What is Short Sale Fraud & Why Should You Care?

Short sale transactions are hugely susceptible to cons. A standard short sale is difficult, hard, and will drag on for lots of months. Yet, short sale sellers are often too monetarily strained to hire experts to advise them on the complicated monetary, legal, tax, credit, and other issues brought up by their situation. Sellers can also be likely anxious to finalize their short sale rapidly to prevent the opportunity of losing their homes in foreclosure. Along with the worry and stigma of a looming foreclosure, short sale sellers might be addressing other financial and psychological hardships, such as career loss, loss of a loved one, divorce, or ailment. Given these conditions, the sellers can certainly succumb to some scam artist’s lure of a certain quick fix.
Short sale fraud schemes come in different forms, but some are more common than others. Short sale buyers and sellers need to be on the lookout for these three scams as outlined by nolo.com.

Short Sale Scam # 1: Undisclosed Payments

Victims: sellers, buyers and lenders.

Perpetrators: Sellers, junior lien holders, real estate agents, short sale negotiators.

Red Flags: Payments made “out of escrow” or “Off settlement”

How it works: Lenders accept short selling to avoid foreclosure and minimize their losses. Before their approval, lenders often do one or more of the following:

  • Reduce commissions to realtors.
  • Require that sellers receive no financial benefit from the sale.
  • Reduce or even disapprove payments to other parties involved in the short sale (eg., Short sale negotiators, lawyers, etc.).

Primary lenders may cap payments to junior lenders. If there’s multiple loan on the property, the short sale won’t go through without the discharge of the junior liens. With a purpose to get this done, the primary lender will permit some payment to the junior lenders however will set a cap on these payments.

Obviously, those obtaining reduced or capped payments are often unhappy with this situation. Taking advantage of motivated buyers or sellers, they request payments “out of escrow” or “off of the settlement statement.” As a seller or buyer involved with a short sale, you might be enticed to make an undisclosed repayment to just get the offer done. In so doing, however, you’ll most likely be considered a party to loan scam.

All payments made within a short sale deal should be disclosed to lenders and other functions approving the short sale. According to Freddie Mac, short sale scam occurs when someone intentionally misrepresents an undeniable fact or omits a fact to be able to stimulate a lender, buyer, or insurance company to consent to a short sale that it could not have approved otherwise. To be on the safe side, always disclose.

Short Sale scam #2: “Flopping”

Victims: Sellers, lenders.

Perpetrators: real estate agents, buyers.

Red Flags: Double escrows; customer is an LLC or a fictitious entity or buying under the power of a legal professional; purchase contract offers the buyer the choice to resell property.

How it Works: “Flopping” occurs when a short sale is approved based on a misrepresentation of the value of the property. In a usual flopping fraud, the fraudster is the buyer purchasing the property from the short sale vendor. In some cases of flopping, the seller’s real estate agent is the buyer. The fraudster offers a low offer to buy the property to the lender along with an artificially low valuation of the property, with a view to convince the lender that the property is worth less than it really is. Meanwhile, any bigger offers from bona fide purchasers are withheld from the lender, since the lender would definitely reject the low offer if it knew that greater offers had been on the table. Once the lender approves the short sale at the artificially low fee, the fraudster contacts the veritable buyer or markets the property at its actual market price. Without the short sale lender’s knowledge, a second escrow between the fraudster (now the vendor) and a bona fide buyer is then opened to close concurrently with the primary purchase, or soon afterwards. The perpetrator of the fraud buys low, sells high, and keeps the change between the two sale prices.

Sellers could get hurt by flopping, simply because lenders may possibly hold sellers answerable for the deficiency, or the value of the difference between what the seller owed and the selling price. If a lender forgives a vendor the deficiency, the seller may well owe taxes on the amount of financial debt that is forgiven.

Short Sale Scam #3: Predatory Short Sale Negotiators

Victims: Sellers, potential buyers.

Perpetrators: Small sale negotiators, real estate agents.

Red Flags: Upfront fees; fees needed to be compensated out of escrow; negotiator will not be licensed.

How It Works: Sellers thinking about short sales are particularly vulnerable to con artists hoping to benefit from their demanding situations. These con artists, calling themselves short sale negotiators (or short sale processors, short sale coordinators, debt resolution professionals, loss mitigation experts, or foreclosure rescue negotiators) would guarantee results for a flat flee or possibly a share from the sale price. Often, the short sale negotiator normally takes the money and does very little in return.

Some states – including California, Washington and Oregon – require short sale negotiators authorized by the appropriate government agency (probably the body responsible for licensing and regulating real estate agents). If you are considering hiring a short sale negotiator, you should contact the agency within your state to find out if the short sale negotiator needs to be licensed and, if so, whether the short sale negotiator you are planning on hiring has a license. In California, it is illegal to collect short sale negotiator fees before providing services, unless they comply with certain strict conditions. You should also check whether this is the case in your state.

