Short-sale flopping scams: when will it stop?

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Submitted by SD Squatter on November 19, 2012 - 4:25pm

With San Diego inventory at all time lows, I find it disturbing that short-sale flopping is still happening right in the open:

http://www.redfin.com/CA/San-Diego/10782...

  • 1-minute midnight listing at way-below market price marked pending check!
  • Crappy pictures with discouraging description check!
  • Agent not answering phone, nor accepting other offers check!
  • Listing agent also representing the buyer check!
  • The bank not giving a ... about it check!

When will it stop?

Submitted by bearishgurl on November 19, 2012 - 4:31pm.

It will stop when the lenders stop getting paid by the PTB to play this game and not one moment sooner.

Submitted by flu on November 19, 2012 - 4:33pm.

NLD...

(Never.

Life ain't fair.

Deal with it.)

Submitted by bobby on November 19, 2012 - 5:31pm.

not sure what flopping is (except in soccer).
can OP please explain.

Submitted by spdrun on November 19, 2012 - 9:34pm.

Flopping = using dirty tricks to get a bank to accept a SS for much less than real value. Once it's re-sold by the buyer, the listing broker may (or may not) get a kickback from the buyer.

Submitted by outtamojo on November 20, 2012 - 1:51am.

spdrun wrote:
Flopping = using dirty tricks to get a bank to accept a SS for much less than real value. Once it's re-sold by the buyer, the listing broker may (or may not) get a kickback from the buyer.

I hear from 2nd and 3rd hand
sources that some realtors form investor groups and take turns giving each other's investor group short sale bargains while completely shutting out real buyers with higher offers. Yeah I know- boo hoo cry me a river....

Submitted by SD Realtor on November 20, 2012 - 8:42am.

It is really unfortunate. The most common scheme happens as a flip. That is, the seller accepts a well below market value from some buyer who is simply going to flip the home. More often then not the offers are cash offers to help justify the lower price. Generally the listing agent either has a deal with the buyers to represent them after the rehab is done so that they can list the home and get that commission.

If the servicing organizations did a comprehensive appraisal before authorizing the short sale, then they would not accept the low offer and demand full market value for the home.

Submitted by Blogstar on November 20, 2012 - 1:45pm.

I have seen some short selling to family members and friends. Not a lot, but I don't get out much either. Double commission for realtor...just the same.

The banks probably turn a blind eye to these things because of the high close rate.

Submitted by SD Squatter on November 21, 2012 - 11:54am.

I think it's ridiculous that banks accept such obvious fake attempts at salesmanship as legit. It's right there in the open, all it takes is to look at the listing.

Submitted by flu on November 21, 2012 - 12:04pm.

I think folks need to decide whether you can live with the ethical issues versus getting slim shady deals.

If you can live with the ethical issues, I'd suggest finding a shady RE agent and get in on the shady deal..

No point in getting all bent out of shape because some people are essentially stealing homes...Either decide if you're in or out..

Just like no point in griping over people that HELOC'ed the hell out of their home and can stay rent free in their places for a few years...

It's what it is...

Morale hazard? No such thing...Except for the people that have morales...

Me? I'm out.I have no recommendation, because I don't deal with slim shady people...

FWIW: based on some more recent observations... Banks aren't nearly as dumb as they were a year or two years ago.. I've been seeing some short sales that end up being comparable to FMV these days... Just look at Mira Mesa.

Submitted by spdrun on November 21, 2012 - 12:24pm.

Moral issues aside, if you get caught you could end up being sued or even prosecuted.

Submitted by flu on November 21, 2012 - 12:30pm.

spdrun wrote:
Moral issues aside, if you get caught you could end up being sued or even prosecuted.

Agreed. But doubt that will happen....

Submitted by outtamojo on November 21, 2012 - 12:29pm.

Nobody seems to care about the obvious paper trail
these shady deals leave behind for eternity- I wonder why.

Submitted by spdrun on November 21, 2012 - 12:46pm.

Once the statute of limitations expires, what does it matter?

Submitted by bearishgurl on November 21, 2012 - 1:00pm.

SD Squatter wrote:
I think it's ridiculous that banks accept such obvious fake attempts at salesmanship as legit. It's right there in the open, all it takes is to look at the listing.

They don't CARE because they're being paid (or are going to be paid) for the defaulted loan by the PTB. They are planning on giving any jr lienholders <=6% of what they're owed ... or nothing. Their mindset is, "Take it or leave it. Foreclose yourself."

