There will be realtors who see this video and think, “Jim, you have it all wrong.”
“The listing agent’s duty is to the seller only, not the bank.”
But that is the short-sighted, greedy viewpoint. For agents to hide behind that simple thought, and ignore the big picture so they can pad their wallets is how we got here in the first place.
The big-picture viewpoint:
1. It’s wrong because it’s wrong.
2. To purposely cause banks to accept less than full value increases the eventual taxpayer bailout, which our children and grandchildren will inherit. If you are OK with that, you are a dirtbag.
3. To perpetuate the fraudulent activity increases the chances that banks will shut down the realtor program, and find a way to liquidate these properties without us.
4. I encourage you to sell my listings, you should allow me to sell yours. It is how the co-op realtor business was designed in the early 1960s, and should be respected – or disbanded once and for all for the kill-or-be-killed program.
If you are a realtor and still have a problem with this, then submit your name and license number with your comment so I can turn you in too:
130 under list! Good grief.
I can understand a realtor focusing on the act of giving the big bad bank the shaft and feeling like Robin Hood or something. However, that same realtor must have (buyer) clients that get the exact same shafting from other realtors conducting short fraud. So they can’t claim they are ignorant of the fact that they are screwing the paying customers that make the whole damn industry possible in the first place. I wouldn’t be at all surprised if your #3 came a calling one of these days.
Why are the banks letting this happen? Its their money.
None of this could happen without corrupt appraisers who are supposed to act as a checks-and-balance against this sort of thing.
I don’t get it. If it’s fraud, isn’t it illegal? You would think the banks would be all over this,
Aren’t the banks getting a third party, independent BPO on these to verify the sales price?
If not, why not?
1. I don’t get why banks allow listing agents to collect all offers. If banks forced all short sale offers to be sent to the bank who then documents the offer then forwards to the listing agent many problems would be resolved.
2. While short sale fraud is going on like crazy in SD. What about all the buy and bailers that are essentially getting a house for free? I know of new housing developments where 50% and maybe more of the new buyers are illegally dumping their old properties.
Buyers and Sellers need to get upset about this type of activity. Fraud skews sales prices in weird ways that eventually filter down and effect everyone else. Maybe when you’re looking to buy, sell, remodel, refi, pay taxes, etc.
Even 3+ years into the real estate meltdown we still haven’t seen proper reforms to clean up the perverse incentives to allow fraud to happen in real estate. Unless we see real changes in the law, this will happen again.
What do you think of a “short sale by occupier/debtor”. The debtor simply says to the bank “Hey I got a friend here that will buy the place for $X- you want to take the offer?” Bank says “OK- sure”.
No MLS. It’s just an offer and an acceptance. Is there anything wrong with that?
Yes, the realtors are playing slimey games on MLS- and even presenting banks with false facts regaridng DOM and LP history etc.
Its a slippery slope, the listing realtor can always be accused of not doing enough:
“Those photos suck”
“You didnt list it on Craigs list as well as the MLS.”
“You didnt hold enough open houses”
Yes, presenting banks with misleading info re DOM and listing price history is fraudulant but I am not sure I see a solution.
One idea is banks should simply have inhouse realtors like they have inhouse attorneys. That would solve everything.
JTR- would you accept an offer from BOA to only work for them selling their houses for $XXX,XXX a year salary. Wham bam- thats all you do. Nothing else. No comission. Just list it, sell it to the highest bidder.
Why would an inhouse Realtor Dept not work if the banks have such large inventory?
I think this whole short sale idea supports criminal activity like a casino supports gamblers. The banks screwed up the market with stupid greed, then allow underwater sellers to manage their investments, who cannot manage their own potty times.. The entire process lends itself to fraud. The police here should be the Board of Realtors. Other than collecting membership fees for the RE lobby, they are like tits on a bull. Totally worthless.
Maybe the reason nothing’s being done to stop this fraud is the attitude i.e. “free enterprise”, “there’s too much government in our lives”, “the banks deserve to be shafted”, and so on.
