How do you notify a bank when you know the short sale seller and buyer have relationship outside the sale of?

Asked by Polly, Florida Wed Feb 11, 2009

the home. Washington Mutual is the bank. The seller wont except a offer from anyone else because shes got a side deal with the buyer.

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John Bennett’s answer
John Bennett, Agent, Orlando, FL
Thu Feb 12, 2009
Tom your answer was a very good - very thoughtful answer, I just thought , and I could be wrong, Polly was saying she thought reason for not accepting was due to a side deal- a deal which could be fraudulent.

Know about winning in court and loosing in collection of judgment- been there Tom and done that. It's the old saying: "How much Justice can you afford!"

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Tom Teece, , Lehigh Acres, FL
Thu Feb 12, 2009
Hi John and Polly,

First, let me say that I am sorry if I misunderstood your question, Polly.

Next, I say thank you, John, for the information on fraud and how to report it. I hate fraud. I was a victim myself and won in court against the crooks. But winning a judgment and collecting a judgment are two different things. So I won the court cases but I still lost a ton of money. So if there is fraud involved, release the dogs.

My original answer was intended to explain what may, on the surface, look like fraud. I specialize in the market niche of pre-foreclosure sales. And I've dealt with very similar questions on more than one occasion. So I wanted Polly to understand that there are restrictions on how secondary offers are handled on a short sale. In fact, the number one way a realtor kills a short sale is in how they handle the contracts and offers.

The Seller in this case may be unable to accept an offer from anyone else because the Seller has already accepted the first Buyer's offer and sent that accepted offer and HUD-1 to the Lender to open the short sale case. The Buyer's name cannot change until the Lender closes the short sale case. Then the Seller can re-submit one backup offer and HUD-1 to the Lender with the new Buyer's name. A new case is then opened.

This is a very common mistake. I just wanted to clarify the difference between fraud and this common misunderstanding of the short sale process.

Best regards, Tom
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John Bennett, Agent, Orlando, FL
Wed Feb 11, 2009
I was in hurry, you can go to our local DA (county) and get help.. I would not go to the bank because you do not have all the facts, Let the AG investigate, or the Local DA look at the issues and take the appropriate actions. Lots of this going on and the government, to include FED are very on top of it.
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John Bennett, Agent, Orlando, FL
Wed Feb 11, 2009
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John Bennett, Agent, Orlando, FL
Wed Feb 11, 2009
Unless I miss understand, Polly is asking how to report Fraud.

You need to call the State Attorney General and ask for advice - go go to the local.

If Buyer and Seller are planning to pick up a property cheap, its fraud!!!

Go to jail. You need to make sure you are protect from 3rd party suits, and the AG can do this i think.

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Tom Teece, , Lehigh Acres, FL
Wed Feb 11, 2009
Hi Polly,

I don't really like to correct a fellow real estate professional. However, in this situation it is very important for everyone to understand the full role of the Lender in approving an offer on a Short Sale MLS listing. The MLS Listing status determines how offers are supposed to be handled by realtors in short sales, and who is supposed to receive and appropriately approve the multiple offers.

The National Association of Realtors also have an excellent webinar recording by Freddie Mac (October, 2008) on their website that explains why sending multiple offers to a Lender will cause the lender to immediately dissaprove the short sale case submission and schedule the sheriff's auction. A Lender's role in the transaction is to approve a bi-lateral contract already approved by the Seller. If the Lender receives more than one contract signed by the Seller, it raises all sorts of red flags. And unsigned contracts will not be accepted by the Lender, because there is simply no transaction to approve.

Our local MLS requires the initial MLS listing as "Active" and "Short Sale" is noted in the listing details. This means that the current market conditions will not allow the property to sell for enough to cover the balance owed on the mortgage. At this point the Seller has not even begun negotiations with the Lender.

Only when a Buyer's Offer is accepted by the Seller (contingent upon Lender's approval), the complete short sale application package, with the Buyers Offer and a Preliminary Closing Statement (HUD-1), is sent to the Lender and negotiations begin. At this point the listing changes to "Active Contingent Short Sale" meaning negotiations are in progress. Interestingly, Lenders are not party to the transaction, and therefore not obligated to approve it. But they must approve the transaction before it can close. Everyone involved is at the mercy of the Lender.

If the property you are referring to is listed as "Active" or "Active Contingent Short Sale" You may still have a shot at buying this property. Your Offer should be presented by the realtor to the Seller (defaulted homeowner) as a Backup Offer. Other offers can also be received as backup offers until the Seller accepts the terms and conditions from the Lender for settlement of the defaulted mortgage (Price, Deficiency Judgement or Taxable 1099, Release of Lien only, etc.). Backup Offers stay with the Seller and should not be signed as approved or forwarded to the Lender.

If the current Offer is not closed (Buyer couldn't wait, Offer did not meet price acceptable to Lender, etc.), the Seller will select the best Backup Offer and submit that ONE for the Lender's approval and continue negotiating. Only ONE offer at a time is EVER negotiated with the lender, the other offers remain with the Seller as Backup Offers. Multiple offers sent to a Lender will kill the short sale loss mitigation negotiations.

Once the negotiated offer gets approval from the Seller and the Lender, the MLS listing changes to "Pending" and no more offers are accepted. Then it's on to the closing table.

I know it's a lot to take in, but I hope this information helps you understand offers on short sales and how they are handled. I specialize in short sales in Lehigh Acres. And remember that each MLS has it's own rules, so listing terms and procedures may vary.

Best regards, Tom
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Great9126, Home Buyer, Alabama
Wed Feb 11, 2009
Now,In every country there are sellers and buyers are there.As like the bank appoint some of the persons like this for developing their business.

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