The "sellers" listing agent is only required to furnish the 1st TD holder (who will approve or not approve any SS offers) with a "legitimate" MLS number. They do not usually prove their "marketing strategy" because they were actually hired by the "sellers" and have no fiduciary relationship to the sellers lender. A MLS number is assigned to the property when the LA "markets" it online in the MLS at midnight for a minute and a half, at which time he/she e-mails the "online listing" to the defaulted-upon lender (or prints it out for later use).

When LA's friend or relative's cash offer is miraculously presented to the lender the next day, the LA has used sold comps in their SS pkg that may be in the same zip code but are not legitimate comparables to the listed property sought to be deeply shorted. They may be of comparable sf but that is where the comparison stops. They are on busy streets, in much worse shape, are lacking garages, have unpermitted additions or have structural problems found by buyers' inspectors which caused them to be sold for much less. A distant lender doesn't know the difference and accepts the deeply shorted offer to get rid of the "deadbeat" sellers whom they have let squat for months/years. In doing so, the lenders themselves have created their own problem and were complicit in the depth and breadth of how bad they allowed the problem to get.

I'm not currently active but this is my take on how a lender (usually distant and ignorant of the local market) is bamboozled into accepting an offer >=40% below market. Even if they order a "local broker opinion" before accepting offers, they are not completely in control of who that broker is and their relationship, if any with the LA. In each micro-market, most of the longtime brokers and agents are VERY well acquainted with one another and some even know each other from as far back as HS! A distant lender is in the dark about all this and just wants to get the deal done and get out of it.

There is a house a couple of blocks from me that sold for ~$620K in 2006 to a buyer whose family owned a quarry. Not only did the "sellers" do extensive iron and stonework inside and outside of the property, it was situated on a 10K+ lot and the extensive work done to it in recent years was really quality. The LA (a relative of the "sellers") took pictures of a flooded easement that was NOT part of the property, set the sellers (and the neighbors) trash, recycle and yard waste bins in the front and lined them up in a row so as to block the stone facade on this ~100' wide perfectly flat lot. Then they took two more photos of a deep hole dug in the unfinished backyard. Of course, no photos were shown of the fabulous granite kitchen with 12' island, floor to ceiling stone FP and extensive wide-plank rustic wood flooring. Of course, those listing photos (mentioned above) were only displayed online in the MLS for a day. Miraculously, the property sold for $265K all cash in 2011 after a 22-day closing to a person who didn't have the same last name of the "seller" but was likely another one of their "relatives." The "sellers" still live there today. Obviously, they are now "renting" the property they used to own (and worked so hard on) from the new buyer. Maybe they are finishing the improvements in lieu of rent :=0

The subject's lot alone (if vacant) was worth more than $265K. A property next door to the subject is worth approx $1.8M.

This type of fraudulent transaction deeply harms the value of the surrounding properties, at least for the six months the appraisal stemming from the bogus SS is used as a "sold comparable." In this case, the surrounding properties varied widely in value from $400K to $2M. Until the PTB will no longer make up (or come close to making up) the short difference to 1st TD holders of FF mortgages, this travesty will be allowed to continue.

Submitted by CA renter on November 22, 2012 - 2:03am.

FWIW, I called the FBI quite a few years ago regarding these short sale scams. They flat-out told me that they didn't think it was prevalent enough, and that they didn't have the resources to follow up on this type of crime.

It sucks, but there it is. Crime really does pay. :(

Submitted by spdrun on November 22, 2012 - 7:42am.

Why bother calling the FBI? Reduced comps are good for ALL buy-to-rental investors . Enjoy it while it lasts, and kick the bums out!!

Submitted by scaredyclassic on November 22, 2012 - 7:50am.

FBI is busy closing down medical marijuana clinics. call back later.

Submitted by bearishgurl on November 22, 2012 - 11:10am.

CA renter wrote:
FWIW, I called the FBI quite a few years ago regarding these short sale scams. They flat-out told me that they didn't think it was prevalent enough, and that they didn't have the resources to follow up on this type of crime.

It sucks, but there it is. Crime really does pay. :(

In my example, this Chula Vista family simply borrowed too much off their property in order to vastly improve it. Most of of their cash-out refi/HELOC went into the property. The property was WORTH spending that kind of money on but they should have done the improvements slower, as they had the cash.

But it worked out so that their family had enough "connections" to get a family member to list it as a SS and another family member standing in the wings to quickly purchase it all cash and lease it back to the "owners" who were about to lose it.

The end result is property stayed in the family and essentially had 70-75% of it's debt stripped from it! Wa-laa! All those expensive materials (aside from the "free" stonework from the family biz) were for free, they got a ~2500 sf rambling ranch cosmetic fixer for free and essentially just paid for the large flat lot in a coveted area.

How's that for self-serving machinations (and no one even had to file for BK protection)?

