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From the C.A.R.

UNDISCLOSED SHORT SALE PAYMENTS MAY BE ILLEGAL

Undisclosed payments in short sale transactions, especially those paid outside of escrow, may violate the law, including RESPA, laws against loan fraud, and licensing laws.  Short sale agents have increasingly reported to C.A.R. about requests for agents and their clients to pay junior lienholders and others, oftentimes outside of escrow.

One common scenario is when a short sale seller’s senior lender authorizes a payment of $3,000, for example, to extinguish a junior lien, but the junior lender demands that the buyer pays an additional $9,000 outside of escrow.  Not only would it be risky for a buyer to pay outside of escrow, but concealing this additional payment from a federally-insured senior lender may constitute loan fraud, which is a crime punishable by 30 years imprisonment plus a $1 million fine (18 U.S.C. section 1014). 

Furthermore, omitting from the HUD-1 Statement any charges paid at settlement by either a buyer or seller may violate the Real Estate Settlement Procedures Act (RESPA) (Appendix A to 24 C.F.R. Part 3500).  Depending on the specific circumstances, carrying out these payment requests may also violate other laws and regulations, and an agent’s participation in the scheme may be subject to license revocation by the Department of Real Estate or other disciplinary action.

Agents and their clients are encouraged to file any complaints regarding fraudulent activities to the proper authorities, including the following agencies:

Attorney General’s Office
California Department of Justice
800-952-5225 Phone
http://ag.ca.gov/consumers/mailform.htm
Department of Housing and Urban Development (HUD)
HUD Office of Inspector General Hotline (GFI)
800-347-3735 Phone
http://www.hud.gov/offices/oig/hotline
Federal Bureau of Investigation (FBI)
202-324-3000 Phone
https://tips.fbi.gov

Here’s a snapshot of reality – though somewhat extreme, even by today’s standards.

The first clip shows the difference between sales of a single-story, and a two-story house on the same street, that closed a month apart.

The second shows a new short-sale listing that has an extra kicker.  The two mortgages exceed $1.1 million, and will be an agonizing grind to complete.  When/if the short-sale is approved (which might be a stretch at the low asking price), the buyer will be asked to sign a form stating that they are not aware of any side agreements:

Here’s a classic ponzi scheme right in our own backyard. 

This guy owned this house since 1988, and had been an active contractor in the community.  When the market was hot, borrowing money to do remodels and flippers worked out fine for him.

But when the music stopped, he kept borrowing.

Eventually the cross-collateralized mortgage holder foreclosed in 2007, and took back two properties, the one in the video and another on La Veta.  After the bankruptcy, the next lender in line, the $800,000 lady, got the third property.  The remaining 10-20 individuals who lent money got burned for at least $2 million, and maybe more.

He preyed on people’s trust – he had friends in the community that recommend him to other friends. Because he seemed like a nice guy, more and more people kept lending him money unchecked, and eventually the scheme failed:

With all the postponements of trustee sales, it seems that if any defaulting borrower could just fog a mirror, the servicer would give them a break.

Apparently, they’ll go farther than that – from a reader:

My sister passed in mid 2007 from cancer. She was widowed and lived in Oregon.  She put down 10% in 2004 for a house with 80/10 mortgages from Greenpoint.  Greenpoint failed in late 2007 and Capital One stepped in to take over.  Our family decided, since the house was the only Oregon asset and the holding cost during probate would offset any equity, that rather than going through probate to sell it, the bank could have it.
 
Two years ago this week I was in Oregon with my wife clearing out and securing the house because the bank was in foreclosure mode.  Now here we are, two years later and the bank still has not foreclosed, postponing month over month and even refiling after the foreclosure deadline passed and cancelled the original filing.  I’m glad I turned off the water and drained the pipes in the house since it was freezing while we were there. I can only imagine what that house looks like after being vacant all this time…

Hopefully some bandos are living there – do they have bandos in Oregon?

My family and I have been extremely moved by the out-pouring of support from blog readers over the last week concerning my dad’s passing – thank you so much for your thoughts and prayers! 

Though it was a very sad few days, we did have a great time talking about Pops and all the good times we had.  I also went through a couple of hundred old photos, and was able to appreciate his life from start to finish – there were several photos of him as a kid in the 1930s!

Because both of my grandfathers were in law enforcement, we had several discussions about law and order during the last week, which made me think of old what’s-her-name:

This guy received his first NOD in April, 2006, and has been working the system ever since.

Yesterday he listed the house on the MLS for the first time in almost two years with a broker out of the 916 area code.  With his next trustee sale date being January 14th (the original date was 4/9/09), his generous free-rent program must be winding down, and listing it for sale was a last-ditch effort to extend it further.

It doesn’t look like it’s been a humbling experience though, this is the main MLS photo:

Hopefully 2010 will be the end of the road for the crooks and deadbeats!

Here is a report on the seller-assisted down payments, where the seller donates an amount of money (equal to the buyer’s down payment) to a “non-profit entity”, who then gifts it to the borrower. 

