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It’s the “New World” of Real Estate where Foreclosures and Short Sales are just a part of the daily dialogue. New challenges are being faced every day by buyers, sellers, and agents alike. Fast growing is the associated fraud that the uneducated and unprotected can fall victim to. Here are just a few to watch out for – Flopping, Undisclosed Payments, and Predatory Short Sale Negotiators.
“Flopping” affects Sellers and Lenders while the Real Estate Agent and the Buyer are the perpetrators. Be on the lookout for double escrows! The buyer will be an LLC, a fictitious entity, or hold purchasing power of attorney. The buyer (fraudster) will present a low offer along with a low valuation of the property to the lender convincing them that the property is worth less than its actual value. The Real Estate Agent withholds all higher offers and eventually, the lender approves the lower offer. Meanwhile, the buyer (fraudster) contacts the higher offers that were withheld from the lender or starts marketing the property at its true market value. A second escrow between the Buyer (fraudster) now operating as the seller and the higher offer that represents the true market value of the property is opened simultaneously. The Buyer (fraudster) buys low and sells high to make a fantastic sum from the difference between the sale of the two properties.
In this instance, the seller loses out on the proper value of the property. However, the seller stands to lose even more should the lender hold the seller responsible for the deficiency of what the seller owed on the note due to the low valuation sale price. Even if the lender forgives the debt the seller may still owe taxes on it.
Next is “Undisclosed Payments” which affects Sellers, buyers, and lenders. Often when lenders approve short sales to avoid foreclosure they ask real estate agents to reduce their commission. They also require that the seller receive no financial benefit from the sale whatsoever. Lenders will also reduce or completely disapprove payments to any third party such as short sale negotiators and attorneys. This is common practice and ultimately those involved who are asked to reduce their payment or receive nothing are not happy. Compromise sets in and the opportunity to take advantage of highly motivated sellers and buyers presents itself. They request payment be made outside of escrow or off the settlement and by accepting you would most likely become a part of loan fraud. There are three words that every real estate agent, lawyer and lender is taught – DISCLOSE, DISCLOSE, DISCLOSE. Withholding or asking for something to be done outside of escrow or off the settlement is fraud.
Let us wrap it up with “Predatory Short Sale Negotiators”. This is an agency that charges an upfront fee to negotiate your short sale. They come by many names and require you to be licensed in some states. What most often results is contracts are signed and a fee is paid but little to nothing is done in return.
Most sellers and buyers seek someone to help them negotiate this process to make it easier. The short sale process whether buying or selling is not for the faint at heart. It’s time-consuming and due diligence needs to be done with whatever agency you decide to go through the process with. With that being said, a negotiator, facilitator, specialist, (whatever they choose to call themselves) can not negotiate and represent you like a short sale attorney. You can protect yourself from these potential pitfalls. The cost in comparison is nominal and the value of your peace of mind in knowing that you are represented by a licensed legal council is — well.. priceless.