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Category Archive: ‘Short Sales’

Short-Sale Fraud

ss

The new guy named Jeremy wandered into the discussion about short-sale fraud the other day, and found that long-time readers here don’t take kindly to scams – and scammers.  But we’ve seen how short-sale fraud has run unabated, and that it has practically become a badge of honor among realtors. Nobody in the industry is motivated to stop it either.

Here are a few examples:

  1. At the top of the last article, Jeremy’s friends were filing notices that mortgages were paid off when they weren’t, which is outright fraud. But the second half of the article mentioned the typical example of short-sale fraud, where a straw buyer purchases the property at a below-market price, and then spoons it to a waiting buyer who pays retail. The banks who got shorted on the first sale might have caught the fraud with better appraisals, or if they just had a strict policy. I’ll never forget the one case where the perpetrator caught wind of his own story here on the blog and left a his comment. He said they included in their contract to flip the house immediately to the shorted bank.  They then flipped their short-sale buy on the SAME DAY to a retail buyer for a $100,000+ profit.  If the banks have knowledge and turn their head, then it’s on them.
  2. A short-sale that’s fully furnished. The seller makes the furniture sale mandatory so he can squeeze some cash out of the deal – he sells the ‘furniture’ to the buyer for $50,000 to $100,000 outside of escrow, in exchange to agreeing to a low-ish sales price for the house.  Usually these are cash sales only.
  3.  Listing agent twists seller’s arm to take his buyer, rather than one of the two higher cash offers.  I turned this one into VP of Fraud at the Bank of America, who said that because the lower price was still within their acceptable range, he’d let it go.
  4.  There were the investors who approached naive listing agents and insisted on negotiating their own deal with the bank.  If they could get the price approved low enough to flip immediately, they’d complete the purchase.
  5.  Both short sale and REO investors engage in ‘reverse staging’ to make a property appear in worse condition than it is, including the removal of kitchen-cabinet doors, garbage left lying around the home, and sometimes old fish hidden behind refrigerators to create pungent scents.  Sometimes BPOs include false property stigmas such as high crime rates, or claim the home was a meth lab that would need to be entirely gutted.
  6.  Parents buying their child’s over-encumbered house as a short-sale.  A favorite among realtors themselves.

Thankfully most of these are in the rear-view mirror!

Posted by on Mar 24, 2016 in Fraud, Jim's Take on the Market, Scams, Short Sales, Short Selling | 8 comments

Local Fraudsters Sentenced

santafecyn

They nailed these guys for fraud….but only 18 months in jail?  This is more than your standard short-sale fraud, and I’m surprised this doesn’t happen more often.  They just sent in a forged bank reconveyance showing that the mortgage had been paid (when it wasn’t), and then sold the property.

Link to story

A Carlsbad real estate broker and his brother were sentenced Monday to prison terms for their roles in a fraudulent “debt elimination” scheme that purported to eliminate the mortgages on several million-dollar homes in Del Mar, La Jolla and San Diego.

U.S. District Judge John Houston sentenced Adel Afkarian, 43, of Carlsbad, to 18 months in custody and Atef Afkarian, 41, of Slidell, Louisiana, to 13 months. In addition to the time in custody, the brothers were both ordered to pay more than $5.5 million in restitution to the victims of the scheme.

To implement the scheme, the Afkarians identified underwater homeowners — including themselves — and began a process to make it appear as though the homeowners’ debts had been satisfied.

To do so, they recorded fraudulent deeds that purported to extinguish the large mortgage loans encumbering each property.

Working through entities known as The Better Mortgage Company and Elite Coast Realty, the defendants then sold the properties to innocent purchasers, deceiving the buyers into paying the full purchase price to the Afkarians or their co-conspirators. The mortgage lenders, unaware of the fraudulent documents recorded on title or unable to prevent the sale in time, were left unpaid.

With regard to their own underwater home, the Afkarians pretended that $1.4 million in mortgage debt had vanished, prosecutors said.

The defendants used the “debt elimination” method to successfully arrange the fraudulent sale of four properties, generating more than $4.3 million in proceeds which went directly into bank accounts of the brothers and their co-conspirators.

In some cases, the brothers sold the fraudulent “debt elimination” program to existing clients of their mortgage business, according to prosecutors.

In addition to the “debt elimination” scheme, the Afkarians also conspired to arrange fraudulent short sales for underwater clients through a simultaneous “double escrow” scheme.

Rather than selling an underwater home at a pre-approved short sale price, the defendants arranged two simultaneous sales of the same property at two sale prices, using a straw buyer as the intermediary and purported seller in the second transaction.

That way, the short sale lender would believe that the property was being sold for the initial first escrow price, rather than the higher second escrow price. The defendants and their co-conspirators would then pocket the difference, diverting money from the lenders.

The Afkarians each pleaded guilty in September 2013. As part of their pleas, they also agreed to forfeit a home on Santa Fe Canyon Place in Torrey Santa Fe, which they had purchased using about $715,000 in proceeds from the fraud, and an additional $388,000 recovered from bank accounts where they had transferred proceeds.

Posted by on Mar 22, 2016 in Fraud, Jim's Take on the Market, Short Sales | 11 comments

Potentially Distasteful?

shortsales

Because California has been exempted by the IRS from their debt-tax on short sales, we should still see more of them in the coming months and years.  They tend to be shady – here’s how a case in Nevada turned out:

http://www.rgj.com/story/news/2015/01/07/reno-real-estate-professionals-cleared-state-panel/21420693/

An excerpt:

Harcourts was one of the Northern Nevada companies identified by a Reno Gazette-Journal investigation last year for engaging in quick-listed, dual agency short sales. The deals allow the same agents or firms to earn multiple commissions on the same property by representing both the buyer and the seller — at times “triple dipping” and earning a third or even fourth commission by being involved in the property’s resale as well.

The practice also allows a pre-arranged buyer or investor to purchase the property far below fair value by blocking other offers for the property, which go pending with an approved offer the moment they are listed on the market. This allows an investor to resell the property just a few weeks or months later at huge profit, with some examples posting more than $100,000 in appreciation during the resale.

“What we pursued was gross negligence based on fiduciary duty … to represent the interests of all parties involved,” said Jonathan “JD” Decker, Nevada Real Estate Division administrator. “In this case, all parties include the seller, buyer and the mortgage lender.”

According to the defense, the primary interest of the seller is to sell a property quickly to avoid a harder hit on their credit rating from foreclosure. Since the seller is losing the property, it does not matter if the house is sold at a lower price to a prearranged buyer. By failing to get the best offer, however, Decker’s team said that the deals did not fairly serve the interests of the mortgage lender.

During the hearing on Wednesday, the defense countered that courts have ruled that the lender and homeowner are adversarial so the broker cannot represent both their interests. Instead, banks need to do their own due diligence to ensure a distressed property is being sold for the best price possible.

“You could call what was going on potentially distasteful,” Decker said. “But (the commission decided) that it did not come down to being illegal or in violation of statute.”

Posted by on Jan 8, 2015 in Fraud, Short Sales, Short Selling | 1 comment

REO Listings Skyrocket

I hope the headline porn grabbed you! 😆

REO listings have increased lately around NSDCC, though they are still a small fraction of the overall marketplace (there have been 2,238 detached-home sales closed this year between Carlsbad and La Jolla).

The short-sale listings coming to market haven’t changed much all year, which would be the first place you would see the effect of mortgage servicers getting tougher with deadbeats:

Type of Listing
Jan 1 – June 30
July 1 – present
REO
4
8
Short-sale
36
18
Non-Distressed
2,672
1,262
Total
2,712
1,388

This guy borrowed $3.75 million to do a spectacular remodel on this Del Mar home (the house with the glass-bottom pool), but he wasn’t going to give it away.  The original list price was $6,750,000 in October, 2013, and dropped to $5,950,000 before getting foreclosed in June. The bank promptly listed for $5,495,000, and sold it for $5,210,000 last month:

http://www.sdlookup.com/MLS-140036477-116_Nob_Ave_Del_Mar_CA_92014

There is some hope that lenders and servicers are increasing the flow now that prices are so much higher than before, and it would make sense that they would cherry-pick the properties on which they could make a profit.

But no flood of notices yet:

San Diego County Filings

Posted by on Oct 12, 2014 in Foreclosures/REOs, REO Inventory, REO Pre-Listings, Short Sales, Short Selling | 6 comments

Mortgage-Debt Tax Relief

Yesterday I saw a for-sale sign in front of an upcoming REO listing.  It made me wonder, “How many REO and short-sale listings of detached-homes have we had this year around NSDCC?  Here are the counts:

REO: 5

Short Sales: 43

Non-distressed: 3,516

There’s not much chance of finding a deal these days!

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Here is the update on the Mortgage-Debt Tax Relief:

Read More

Posted by on Sep 4, 2014 in Foreclosures, Short Sales, Short Selling | 0 comments

Only Non-Recourse

From CAR:

barbara_boxer_2After receiving comments from California tax practitioners and its own review of California law, the IRS has issued a clarification to its September 19, 2013 letter to Senator Barbara Boxer concerning short sales and taxes on the forgiven debt. The new IRS letter indicates that forgiven short sale debt is not subject to cancellation of debt (COD) income only if it is non-recourse at its inception and that their prior letter was overly broad.

In their new April 29, 2014 letter, the IRS states that in order for a debt to be non-recourse at the time of the short sale, the original debt must be used to purchase or build a 1-4 principal residence or a refinance of such debt. As in the prior letter the IRS affirms that a lender’s forgiveness of such debt in a short sale will not result in COD income, but instead will be treated as capital gains. And as before, single or joint tax filers selling a principal residence can use the appropriate $250,000 or $500,000 capital gains exclusion.

What changed is that a loan used to substantially improve the taxpayer’s principal residence may now be treated as COD income instead of capital gains. Additionally, the IRS clarified that an investor’s short sale debt will also be characterized by the nature of the debt at inception. If it was recourse debt (non principal residence purchase) originally, it will remain recourse debt at the time of the short sale. This may be somewhat good news for investors who may prefer to have short sale debt treated as COD income rather than capital gains. COD income may be avoided under a claim of insolvency where capital gains cannot.

