San Diego Housing Bubble News and Analysis

Agree this is a big problem (see my comment on the 92011 thread regarding this type of transaction).

There is only one way for the banks to avoid being ripped-off (and it is indeed theft). They have to use their own agents and appraisers. If it's the bank that's taking all the price risk, then they should be the ones to choose the listing agents, not the FB/"seller".

Heard some stories that sellers and buyers (friends or relatives) are colluding to steal from the bank. They arrange a short-sale, and push for the buyer (a friend, not known by the lender) to get the house at a reduced price. After they get the house, they flip it for market price and split the profit.

The FB seller gets off scott-free (no recourse, no debt, no BK or foreclosure on record) and the flipper/buyer-friend gets almost a guaranteed profit if they lock-in a below-market price. They also know what the true market price is because they see the offers from the other, real, buyers -- whose offers are not shown to the banks.

Is it legal? Who knows, but this definitely looks like fraud to me. At a time when the taxpayers are forced to fund or subsidize the housing and finance sectors, this should be punishable by life in prison and seizure of all personal assets.

Is it fraud or the path of least resistance? I think the listing agents doing it are taking the path least resistance as much as doing outright cheating. They spend a ton of time negotiating deals for which the other agent represented buyer has vaporized when the lender finally gets around to answering the offers. It is quite possible the lenders have told them to get offers that stick too. I am sure there is also some cheating. Not all of it is though,maybe not even much.

As I said on the other thread dealing with the topic, look for a trend in easier access to short sale deals. Not just for crooks but market wide.There may be something behind the scenes that motivates improvement in the movement of this subset of listings.

I am not trying to change any one's mind because I am not really sure about the details. I have seen other evidence of path of least resistance behaviors from listing agents. It's not uncommon.

OK. See, I read this and that's why I'm suspicious about Chambord.

In reality there is nothing "new" about this form of fraud. The only thing now is that we see many listings with substantially more detached "sellers" so to speak.

I am not clear that the description given in the original post constitutes fraud.

I have 2 short sale listings currently.

The seller "accepted" (in quotes because the bank has to ratify it) the first offer on each. This was not terribly surprising because the asking prices were compelling.

The banks have been working with those offers for weeks. They have asked for more money on one (which was agreed to by the buyer) and taken the other offer at face value. That was because the offer price was 15k above the broker price opinion (bpo).

It would not be in my client's best interest to submit the other offers to the bank and start the short sale process working again. I have expressed both in the listing as well as verbally, that the newer offers (some of which are higher) will be taken as back up offers only (and will therefore not be address unless or until the live offers die).

Further, the bank is not interested in taking a new offer to the relevant investors and committees.

So that newer offers are not a waste of buyers' time, I even disclose the numbers on the other offers (though I vetted this part past counsel). Two subsequent offers have been higher.

Bearing in mind that I am open to hearing opposing points of view, I cannot fathom what is fraudulent in such a situation.

This is a generality but fraud requires that a false statement be made - knowingly - with the intent to induce reliance on it. There is absolutely nothing fraudulent about a homeowner withholding better offers in a short sale situation. Now if the bank specifically inquires regarding other offers and they are told no other offers exist, that is probably fraud - a false statement being knowingly made to induce the bank to accept a lesser offer, which arguably damages the bank.

The fraud accusation is something that gets thrown around in the blogosphere quite a bit and in a cavalier fashion. I would estimate that 95% of the fraud allegations that I see in cyberspace are not fraud, and not even close to being fraud. It's a word that many use without understanding what it really is. No offense intended to anyone, of course - just my observations.

"There is absolutely nothing fraudulent about a homeowner withholding better offers in a short sale situation."

Quite possibly this doesn't meet the legal definition of fraud. Presumably the listing agent represents the seller, not the bank. But in this case, the bank (and the actual owner of the mortgage, and the taxpayer, who are the ones taking the loss) should have independent representation.

"Now if the bank specifically inquires regarding other offers and they are told no other offers exist, that is probably fraud."

I hope the bank does inquire. But even with disclosure, it's easy for an agent and/or current occupant to badmouth other offers, with little paper trail, and induce the bank to accept the "inside" offer. The fundamental problem is misaligned incentives.

I dont know if that is really fraud. If the banks dont do their own diligance, and just accept any random offer, it is the banks fault they didnt recover their $. The 'owner' is still the owner, they should be able to sell to whomever they want as long as the bank is willing to deal.

Now if people are lying or taking kickbacks (undisclosed) or doing something else similar, than that is fraud.

DaCounselor wrote:

This is a generality but fraud requires that a false statement be made - knowingly - with the intent to induce reliance on it. There is absolutely nothing fraudulent about a homeowner withholding better offers in a short sale situation.
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I believe you are an attorney, so your definition might be technically different from those of us who question the ethical nature of these deals. Here are some other definitions for fraud:

Fraud encompasses an array of irregularities and illegal acts characterized by intentional deception. (280.01.1)

http://www.indiana.edu/~iuaudit/glossary...
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Noun
S: (n) fraud (intentional deception resulting in injury to another person)
S: (n) imposter, impostor, pretender, fake, faker, fraud, sham, shammer, pseudo, pseud, role player (a person who makes deceitful pretenses)
S: (n) fraud, fraudulence, dupery, hoax, humbug, put-on (something intended to deceive; deliberate trickery intended to gain an advantage)

http://wordnet.princeton.edu/perl/webwn?...
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Based on these definitions, the seller/listing agent who does not present the best offers to the lender is committing fraud. There is an implicit assumption on the lender's part that they are being presented with the best offers.

The lender/TAXPAYER is the one taking the loss, so the seller should have NO say about who gets to buy the house.