Moral hazard or effect on neighbors values be damned!

Happy Thanksgiving, Piggs!

Submitted by bearishgurl on November 22, 2012 - 11:23am.

spdrun wrote:
Why bother calling the FBI? Reduced comps are good for ALL buy-to-rental investors . Enjoy it while it lasts, and kick the bums out!!

The problem, spdrun, is that the "bums" aren't "kicked out." Many have been allowed to stay in "their" homes for free for 30-60 months. Then, instead of filing a notice of default, their first TD lenders try to do a "workout" with them. When that (invariably) doesn't work, they are receptive to accepting a short payoff. The "bums" put their properties on the market in ANY condition because they DON'T CARE how much they get for it or how long it takes to sell it (remember, they're living for free). After its finally sold, that "short sale comp" often comes out 20-60% lower than comparable neighboring properties are worth and sometimes just land value (as if the property was a vacant lot).

Piggs (as a microcosm of RE buyers in the general public) have been lamenting about lack of decent inventory to choose from for at least the last 20 months. The lack of inventory is a direct cause of too many recent sold comps from REOs and primarily short sales which were fraudulently sold FAR under what the property was worth ... in ANY condition ... and even FURTHER under build cost.

As a nearby homeowner to these shenanigans, if you didn't HAVE to sell, would YOU put your property on the market with surrounding sold comps which were (often fraudulently) very deeply discounted?

Submitted by spdrun on November 22, 2012 - 11:27am.

Neighbors' values? Low housing values are a good thing in the long run. They allow Gen-Y folk to buy in comfortable areas and derive rental income, while kicking the butts of X'ers and boomers who overpaid anyway.

In short, people who rode the gravy train too long are getting the shaft and it's karmic justice in my book. <3

And yes, a lot of the properties that are available are in poor shape. But if they end up sufficiently cheap, they can be fixed up -- investing should be about sweat equity AS WELL AS passive activities.

Submitted by bearishgurl on November 22, 2012 - 12:23pm.

spdrun wrote:
Neighbors' values? Low housing values are a good thing in the long run. They allow Gen-Y folk to buy in comfortable areas and derive rental income, while kicking the butts of X'ers and boomers who overpaid anyway.

In short, people who rode the gravy train too long are getting the shaft and it's karmic justice in my book. <3

And yes, a lot of the properties that are available are in poor shape. But if they end up sufficiently cheap, they can be fixed up -- investing should be about sweat equity AS WELL AS passive activities.

Why do you think "Gen Y folks" should be entitled to buy only in "comfortable" areas? Do you think their predecessors all bought their first properties only in "comfortable" areas? How about their second property??

spdrun, I don't know how it is where you live, but in CA coastal counties, residential properties have traditionally been arranged in a "caste system." Those who bought at a fair price for their particular buying era, kept the maintenance of their properties up over the years, made any necessary improvements, made all their mortgage payments on time and/or bought and sold sequentially buying a little higher-priced property each time were rewarded with a small, moderate or large profit when they finally sold. The size of this profit depended on area of property and amount of sweat equity the owner sunk into the property. Mortgage interest rates only had a low to moderate effect on home sales volume.

Except for the most highly-desirable areas (usually <5 mi from the coast), sweat equity was necessary to make a profit upon sale.

It isn't the "boomers" who need "karmic justice." It's primarily the X-ers who rode that gravy train too long and its not entirely their fault. The long "gravy train problem" is entirely the fault of lender malaise. And MANY X-ers were advised by boomers and beyond NOT to buy during the millenium boom and they did so anyway, in fear they would be "shut out of buying a home forever."

And your brethren, Gen Y, in general, does NOT WANT to ENGAGE in "sweat equity" in any way, shape or form. At least not around here.
That is w-a-a-a-a-y too much work for them.

You seem to be a little confused, spdrun. The vast majority of "boomers" didn't borrow themselves into oblivion on their properties. Most took out their purchase-money mtgs long before the "millenium boom" and they didn't need to borrow any more ... ever. They now deserve to get a "fair price" for their properties (considering all the improvements they have made over the years) so they can retire somewhere less expensive and not be a burden on YOU!

A young adult in the US is entitled to WORK in a job they are qualified for. They are NOT entitled to any more than that. Whatever they acquire beyond that (barring any trust funds they might have) is the result of THEIR OWN earning capacity.

That's the way it's always been.

Submitted by spdrun on November 22, 2012 - 12:55pm.

Sorry, but bubble-level prices were not "fair" by any stretch of the imagination. And people who bought during the 80s and 90s can still sell now and make a profit, provided that they didn't over-leverage. If they over-leveraged, they already DID pull out their profit. (i.e. cry me a river). So the smart boomers can still profit.