Are the realtors involved in the scam properly reporting these extra revenues to the IRS?
Funny story. Not that long ago in Canada, bribes to politicians were tax deductible.
No MLS. It’s just an offer and an acceptance. Is there anything wrong with that?
Yes, presenting banks with misleading info re DOM and listing price history is fraudulant but I am not sure I see a solution.
If the banks/realtors aren’t willing to set specific guidelines about how much exposure the property must get before accepting an offer, then they will get what they deserve – fraud and deceit.
It was mentioned here a month or so ago that BofA now makes the listing agent sign a declaration that they made a good-faith effort to market the property – but they leave it up to the agent to determine what that means. Of course all of them will say yes.
The latest trick is for the listing agent to do one open house only – with no other showings – so then they can say everyone had a shot.
But 3 hours isn’t full exposure. Banks or realtors need to make a policy on what is acceptable, and it should be to make the house available for 3-4 days so every buyer can get there.
Then submit all the offers to the bank so they can choose. You know that isn’t happening – BofA’s Equator website only allows for one offer to be uploaded, who is to say that it is the best?
The listing agent gets to make a subjective decision on what offer goes in, which is usually accompanied by the refrain, “based on what’s best for my client, the seller”.
One idea is banks should simply have inhouse realtors like they have inhouse attorneys. That would solve everything.
Yes it would, and if I was head of a bank I’d do it right now. It has been one of my constant complaints that realtors who commit short sale fraud are going to ruin it for all of us when the banks get fed up and change the program.
JTR- would you accept an offer from BOA to only work for them selling their houses for $XXX,XXX a year salary?
No, not at that rate.
It would be career suicide.
It would only take 1-2 years to ramp up the perfect solution/program. Once established, they would fire me and let cheaper talent run it, because selling real estate looks easy to everyone.
Then what would I do, come back and start up the blog? No way, not worth risking having to start over. I have five more years minimum to get the kids prepared to take over the family enterprise, and probably more like ten. I hope I make it.
Are the realtors involved in the scam properly reporting these extra revenues to the IRS?
Yes, absolutely, because realtors don’t think they are doing anything wrong. Just another day at work.
Have you ever heard of anyone else calling out realtors on their short-sale frauds? There have been scant mentions in the media about a couple of cases, but that it is.
I knew I had to tee up this post properly to get out in front of realtors who see this and think, “What’s his problem? It can’t be wrong because everyone does it.”
I didn’t make it clear on the video about the last example.
The house with sign in front that backs to the hotels/traffic is a short sale that listed for $690,000, and was marked ‘contingent’ six days later.
Only the inferior homes in WE are worth sub-$700,000, so for one in a better location to pop on for $650,000 is artificially low – unless your goal is to expose it to everyone and see what the market will bear, which didn’t happen. It was a five-second listing.
A Realtor pushing through low ball offers on their short sale listings can often be the antithesis of “based on what’s best for my client, the seller”.
Now that SB 458 has taken some of the pressure off realtors by making most short sales non-recourse and mitigating the problem of the seller later complaining that they did a short sale and now the bank is coming after them for a deficiency, the remaining issue is taxation of cancellation of indebtedness, for the 1099 the bank invariably issues on short sales and reports to the IRS.
While there is some protection for owner occupant sellers based on the Mortgage Forgiveness Debt Relief Act of 2007, for the most part this only works if the loan is purchase money, a rate and term refinance, or the cash out was used to improve the property. There is no protection for cash out refinancings for other purposes.
Which otherwise leaves only the exception which applies if the seller qualifies for the “insolvency” exception.
So the listing agent may very well have a fiduciary duty to the seller to maximize the price in order to minimize the seller’s tax liability. If the seller later complains about an increased tax liability on a low ball short sale, the Realtor will have a tough time justifying their actions by pointing to CAR form disclosures to get independent tax advice when they deliberately kept the property off the market.