From NMN:

WASHINGTON-It was well known inside HUD that a special program where nonprofit housing groups arranged downpayments for low-income homebuyers was bad news for the Federal Housing Administration mortgage insurance fund. Department of Housing and Urban Development officials tried to stop the seller-funded downpayment assistance program several times over the past decade – only to be blocked by the courts or supporters in Congress.

The homebuyer assistance program allowed sellers to fund the downpayment and then turn around and inflate the home price to recoup the expense. The seller also paid a fee to the nonprofit for qualifying buyers and arranging the transactions. HUD saw it as a scam, though the DPA providers denied it.

It was well documented that DPA buyers generally paid too much for the properties and ended up in high LTV loans that were generally three times more likely to default than other FHA single-family loans.

And default they did. The latest FHA actuarial report calculates the damage the seller-funded downpayment program inflicted on the FHA Mutual Mortgage Insurance Fund with startling findings. If the government had never endorsed SFDP loans, the economic value of the fund would be $13.2 billion as of Sept. 30 – instead of $3.6 billion – a difference of almost $10 billion. In other words, FHA would be in much stronger financial shape today.

The government began insuring SFDP loans in 1998. Over the years the program grew steadily, accounting for nearly 20% of coverage from fiscal 2004 through fiscal 2008.

Congress finally banned seller-funded downpayments and FHA stopped insuring the loans on Oct. 1, 2008.

“On the positive side, following the elimination of this type of high-risk loan … the performance of the FY 2009 and future FHA books of business will be much improved over what would have been the case if these loans were still being endorsed in significant amounts,” the actuarial report says.

The actuarial report also points out that credit scores on FHA single-family loans have improved recently. The average FICO score in September hit 689, up 10% from September 2007.

Lenders originated a record $328 billion in FHA loans in FY 2009 and 44% of the loans have FICO scores above 680 and only 13% have FICO scores below 620, generally considered subprime. In FY 2007, when FHA endorsements totaled $55.5 billion, only 19% of the loans had FICO scores above 680 and 47% of the loans had FICO scores below 620.

“The improved credit quality of FHA’s recent originations debunks the myth that FHA is being overrun by subprime loans,” said Brian Chappelle, a mortgage banking consultant in Washington. The founding partner of Potomac Partners noted that loans with FICO scores above 680 perform four times better than loans with FICO scores below 620.

FHA still has $30.7 billion in reserves (and set-asides of $27.1 billion) – but that’s after auditors made a $4.9 billion positive adjustment in recognition of the improved credit quality for FHA’s current originations.

“No one can dispute that FHA defaults are increasing. However, the cause is the worst housing market since the Great Depression and not that FHA is insuring poor quality loans,” said Mr. Chappelle.

hat tip to the Leucadia Blog for sending over Suzy’s story, plus they mentioned the Encinitas Extreme Home Makeover house in foreclosure too:

http://www.theleucadiablog.com/2009/12/encinitas-monster-house-and-extreme.html

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We’ve been waiting patiently for the lender to list Suzy Brown’s old house for sale – remember the 16,330 square footer in Olivenhain? 

She had purchased it from Barry Axelrod for $850,000 in 2003, and took out a loan for $4.55 million in 2006.  You know the story, the bank foreclosed and found that ’somebody’ had stripped the house.

She was in court yesterday, here’s the story from the nctimes.com:

The former owner of an Olivenhain mansion who is accused of stealing $1 million worth of fixtures from the bank-foreclosed home repeatedly refused to identify herself at her arraignment Tuesday, prompting a Vista judge to handcuff her in the middle of the proceedings and finally order her to jail.

Suzy Brown, 45, eventually pleaded not guilty to one count of grand theft and one count of felony vandalism, but not until the hearing had been postponed several times because of the unusual actions of the short-haired woman in a pantsuit who, to the amusement of many in the courtroom, wouldn’t admit she was the defendant.

It is not clear why Brown would not acknowledge her identity —- which Judge Marshall Hockett eventually confirmed through a copy of her Department of Motor Vehicles photo that the court requested —- but Brown apparently contested the legality of the complaint against her issued by the district attorney’s office, according to her attorney.

“Ms. Brown claims she has not seen what she calls a ‘genuine charging document,’” said public defender William Matthews, who stepped in to represent Brown after Hockett declined Brown’s request to represent herself.

From the start of the afternoon hearing, Brown would not say who she was.

She said she had no identification with her.

“Are you or are you not Suzanne Meredith Brown?” Hockett asked, getting fed up. “… You’re playing games with the court.”

“I’m genuinely not playing games,” Brown said with a deferential, somewhat pleading tone.

Read the rest of this entry »

Here’s a flipper who was foiled in the act.

A realtor had listed this house in June, noting that it was a short-sale flip in progress. They had arranged (conspired) with the seller to submit to the existing lender a short sale package at a lower price, and then listed it on the MLS for $598,321 before the short sale was approved – intending to pocket the difference.

Instead, the bank foreclosed on them: