I still see 1-3 of these per day, with no end in sight. Excerpts from this article at msn.com:
Real-estate agent Lynne Wright thought she had found the perfect home for her clients. The quiet house on a cul-de-sac in one of the most prestigious gated communities in Bakersfield, Calif., was offered in a short sale for $40,000 less than similar homes on the market.
Wright and the couple moved quickly and made an offer higher than the asking price, but were outmaneuvered by a husband-and-wife real-estate team in Wright’s brokerage office who wanted to buy it for their own use. She didn’t think much of it, until she saw that the property sold for $40,000 less than the $342,000 her clients had offered.
When she asked the listing agent why, she was told to “leave it alone.”
Wright says she is still not sure if the servicer or owner of the property ever saw her clients’ much higher offer. All she knows is that two agents picked up a luxury property for $80,000 less than market value, the banks took a big loss and the listing agent got both sides of the commission, representing his colleagues.
“It’s just robbery,” she says. “And I don’t know how to stop the robbery.”
For the most part, these deals involve insiders, from the underwater borrowers themselves to investors, listing agents, brokers providing valuations and so-called “facilitators,” or middlemen negotiating with the banks and buyers trying to flip the properties.
Banks, with a huge backlog of distressed properties, are under pressure to do a lot of transactions and to do them as quickly as possible, says Ann Fulmer (no relation to the reporter), vice president of industry relations for Interthinx, a company that helps lenders reduce their fraud risk.
Knowing this, these insiders are able to work the system and push through bogus valuations to set the price of the sale or fend off higher offers.
Fulmer has seen listing agents involved in these scams post properties in multiple-listing services in the wrong city to avoid competition. Some post pictures of a completely different, junk-filled property. Or they stipulate that only people from the real-estate office will take offers on the property, so they can control the transaction.
In Wright’s case, which was reported to the state but has not been prosecuted, real-estate agents controlled every aspect of the deal. An agent in her office was the distressed borrower; the listing agent who represented the property and buyer sat just desks away, as did the real-estate team who eventually wound up with their own luxury property for a song.
“The thing that really bothered me was the lack of ethics,” Wright says. “Sure I can find my clients another house; what I couldn’t explain to them very well was how (something like this) can happen.”
Gary Crabtree, an appraiser in the area, said he got calls from several agents whose offers were rebuffed for the rock-bottom inside bid. “It set an all-time low for that neighborhood,” he says.
Glenn Gulley, a real-estate fraud investigator with the district attorney’s office in California’s Stanislaus County – one of the nation’s hot spots for mortgage fraud – recalls calling servicers repeatedly about fraudulent deals and never getting a call back.
“In 4½ years, I’ve never had a bank call me and say we’ve been defrauded,” he says, though he adds that they’re slowly starting to respond as they put more staff in charge of mitigating these losses.
Instead, most of the calls he gets about this type of fraud are from thwarted homebuyers who read published sales transactions in the newspaper. “I’m getting people calling and saying, ‘I offered $300,000 for a house that sold for $200,000.'”
And those are the ones who actually make an offer. Many more people are discouraged from bidding when the listing agent for a short sale puts it up on the MLS at 9 a.m., only to list it as “sale pending” at 9:01. “Then you know the same agent double-ended it” and is bringing in his own buyer, Gulley says.
Indeed, Hagberg says, some resales from the short-sale buyer to a third party actually close before the deal is negotiated with the bank, giving them the money to satisfy the lender on the short sale. In some cases, the buyer used a proof-of-funds letter generator found on the Internet to vouch for his ability to close the deal, Hagberg says, without actually having the money at the time.
Of course, some lower-priced short sales are legitimate, pitting cash deals against homeowners with financing or repair demands.
The whole problem could be solved if lenders had a better idea what properties were worth, Gulley says. Fulmer and others say they aren’t sure that BPOs should take the place of full-fledged appraisals.
“There are no real standards for how to pick the comps to establish the value that you receive,” Fulmer says. “You can pick the lowest of the low balls and skew the results.”
Good article! If you recall, exactly this happened to a home we tried to buy a fixer mid-century modern looking thing with a very pretty all the way to downtown from Mt. Helix. We were willing to offer up to $440k cash and the listing agent told us they already had an offer better than that. Two months later, I saw it in the tax rolls sold at $400k in a transaction with another agent in the listing agent’s office.
I couldn’t get passed the words “prestigious” and “Bakersfield” being used in the same sentence.
