing goes into effect (48 hours in my area). However, in California the seller can sign a listing agreement and still authorize the broker to keep the listing off the MLS for a period of time by attaching "Seller Instruction To Exclude Listing From The Multiple Listing Service Or Listing Information From The Internet" (CAR Form SEL). Happens all the time. As your agent has probably explained, you can't get your pants in a wad over short sales, they are slippery varmints.
0 votes
Jesse Sierra, Agent, Pomona, CA
Thu Oct 14, 2010
What type of financing do you have FHA? Kudos to everyone below.
The lender has the final word.
Just keep on trucking with your agent.

Best regards,
Jes Sierra, B.Sc.
0 votes
Kathleen Lor…, Agent, Baxter, MN
Wed Oct 13, 2010
wow- lots of confusion here about Short Sales and how they work. My sellers and I talk about which offer is likely to get accepted by the lender and which buyer has staying power and can perhaps come up with more money vs walking if the lender counters. That offer gets submitted- one offer. May not be the highest but it is the "best". On a Short Sale the owners (yes they still own the home) are not evicted, so not sure where that confusion is coming from. I assume you are just doing all this on your own and not working with an agent- get one. And make sure they do understand Short Sales!
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0 votes
Trevolyn Hai…, Agent, Highland, CA
Tue Oct 12, 2010
Hello Tnp,

There is a lot going on in your question that needs a response.

Short sale approvals are very hard to come by (part of the reason we have so many short sale fails that end up as bank repos) so the listing agent wants to send the offer that they feel will be most likely succeed to the lien holder(s)- because if the short sale isn't accepted then they do work that they do not get paid for.

There is a lot of strategy employed by the listing agents that are successful at closing short sales: how long is the buyer likely to wait (very important since a short sale can take many months), does the buyer have the ability to go up in purchase price, is the buyer asking for any costs (including home warranty, transfer taxes and HOA transfer fees, termite, possible repairs), etc.

Also, list price and accepted (by the seller) offer price has very little to do with what the bank will accept in a short sale (the main reason why there is a short sale disclosure that must be signed by the seller and buyer in CA stating that all terms must be approved by the lien holders). Because of the hassles involved in a short sale, many buyers do not want to bother so some listing agents will under-price a property just to get an offer.

The lien holders do not trust the distressed seller, the potential buyer or their agents, that is why they get their own information on value by getting what is called a 'BPO' (Broker Price Opinion done by an agent that is not affiliated in anyway with the sellers or buyers agent) and these properties are usually sold at or close to their market value.

Assessed value has nothing to do with market value, especially now that the market has declined and the county tax collectors are usually slow to decrease the assessments (since it also decreases what they collect in taxes); but using the scenario that the property is worth $60k more than the offered price, I can wager that the lien holder will not accept the offered price since their costs to foreclose are less than that and they would have no incentive to agree to a short sale. (If they will not make more doing a short sale than proceeding to foreclosure, they will not want to make it 'easy' for the distressed owner and will chose to foreclose).

Re: listing it on the MLS; as long as the seller didn't want it on the MLS, the agent had to comply.

Short sale fraud, or any other real estate related fraud, is taken VERY seriously by the Department of Real Estate & is punishable not only by a loss of a license to practice real estate and major fines but also jail time.

My experience has been that since short sales take so long to get approved the original buyers will usually tire of waiting and find another property so keep an eye out on this one if you really like it and don't find something else in the meantime, odds are that it will become available again either as a short sale or a repo are on your side.

Best of luck,
0 votes
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