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Are you involved in a Short Sale SCAM? : Jen Hudson’s Blog

Are you involved in a Short Sale SCAM?

Posted By Jen Hudson

 

Are you involved in a Short Sale SCAM?

If you know me, you know that I rarely get so passionate about something that I need to spread the news… however, THIS is an exception and needs to be understood so you don’t get caught up in a Short Sale Scam! 

The opinion below is from the Washington Association of REALTORS® Legal Hotline.  This information is highly important and should be spread to everyone you know.  There are a million “guru’s” out there who are trying to “help” people with their short sales, but the way they are going about it is illegal… not to mention unethical or immoral.  Please save your family and friends from these sharks, and have them talk to someone who knows what is going on today in our market. 

Below is today’s opinion from Annie Fitzsimmons, the attorney who answers questions for the Washington Association of REALTORS® Legal Hotline.  This should be read and understood by all. 

Question:

Short sale negotiator, who is not licensed as a real estate agent, mortgage broker, credit counselor, appraiser or lawyer contacts lenders on behalf of sellers and negotiates the short sale purchase as low as possible.

If there is a big enough difference between her negotiated price and the market value of the property, she buys the property at the low price and immediately resells to a real buyer, pocketing all of the equity.

If she cannot get the price low enough to make that program work, then she takes whatever price she can get by representing the seller and, knowing that the lender will not pay her fee, waits until a buyer is interested in the property at the established price and then goes to the buyer and tries to convince the buyer to pay her fee by agreeing to try to get the price even lower.

Whether she can get the price any lower or not is irrelevant to her because by then she already has the buyer’s signature on an agreement to pay her fee.

Is any or all of this illegal? If so, who should broker report to in an effort to stop her?

Answer:

Every situation described in this question includes one or more aspects of illegality. The first effort by this person, to buy low and sell high, constitutes lender fraud and fraud on the seller. The short sale negotiator probably signs some documentation with the lender in which there is a representation that her purchase price represents fair market value, which it does not. Even if this person does not sign such a document, she encourages seller to do so and seller certainly will make such a representation. The fact that the property can be immediately sold for a much great price means that the negotiator’s purchase price was definitely not market value for the property.

This constitutes fraud on the seller as well, who is very likely to carry ongoing liability for the deficiency in payoff to the lender. Seller will owe substantially more to lender because of a greater deficiency if short sale negotiator pays a small price to lender but sells for market value to buyer and pockets the difference.

The alternative situation, where negotiator purports to represent the seller, to get a short sale negotiated price, and then turns around and claims to represent the buyer is equally alarming. First, in what capacity is she representing either party? She is not a real estate agent, so she cannot market the property. She is not an appraiser or real estate agent so she can evaluate the value of the property. She is not a lawyer, so she cannot negotiate the legal rights of either party, which will be a factor when one or both parties are asked to sign documents making certain representations to the short sale lender.

In addition, when she establishes a price with the lender (which is really not likely to happen in the absence of a buyer so it is curious what representations are made to lender to get the short sale price established) and has a buyer who is willing to pay that price but she encourages that buyer to offer even lower, she has done a disservice to the seller. The seller had a buyer who would pay a certain amount to reduce seller’s debt to lender and the short sale negotiator offers to try to reduce buyer’s price and seller’s pay off to lender. If negotiator is not successful in negotiating a lower price, then she got buyer to agree to pay her fee in exchange for no provision of service to buyer at all.

Broker can report this negotiator to the Department of Financial Institutions, the Department of Licensing, the Unauthorized Practice of Law Board and the local prosecutor and/or state attorney general. Broker may want to refer any defrauded seller to legal counsel, including the NW Justice Project if seller’s equity was stolen by the negotiator.

Moreover, broker should recognize the harm that is likely to arise from an unlicensed short sale negotiator and avoid hiring or referring to one. If a short sale negotiator is not licensed to do what they are doing, then agent does not want to assume the liability of making a referral to that short sale negotiator. Transactions just like those described in this question are happening every day at the hands of self-proclaimed “short sale negotiators”. Agents should be very aware of these situations and be prepared to advise seller to seek legal counsel if agent believes that seller was or is about to become a fraud victim.

Hotline Attorney Annie Fitzsimmons writes the Legal Hotline Question and Answer of the Week. The Legal Hotline lawyer does not represent Washington Association of REALTORS® members or their clients and customers.

 

Jun 19th, 2009

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