"Comfortable area" doesn't mean La Jolla. It means a reasonably safe area with amenities that's not 2 hr crawl in traffic from all decent jobs.

As far as Gen-Y folk, I know quite a few people on the East Coast who are buying, fixing, and renting out. They're smart, mechanically adept, and willing to work a bit to make a buck. I don't think that SoCal is all that different.

Submitted by CA renter on November 22, 2012 - 3:35pm.

spdrun wrote:
Sorry, but bubble-level prices were not "fair" by any stretch of the imagination. And people who bought during the 80s and 90s can still sell now and make a profit, provided that they didn't over-leverage. If they over-leveraged, they already DID pull out their profit. (i.e. cry me a river). So the smart boomers can still profit.

"Comfortable area" doesn't mean La Jolla. It means a reasonably safe area with amenities that's not 2 hr crawl in traffic from all decent jobs.

As far as Gen-Y folk, I know quite a few people on the East Coast who are buying, fixing, and renting out. They're smart, mechanically adept, and willing to work a bit to make a buck. I don't think that SoCal is all that different.

Agree with you, spdrun, that lower prices should be the goal. That's one of the many reasons we refused to overpay for our house. It wasn't just because we wanted to pay less; we also wanted to set a low comp for the next group of buyers. After "bubble-sitting" for eight years, it was frustrating to watch idiots overpay AND include "seller concessions" in the price that would end up artificially inflating comps for the next set of buyers. This has a cumulative effect which is totally unfair to future buyers.

Submitted by bobby on November 22, 2012 - 6:51pm.

spdrun wrote:
Flopping = using dirty tricks to get a bank to accept a SS for much less than real value. Once it's re-sold by the buyer, the listing broker may (or may not) get a kickback from the buyer.

thanks.
happy thanksgiving. off to dinner now.

Submitted by bobby on November 22, 2012 - 6:51pm.

spdrun wrote:
Flopping = using dirty tricks to get a bank to accept a SS for much less than real value. Once it's re-sold by the buyer, the listing broker may (or may not) get a kickback from the buyer.

thanks.
happy thanksgiving. off to dinner now.

Submitted by ocrenter on November 23, 2012 - 8:36am.

unfortunately, once we got one of these realtor/flipper team going, game over for the rest of y'all.

I was recently talking to a flipper who was bragging about his 11 flips so far this year. how did he get 11 homes to flip when real buyers out there keep getting shot down? yup, this guy gets first dips on everything his realtor gets from the bank. you would think after may be the 5th transaction the bank would wise up to their game...

Submitted by CA renter on November 23, 2012 - 3:09pm.

Yet, some have argued that flippers don't push up prices or cause any problems for real buyers.

I've argued forever that flippers are a HUGE problem. It would be best if we could enact a windfall profit tax that would make flipping totally unprofitable.

Submitted by bearishgurl on November 23, 2012 - 4:16pm.

CA renter wrote:
Yet, some have argued that flippers don't push up prices or cause any problems for real buyers.

I've argued forever that flippers are a HUGE problem. It would be best if we could enact a windfall profit tax that would make flipping totally unprofitable.

I for one appreciate the work that these flippers do. Especially the work that shows from the street (ie landscaping, fencing, concrete work, roof, etc).

Flippers improve the "eyesore on the block" and in doing so, lift ALL boats. We aren't going to see any inventory to speak of UNLESS at least some of these boats are "lifted."

The avg Joe6p that is able to buy that same property (at the lower "fixer" price) as a personal residence can often barely afford to cover the (often old and stuck) windows with something other than a sheet or towel after closing and scare up a used lawnmower from CL to mow down the weeds (several weeks after moving in).

Flippers buy and quickly rehab run down properties (usually fmr rentals) that would not otherwise sell to Gen X and Y UNLESS the typical improvements flippers make are already done. These buyers have neither the time, money or skills (and if they do, they lack the desire) to make the needed improvements themselves.

It's so much easier for the young buyers to get an FHA loan, put 3.5% down and overpay for the "already flipped" house without having to put any additional cash in it to live in it.

Flippers provide a service to buyers and sellers alike. We can't assume that some of these rundown properties would sell to ANYONE but an experienced flipper team and/or gen'l contractor or lifetime handyman/carpenter.

Submitted by spdrun on November 23, 2012 - 4:33pm.

Strangely enough, it's the Gen Y folk that are rehabbing craptastic properties around here. Guess that East Coast people still expect to put in a bit of blood, sweat, and tears when they buy ANY house.

Submitted by SD Realtor on November 24, 2012 - 8:04pm.

Very well said bg.

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