C.A.R. will continue to seek additional clarification about some issues not addressed, such as a taxpayer’s reliance on the IRS’s prior letter, and whether forgiven home improvement debt should not also be excluded from COD income. As always REALTORS® must advise their clients that they cannot give tax advice and that the client should seek tax advice from a qualified tax professional. A copy of the letter from the IRS is available for reference.

Posted by on May 25, 2014 in Short Sales, Short Selling | 1 comment

SD Flips

The MLS shows that 11% of the 1Q14 residential sales in SD County were REO and short sales, and this article shows 7.1% flips (hat tip to SD Squatter):

Realty Trac, the nation’s leading source for comprehensive housing data, today released its Q1 2014 U.S. Home Flipping Report, which shows 3.7 percent of all U.S. single family home sales were flips — where a home is purchased and subsequently sold again within six months — in the first quarter of 2014, down from 4.1 percent in the fourth quarter of 2013 and down from 6.5 percent in the first quarter of 2013.

Among metro areas with a population of at least 1 million and at least 25 single family homes flipped in the first quarter, those with the highest share of flips in the first quarter were New York (10.2 percent), Jacksonville, Fla., (10.0 percent), San Diego (7.1 percent), Las Vegas (6.7 percent) and Miami (5.9 percent).

Eighty-two percent of all properties flipped in the first quarter were sold to owner-occupants; 18 percent to buyers with a different mailing address than the property.  Forty-three percent of all properties flipped in the first quarter were all-cash sales to the new buyer.

http://www.realtytrac.com/content/foreclosure-market-report/q1-2014-us-home-flipping-report-8047

home_flipping_price_ranges

Posted by on May 2, 2014 in Flips, REOs, Short Sales | 0 comments

Short-Sale Flipping

Here is investigative reporting for you.

Jason Hidalgo from the Reno Gazette-Journal found that dual-agency short sales with a prearranged cash buyer accounted for more than 10 percent of Northern Nevada’s 2,096 single-family home short sales last year.  He looked me up in February to get my thoughts on short-sale flipping, and then in his story he lays out two offenders:

http://pages.rgj.com/specialreports/soldshort/index.html

Here is an excerpt:

Krch Realty, which triple dipped commissions on more than half of its dual-agency short sales with cash buyers last year, did not respond to a request for comment for this article.

ssmarshallMarshall Realty accounted for nearly a third of such short sales in 2013. Broker-owner Marshall Carrasco defended his company’s transactions and referred further questions to his lawyer, who wrote to the Reno Gazette-Journal to “proceed with caution” on any article about Carrasco.

“Mr. Carrasco and Marshall Realty have represented many sellers in short sale transactions,” attorney James M. Walsh wrote. “As noted, full disclosure is made to the short sale sellers of the nature of the transaction. Mr. Carrasco, on occasion, presents these listings to individuals or entities that he knows are interested in purchasing short sale properties.”

Investor Jeremy Page of Harcourts NV1 Realty, a key player in the area’s real estate investment scene, stressed that all his short sale deals were done within the scope of the law. Page says his short sale purchases not only took distressed houses out of the market, they pumped more than $20 million back into the Northern Nevada economy in 2013 in the form of payments to suppliers and contractors who worked on his properties, as well as real estate agent commissions.

Real estate experts say such short sales come at the expense of the average homeowners, who do not fully understand how real estate transactions work, making them easy targets. It’s a problem that’s not limited to Nevada but is seen in other states as well where agents bend the rules for profit, said Jim Klinge, broker for California-based Klinge Realty.

“Typically, the homeowners don’t even know what they signed when these sharks get into their living rooms,” Klinge said. “I have had people call me asking if they have been taken advantage of, and in every case the answer is yes, but they never asked questions.”

The practice is especially a concern in Nevada, which saw the steepest decline in home values at the peak of the U.S. housing crisis. In recent years, the FBI identified the Silver State as a prime target for short sale fraud due to its high percentage of distressed properties.

Klinge called the lax environment surrounding short sales laughable.

“Nothing is done by anybody to stop this outright defrauding of banks, servicers and investors,” Klinge said. “There is no law enforcement or industry watchdogs, so it runs unabated. When other agents see people get away with it and make 5 percent or 6 percent commissions, then the amateurs give themselves permission to do it, too. It is going to take a district attorney vigorously pursuing this until we see perp walks nightly” for it to stop.

http://pages.rgj.com/specialreports/soldshort/index.html

This stuff happened in every major city in America over the last 2-4 years, and thankfully it’s mostly over.  Thank you Jason for a great investigative report!

Jason answers reader questions here:

http://www.rgj.com/story/news/2014/04/21/short-sale-flipping-reporter-answers-reader-questions/7983239/

Their Facebook entry here with 25+ comments and 57 likes:

Posted by on Apr 22, 2014 in Fraud, Scams, Short Sales, Short Selling | 2 comments