If a seller is working with a particular buyer, and seeks to benefit that buyer (also possible kickbacks to the seller and/or agent) by not disclosing ALL the offers to the lender -- especially those better than the one agreed to, then that person is committing fraud!!!

If the lender is losing money (that is theft, BTW!!!!) because of such tactics, **AND ESPECIALLY WHEN TAXPAYERS ARE BAILING OUT THE FINANCIAL INDUSTRY** then that seller/agent is committing major fraud!!!

Look, I'm certainly no apologist for the lending industry, but we **taxpayers and innocent citizens who were not over-leveraged** are paying dearly for the actions of speculators and gamblers in the housing market. This needs to stop, and it needs to stop now!

Back on the letter-writing campaign again...

Wow Ca renter.
You use a lot of exclamation points.

You have a point in your frustration.
Your post is very similar to an email I sent to rich and to Kelly Bennett a year or so ago.

Unfortunately, the people making most of the decisions don't listen to either of us.

The argument that this is theft or fraud is kind of silly though. The people involved are all in the know and the only people getting involuntarily screwed over are the taxpayers. Honestly, the frustration I have with shorts is what led me to start posting here.

If you have a better idea I suggest you share it with people who, unlike me, actually make a difference.

I will support you and even help you.

Can someone give an example of this happening? I mean a buyer buying a house cheap via short sale and selling it for market value shortly thereafter? I can't imagine this is very common if it happens at all. Maybe on a fixer prop - but that's a different ballgame...

I know about 28 properties this year that were sold at a profit by one company. I don't know who all the individuals are that comprise this company and how many unknowns that are indirectly connected w/them.

I know for a fact that some were purchased on the steps w/a first that was much lower than 80% of the purchase price, more closer to 70%. These were purchased on the steps in a trust. Therefore, I don't know how many were purchased on the steps, just how many they sold. I don't know how many they are holding that they're trying to sell. This is just one company.

This one is not related to the company mentioned above, but it is something picked up earlier this year and trying to sell for a nice profit. Jackdaw.

There are many out there. Takes time to gather them up and track them, but way more than you think.

A seller may take any offer they deem as the best. Right now, an offer of cash probably carries more impact than an offer that based on a loan. Eventhough the cash offer is for a lower dollar amount. So, the definition of "best" offer may also come into play as well as any type of behavior that is fraudulent in nature.

Someone on SDL posted about a cash offer above asking that did not get accepted. I referred them to this thread.

"The argument that this is theft or fraud is kind of silly though."
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Agreed.

And unless the borrower signs a contract with the lender agreeing to disclose all offers, the borrower can present whatever offers they see fit. In fact, the borrower can present only the lowball offer from his brother and say take it or leave it to the lender - then the lender can evaluate whether it makes more sense to take the lowball or foreclose and become a property manager in a declining market.

I simply do not see anything fraudulent here. If the lender doesn't like the offer, don't accept it. Have a BPO done and see what the market says. It's that simple.

Withholding information does not equate to fraud. Does a lender commit fraud if they don't tell you that they can do the deal with no points instead of 1 point if you agree to the 1 point? Of course not. You don't like the deal, don't do the deal.

I under stand that some properties have been picked up at the Trustee's sales. I thought we were talking about short-sales. I may be able to help track them down, who is the company/individuals you are referring to jpinpb?

boomer - Lion Financial. I apologize for answering w/regard to Trust sales as opposed to short sales. Very difficult for me to get information on short sales, especially if it's cash purchase. I'm not a title person, nor do I have access to title information. I have access to NODs and foreclosures and have access to sales information when it's not a cash deal.

I am very certain that Lion probably attempts to get short sale properties as well as those they pick up at the steps. They do not purchase under the name Lion. They purchase under a trust. They have sold under the name Lion.

It's not such a new type of fraud. My parents sold a house in Tucson, AZ in 2005. They interviewed three real-estate agents.

Two suggested listing prices of $375,000 and $400,000. The third suggested a listing price of $599,000. We looked carefully at comps and thought $575 - $650,000 so they used the third agent just because the others seemed out-of-touch.

The house sold for $595,000 the first week.

Looking back we suspect those agents were attempting to buy the house for themselves or sell to an associate prior to listing. Indeed, one of them stood in the yard and proclaimed "this is a million dollar view" prior to suggesting the $375,000 price tag.

By that same logic, if you were a realtor representing an individual, and your brother made a higher offer, don't you have an obligation to disclose the lower offer to your client? I see no difference between a lending institution and an individual when it comes to the realtor's ethical obligation.

Correct.
The difference is who the client is.
While we have different duties, our fiduciary relationship is somewhat similar to that between a lawyer and their client. If I have an explicit relationship with a bank, then I will represent their interests vexatiously. This is part of the reason, I don't like to "double end" deals. Representing both sides splits loyalties. Extra money is no compensation for having clients who think you are cheating them.

Similarly, the bank has to give approval but is very much not my client. They don't pay me and they can't fire me. Generally, larger offers are irrelevant if the seller has already accepted one. I will always disclose that to the seller but the seller makes the final call on sending them to the lender. The lender usually has a number they want to see on the contract and they will insist before accepting the short sale. I have even mentioned higher offers and had the bank's rep say that he was not interested in offers that had not yet been approved by the investment committee. I think for them, as long as they get the ends they want, the uncertainty of a new offer is more costly than a known, approved quantity. I think this is due to the volume of these happening every day.

Again this is my opinion based on lots of experience.

what if you told the agent, look, get my lowball short sale offer through, and I'll give you an envelope with $10,000 in small unmarked bills after the transaction? is that kosher?