Prior to hiring a short sale negotiator, do your research. Study paperwork very carefully before signing. Ask questions. Request and get in touch with references. Seek the recommendation of an attorney or other neutral third party. Always remember, if it seems too good to be true, it probably is.



Are You Getting Lots of Showings But No Offers? Read This

So, you staged your house, took care of it but no offer is coming through. Probably, you’ve done some showings but still not seeing results. There is really no need to fret. Having showings is a good sign.  Firstly, it’s important to examine the actual issues that may be causing this, rather than taking a directionless approach to why your home might not have sold. Below are a few reasons why you aren’t getting offers:

  1. ) House is overpriced

Overpricing is the most common reason homes don’t sell. Any time you ask an unrealistic price, it sets in motion a process that works against you. Here’s why:

Many real estate agents, and most qualified buyers, will see your new listing within 30 days. When it is overpriced by as low as 5%, it will be properly noted and interest in your property will wane, especially when you show no intention of coming off your selling price. You likely already priced out potential buyers who might have qualified for financing at a more reasonable price. Even if you manage to find a buyer at your overpriced asking price, the property may not appraise at that value and so, the financing falls apart.

  1. ) House doesn’t ‘show’ well

Your property is competing against shiny new houses in those beautiful subdivisions out in the suburbs with the attractive prices, incentives and community amenities.

Face it: Even the best used house needs a little makeover if it hopes to appeal to a qualified buyer.

The good news is almost all of the work will be cosmetic and relatively inexpensive: a new coat of color, a few attractive window boxes, a thorough cleaning of floors and carpets and rugs. Voila and the place may look good enough to reconsider.

  1. House is in bad location

Nothing has a higher effect on your home’s value than its location. Your simple abode might be worth a king’s ransom were it situated in Palm Beach, Aspen or San Francisco. It could even jump thousands in value just two streets away in the next (and significantly superior) school district. The point is, the location rules in real estate.

4.Inadequate listing agent

Their terrible information can set you back lots in time, money and also the sheer headache of keeping the house show-ready 24/7.

The agent will help you to overprice your property (“Here’s what I will get for you when you list with me!”), not market it properly, fall short to screen for qualified buyers, be unresponsive to interest from other brokers (whenever they market their own listing, they don’t have to split the fee) and keep you plainly in the dark through the process.

What’s more, if your agent is abrasive, arrogant or usually hard to work with, other brokers may well not want the trouble of showing his/her listings to possible consumers.

Just what exactly can you do to boost your odds:

  1. Get yourself a new listing agent

Sometimes what you have to do is fire your listing agent. Could you try this? Certainly, you are able to. You don’t need your own home to sit on the market for a year, do you?

If you were to hire the neighbor’s kids to mow your lawn every week, you realize you always have option of terminating the arrangement if you are unsatisfied. If they don’t show up, run over your flowers or slice up your sprinkler heads, you can just simply tell them to not come back. There might be hard feelings, but no financial consequences.

With a property agent, you deal with a more challenging situation. When you retain the services of an agent, you sign an agreement that binds you to the Real estate agent. You and the real-estate agent agree to particular terms, conditions which frequently involve a promise that you’re going to use the Real estate agent solely to promote your property.

If you are very fortunate you could have signed a deal that enables you to extricate on your own from the deal if you aren’t happy. Most contracts having said that, do not work this way and to be able to fire your agent, they would have to let you out of the contract .

When you choose that you do not like your agent any longer, you cannot run him or her off like the youngsters. You need to try to part ways amicably, potentially honor your deal and do your very best to prevent abnormal money charges. Immediately after which you could get a person who is a lot more skilled and would have a strategic marketing plan.

2 . Make it presentable

Location is still one of the major reasons why a property may well not be selling. The overall economy has played a role in this aspect of real estate as well. Perhaps in the past your area was quite desirable and a real hotspot but today the economy fall has hit it hard and it may well not be as appealing. If this is the case it becomes your responsibility to make your home look as great as possible so a buyer can disregard the location and focus in on the home of their dreams. This may mean fresh landscaping, new paint, new house windows, a clean backyard, a home stager to help you present the inside as best as possible and so on. All of these tiny things can help enhance the possibility of a sale, if the location is not at the top of your buyer’s list.

  1. Pricing

One of the greatest real estate selling mistakes is to think your house is still justified regardless of the price, if not more, that you paid for it. The economy has definitely changed and this includes the housing market. Before considering setting a price on your home, you ought to consult a real estate agent in your area and learn about the market you are planning to sell in.