The banks are letting it happen because for the most part it is NOT the banks money, it’s money that will be paid by Fannie, Freddie, FHA, one of the private mortgage insurance companies or will be a loss that accrues to whatever schmuck is holding the RMBS or CDO that owns the pool that includes the mortgage on the fraudulently short sold house. So if you either: (1) pay federal taxes; or (2) own any mutual fund that owns bonds backed by residential mortgages originated during 2005, 2006 or 2007, it’s partly your money being stolen by the fraudsters.
And although nominally the bank, as the servicer of the loan, is supposed to own fiduciary duties to the loan holder, in reality none of the servicers take those duties seriously, because there other than fannie, freddie and FHA, the rest of the folks holding the bag generally have no practical recourse against the servicers.
The problem is structural and is just a different manifestation of the fundamental problem with how RMBS and CDOs were packaged, to reward the financial institutions packaging, selling and servicing the bonds, but without any buyer of the bonds having any meaningful recourse once the underlying debts and assets starting defaulting and falling in value.
Hello Jim,
This is the first time I’ve seen your blog. I discovered this in a post on Motley Fool.
As I am a novice at real estate, I am hoping you can clear this up for me:
In most fraudulent short sales, is it usually a Realtor who is buying the short sale way below what the real market would bear? If so, what does the agent do with that property? Turn around and sell it at a proper price for a huge gain?
I’m trying to understand who wins in a rigged short sale.
Thank you, and keep up the good work. I’m sure we’ll see more of your stuff on Motley Fool now that you’ve been discovered.
JTR – I don’t think banks need to employ the realtors. My question is why do banks let a defaulting owner hire the realtor?
As a bank, I would say the following: “You are in default. We either foreclose on you right now, OR you sign over authority for us to hire a realtor who has a duty to us and we market the home and accept/deny all offers. End of story, its your call, sign here”.
Why don’t they exert their power given the default?
Also, what happened to the “Deed In Lieu of Foreclosure”? We use it all the time on the commercial side to smooth the path to resolution?
Looks like a bunch of Cal B&P Code Section 17200 violations to me. Breach of contract as well re “good faith” efforts on the part of the realtor. I wonder if any plaintiffs’ attorneys with time on their hands have latched onto this yet.
Jim Klinge, expert witness…?
I’m trying to understand who wins in a rigged short sale.
Welcome Sean!
I think it is very rare that a realtor would buy the short sale themselves.
There is usually an investor behind the scenes waiting to flip the property – we have seen several who find the next buyer while in escrow and close both deals simutaneously – or the agent has the end-user buyer and makes both sides of the commission. Those are your 5-second listings where it is rigged from the beginning, and the only reason they input onto the MLS is in case the lender wants to see it listed to approve the deal.
The first house in the video that had the same cars in the driveway must have been sold to a buyer who allowed the occupants to stay. Those buyers are typically family members or friends bailing out the over-encumbered former owners.
I have seen a couple of realtors bail themselves out by selling their own house to partner or parents, cut a half-million off the debt, and get a new low rate.
My question is why do banks let a defaulting owner hire the realtor?
I think they under-estimate the amount of fraud, and figure that it doesn’t matter as long as a deal is presented for them to approve.
As Sean said at #17 above, these decisions are made by servicers who already have their hands full, and don’t have their own money at stake. Getting further into the realtor business is a messy proposition that is probably seen as expanding the liability.
The real problem is that the fraud is perpetrated one by one by realtors who are independent contractors. It would be a nightmare for the district attorney to prosecute them all, but if they busted just a few and got them on the front page, it would clean it up overnight. Literally the agents are blinded to the fraud because they see so much of it that they think it must be legal.
The only way that SS in Waters End closes is if the appraiser is very bad at his job. Way too many EXACT comps sold at least $50k higher in the past year.
Seems like appraisers are the only line of defense for the banks/MBS owners? No?
Jim, thank you very much for the quick and concise response. It amazes me this type of fraud is alive and well with what we have just gone through.