So apparently there’s no recourse for this type of fraud? Who says crime doesn’t pay?
Clearfund, surely you don’t mean that. Just click on that picture of the Bakersfield sign! LOL!
#3 we’ve been informed time and time again here by “short sale investors” that it’s not fraud at all but actually part of the grand tradition of centuries old contract law. There will be recourse now and then when a husband and wife team gets a little too greedy and screws over a mafia deal. I have little hope for official channels though.
“I couldn’t get passed the words “prestigious” and “Bakersfield” being used in the same sentence.”
clearfund, I felt the same way when I heard an acquaintance bought a 2,600 sf house (built 1997) in Gilroy (Garlicville) for $1.3 million back in 2005. It’s worth about 550K today…
Speaking of fraud….from the nctimes.com:
NEWPORT BEACH —- A Carlsbad attorney whose law license has been suspended was convicted Thursday in Orange County of helping a client break into his foreclosed Newport Beach home.
It took jurors about an hour to convict Michael Theodore Pines, 59, of vandalism, attempted second-degree burglary, the attempted unauthorized entry of a dwelling and obstructing an officer, all misdemeanors.
Pines faces up to three years in jail and up to $10,000 in fines, Deputy District Attorney Pete Pierce said.
Orange County Superior Court Judge Andre Manssourian ordered deputies to take Pines into custody, Pierce said.
“He was not surprised at their verdicts, but I think he was surprised the judge remanded him,” Pierce said.
Pines, who has been declared ineligible to practice law, represented himself in the Orange County case.
He faces similar misdemeanor charges related to his work as a foreclosure attorney in Ventura County, and felony charges in San Diego County.
Although Pines was jailed Thursday, he is due in a Vista courtroom Friday morning for a judge to determine if he is mentally competent to serve as his own attorney in the San Diego case.
Last week, the judge presiding over Pines criminal case in Vista said he thought the attorney might be “delusional.”
So was he trying to the Quaids back into their home?
I agree with MarkB (#4)–this has been going on forever. When we lived in LA (2004-2005), in an already “hot” market (with ever increasing values since the S&L crash in the early nineties), the local agency would hold two brokers open houses: one for their own agents on Wed. and another for all the others on Thurs., and then the listing would hit the MLS on Friday. It was really common for (an) offer(s) to be submitted to the owners on Wed or Thurs night. So the first listing in the MLS was frequently already “pending” (if it was posted in the MLS at all) but, if it was posted they were “taking back-up offers!”
Yet, as the sellers, you know this, because you have all these realtors running through your home. The difference with short sales is, how does the bank know whether they are being presented the best offer?
Jim, do the banks have any right to demand to see ALL offers (since the contract is officially approved by the owner before being submitted to the bank)? Or even to ask that the listing is “open” for more than five minutes?
The problem is that the banks allow a distressed seller to control the short sale and choose the realtor.
If I was a bank i would mandate that their pre-screened agents handle the listing or all bets are off on accepting a short sale offer.
Knowing how upside down this world is, I imagine it would be illegal for a lender to mandate anything to a defaulted borrower. Probably would violate their civil rights to demand JTR list the home.
Not sure how the power/control in this country went from the lender to the defaulted borrower????
“The whole problem could be solved if lenders had a better idea what properties were worth, Gulley says. Fulmer and others say they aren’t sure that BPOs should take the place of full-fledged appraisals.”
BPO = best priced offer? Seems like the problem is they aren’t taking the best offers.
BPO = Broker Price Opinion–my understanding is that it is based on a drive-by of the property and reviewing comps–not a full appraisal.
I see. Still, if they just put it on the open market and take the highest offer, that’s better than an appraisal. Of course the key is putting it on the open market. Jim, when are you going to start your auction service?
Privacy laws do not allow banks to step in as seller when they do not own the home, and the flip side is that banks really do not want to foreclose and become the property Owner.
I am not a lawyer, why could the Owner / Borrower’s real estate agents in cases such as this not be tried for some form of conspiracy? If the RE agents went through the front door of a banking center with a note demanding money, the FBI would be all over it. In a case like this, where the Bank agrees to the short sale, they get a pass because the Bank was not told of higher offers?
The lender does not own the property in a short sale, that would be an REO. The listing agent has a legal obligation to present all offers to the seller and accepted offers and back up offers are then presented to the lender. There is fraud here and since agents have a duty of fair and honest dealing as well as full disclosure of all material facts they can and should lose their licenses.