A warning has been issued to homeowners about an alarming rise in short sale fraud across California in a field “rife with scam artists”.
A short sale is an arrangement in which a homeowner sells his or her home for less than the outstanding mortgage, with the consent of the lender.
Attorney General Edmund G. Brown Jr. joined the California Department of Real Estate and the State Bar of California in announcing the warning.”
While short sales can provide homeowners with a last-ditch alternative to foreclosure, this market is rife with scam artists,” Brown said. “Homeowners and buyers, agents, and lenders should beware of short sale negotiators who operate without licenses, use straw buyers or charge illegal fees.“
With so many homeowners now considering short sales, an entire industry of so-called short sale negotiators has emerged. These individuals solicit homeowners by promising to expedite the process and help coax lenders into taking part in the transaction.
The Department of Real Estate is investigating more than 40 complaints of short sale fraud, up from “virtually zero” cases only three months ago, a spokesman said.
In April, the Obama administration launched a new initiative called the Home Affordable Foreclosure Alternatives Program, which encourages homeowners in financial distress, especially those who have failed to complete a trial modification or qualify for a loan modification, to consider a short sale as an alternative to foreclosure.
Before working with or paying any short sale negotiator, homeowners should consider the following red flags:
1-No license – With limited exceptions, only licensed real estate agents or attorneys can engage in short sale negotiations with a homeowner’s lender.
2- Up-front fees – Licensed real estate agents wishing to collect up-front fees from homeowners for short sale transactions must first submit an advance fee contract to the Department of Real Estate and receive a no-objection letter.
3- Surcharges – With many distressed properties listed well below market value, negotiators and agents are charging potential buyers thousands of dollars in surcharges and hidden fees just to place an offer on a home. These illegal fees are frequently not disclosed and are paid outside escrow.
4- Straw buyers and house flipping – In this scheme, short sale negotiators misrepresent the market value of a property to a homeowner’s lender by only submitting offers on the property from an affiliated straw buyer. After the home is purchased below market value, the fraudsters immediately flip it and pocket the difference.
Short sale negotiators and agents use a number of titles including debt negotiator, debt resolution expert, loss mitigation practitioner, foreclosure rescue negotiator, short sale processor, short sale coordinator and short sale expeditor.
Short sale must be done with great honesty. I have declined to list properties where the seller says that they only want to accept an offer from a family member and/or friend that they already had set up to do the fraud. I explain to them that it is not legal and license will be in jeopardy and also my modus vivendi. My honorable reputations is worth a lot to me.
People in the area that I live in are putting their home on the market as a short sale. The first day it hits the MLS it is placed on hold. Four or Five months down the road the house closes escrow to a new owner but the current owners never move out of the house. As a Real Estate Broker, I can see what they are doing but there is no one to go to and file a complaint. What is happening is that the short sale just killed the values in that neighborhood. Something needs to be done.
Of course short sale fraud is huge. It is the most stupid idea the banks and politicians came up with sice $0 down.
Forget about short sale negotiators…the DOJ should be taking a close looke at those involved in “too many parts” of short sales. I believe you will find fraud in mortgage brokers, realtors and title companies who will again work with straw buyers to “purchase” properties in short sales only to turn around and place them on the market for profit. The problem is that there are so many of these SS that it will again take years to weed out 2% of the fraud.