Your blog is now a must read for me.
#24 – only if it gets appraised.
I think most of the servicers are making decisions based on BPOs from agents who are willing to work for $75, and automated valuations. The zestimate on that one is $714,100. so we’ll see if $650,000 is close enough.
That’s another part of the equation too. The servicers must have some wiggle room, so if these deals come within +/- 5%, or maybe 10%, of what they think it’s worth, they probably sign off.
But they usually try to work over the buyer and/or agent for $$ contribution, and I think that is where they think they will get even with all of the fraudsters.
No appraisal – jeebus what a mess.
And imagine how it plays out.
BPO agents who are willing to spend 3-4 hours on an appraisal-like report for $75 are desperate for money – which means they aren’t that good at real estate to begin with.
Because the short sales are usually impossible to show, the BPO agent has to meet the listing agent, who knows their entire commission is riding on this moment.
They provide carefully-selected comps to the BPO-agent, and with a wink and a nod, says, “close enough, right?”
The BPO-agent, who doesn’t know the neighborhood that well, doesn’t know the market in general that well, probably hasn’t sold more than a handful of homes in their life, and isn’t licensed to appraise homes decides to hurry his report along and bring it in at the value it needs to be, rather than having to justify why it should be much higher.
Besides, he might have made a new friend in the business, which might come in handy later, when the market get better?
I don’t know how the first house in the video didn’t get bumped up much higher – there hasn’t been a sale nearby under a million all year, and they let it go for $879,000?
There is a BPO section on the Equator website, and it’s there that the servicers input their orders for BPOs.
They just put them up for grabs – literally the first BPO agent that comes along who wants it, gets it.
They fly off the website within seconds.
How about this JTR. Write a letter to the banks-Put them on notice. Then publish the letter in the Union.
It will feel good and it may do some good.
CC Issa and others
“CC Issa and others”
I don’t think you’d want to do that. Government has a nasty habit making things worse with regulation instead of better. $5 says anything the government does to help creates a hardship for the honest Realtors and isn’t enough of a burden for the dishonest ones.
Go, Jim! That was a very nice piece of reporting.
Since the realestate bust and the real estate meltdown we still did not see proper reforms in the way we conduct real estate transactions. The banks get everything they want whether it is bailouts or anything else. Unless there are some serious regulations in place, we will see fraud happening again.
Jim, have you ever reported these shady transactions directly to the bank? If I suspected realtor fraud I’d have no qualms whatsoever about contacting the bank directly.
I am still heart-broken about the Camphor house (3 rd house in the video). It has perhaps one of the best Ocean Views in North County. I tried to put an offer on that but was told by Listing Agent that “We already have it contingent and no more Offers/backup-offers are accepted” … and then they lowered the price to $750k (while contingent) and finally closed the deal for $720k. Nearest Comp to this is 6707 Barberry Pl on the nest street and it sold within 30 days for $1.35 Million.
Yes you are reading it right … $1.35M vs $720k … almost 50% discount / ripoff !!
http://www.redfin.com/CA/Carlsbad/6707-Barberry-Pl-92011/home/3745788
http://www.redfin.com/CA/Carlsbad/6721-Camphor-Pl-92011/home/3745692
Jim great video! I love it when you give us the dirt on whats really going on out there. I cant find this type of content on any other site, much less from the media. Keep up the good work informing the uninformed.
Jim, your style, ethics and professionalism resonate with me.
I enjoy seeing peers succeed and you have for very good reason.
I am curious as to your opinion of a few closed short sales. One in particular on Springwood in Encinitas. There are several others but knowing your extremely detailed knowledge of the entire market my suspicion is you know who/what I am speaking of.
From a fellow Realtor to the public who may be reading this….Jim is the real deal and major kudos to him for his professionalism, ethics and straight up courage and honesty…Breath of fresh air.
Happy, Healthy and Prosperous 2012 to all.
Thanks Peer.
I don’t want to get sued.
Regards, JtR