False comps? Fraud?

[Bugs]

Yeah, they borrowed the $30k all right, but unlike the rest of the purchase price, this portion of the loan is not justified by the value of the home. The lender doesn’t realize what the true sales price was, and they’ve overencumbered the property as a result of that ignorance. It’s as if they issued an unsecured $30,000 credit card, except they don’t realize they’ve done it.

[lniles]

Not a smart move on the part of the buyer, but as we already know some of the buyers out there are not using the best judgement. Unfortunately they rely on the realtor to do all the thinking, and all the realtor is thinking about is commission. He doesn’t care the the buyer will be stuck with greater property tax and a greater mortgage debt.

The house next door to the one I mentioned before is owned by people in “financial distress” and will likely sell at a loss.

[SD Realtor]

I am not one to question your sources of information but there was no MLS information on 7947 Prairie Shadow. According to realist that address doesn’t exist. There is a listing at 7943 that sold recently for 700k. It originally listed at 689k flat and then repriced to the old value range of 669k-700k. It sold for 700k. If the seller told you he gave back 60k then so be it, I will not question you about that. However this is not a case where there was a sales price that was way above the listed price of the home. The home was financed 100%, a first and a second from our friends at New Century.

[SD Realtor]

I know this makes me sound like a homer for the industry which I am really not. However I want to analyze some of this more in depth. Hopefully other agents, appraisers and others can correct my analysis where I am wrong.

– First off call me stupid…. Lets go to the example where a home sold for 500k but the buyer didn’t have the downpayment… if someone cannot afford the downpayment, if they are getting the money back from the seller AFTER closing, how did they get the escrow to close at all? I do not see how the transaction would have made it through underwriting.

Bugs, SDA you guys have any comments on that?

Okay so following the logic posted, the buyer would instead get a loan for 530k and get 100% financing, and then out of escrow after closing the seller would cut the buyer a check for 30k. Hmmm… Okay well why wouldn’t the buyer simply buy the home for 500k at 100% financing? Why would the buyer incur a higher property tax assessment, why would the seller possibily incur a higher cap gains tax (if it was an investment property)?

Alex good for you for spotting that trick the Realtor was trying to pull on you. Pardon my skepticism but I don’t believe it would have ever worked anyways. If the house was selling for 700k then the most most most you could have got back would have been 21k as a credit. I don’t see how underwriting would have passed this transaction through. Furthermore you would have had to be very careful how the verbage was in the contract.

Guys I am not saying fraud doesn’t happen because it does…and there are a TON of sleazy agents, even brokers and even appraisers… then go to the lending industry and oh man… talk about a can of worms… I am just throwing in my two cents… I applaud you guys for saying no to this sort of thing. I recall Powayseller told me someone close to her who was selling a home encountered a buyer who wanted to pull some shenanigans like this.

It is bad for the industry. My point here is that it really does not benefit anyone, buyer or seller. I am not trying to discredit or discount that it didn’t happen to any of you.

SD Realtor

[no_such_reality]

I do not see how the transaction would have made it through underwriting.

You ask this question when the television news shows document New Century loans with blank income statements and no assets?

Okay well why wouldn’t the buyer simply buy the home for 500k at 100% financing? Why would the buyer incur a higher property tax assessment, why would the seller possibily incur a higher cap gains tax (if it was an investment property)?

Fraud prereq. You have a home that won’t sell at $500,000. Probably won’t sell until $470,000 or less with a qualified buyer.

Fraud 101. The buyer wants house and boy would a new $30,000 toy, like a new truck be nice. With his cruddy credit, when’s he ever going to a loan for a new truck?

Fraud 102. The seller has a home he can’t unload for the last 180 days, there are other similar houses around that can’t get sold and they want the same or even less, along comes buyerman who will give me the whole amount…

Fraud 103. With a $500,000 capital gains tax freebie for living in it, as long as seller man doesn’t trip that, he and his wife are fat dumb and happy. As for the buyer, $30,000 now for $300/yr later. Psst, I doubt he even thinks about the tax bill anyway.

Fraud 104. Every is on the take. Seller makes $30,000 more than he would and doesn’t have to wait, buyer man gets $30,000 for his new toy, and Agent man gets the sale that wouldn’t occur and gets $32,000 commission to carry back to his brokerage, maybe more if the co-op was fattened to keep them happy.

[SD Realtor]

no such reality – thanks for the fraud lessons. I already understand the definition. I am hopeful that someone within the industry can give me some perspectives from their experiences. Also if you look at my questions they were not querying the income verification or asset verification, they were questioning the 3% cap that is a pretty tough nut to get around.

sdr, bugs, sda, jim k care to comment?

It just seems to me that everyone here is making this sound like it is the norm and that it is very easy to do, that everyone is in cahoots and I am saying that is not the case. Again, I don’t discount that agents may not have tried to pass this on to some of you. However I still maintain it is a high likelihood it would not have worked.

I guess I am stupid.

SD Realtor

[lniles]

Nobody who is here reading this blog (this far into it anyway) qualifies as “stupid”.

Let me drive by this evening and double-check the address again. But I know for a fact they sold it and moved because I live in the neighborhood and witnessed the for-sale/in-escrow/sold/moving-out and everything. I also know the inside scoop from the seller. Unfortunately I don’t have access to the MLS database and am relying on zillow.com for the comps and so on.

They may have listed it for $689k but their low-ball limit was $640k. They certainly did sell for $700k and give $60k cash back. He still made money, since he bought in 2004 I think. It went like this:

Fraud 101: House sits for sale for months with no offers and minimal prospective buyers.
Fraud 102: Realtor shows up with clients with the “cash-back” deal offer.
Fraud 103: The seller wants out and this is the only offer he’s received, so what the heck? He expected to get around $640k anyway and doesn’t care how stupid the buyer is for getting into this.
Fraud 104: Now all the other houses for sale in the neighborhood are using his $700k sale price as a comp!

[SD Realtor]

Yep you are right about the other realtors using the 700k as a comp and that really does stink. The home is definitely the 7943 address. It was listed with Coldwell Banker in the fall for 120 days at 669-689k. The listing expired and got relisted with Coldwell at 689k.

Now here is where it gets bad. The day before the agent moved the home from active to pending status, he repriced the home. So that is something that raises my eyebrows.

So really what you should ask the seller is this (as I did not doubt what you were saying was true)…

1 – Did the realtors know about this out of escrow transaction?

2 – Did the appraiser and mortgage broker know about it?

3 – Was it mentioned anywhere in escrow?

I would imagine at least answer 1 will be yes which is pretty darn sad. The seller is lucky to find a buyer who is such an idiot.

SD Realtor

[FormerOwner]

In Temecula/Murrieta, this is happening ALL THE TIME! In addition, a lot of houses are being flipped at increasing prices in a down market. By being nosy and looking at information available online, I now believe that it is happening often enough to skew the median sale prices significantly. I’ve looked into a few neighborhoods and found “anomalies” in most of them. I’m going to stay out of the housing market until I am convinced that this has all blown over. It’s going to take a long time since such deals are still being funded. I think the remaining subprime lenders must be trying to bleed every last cent out of the housing market before they go bankrupt. The CEO’s will get their bonuses and the loan officers will get the commissions and they will keep on doing it until they get shut down.

Here are some examples. A friend of mine was asking how much her house was worth and I spotted some “anomalies” in that area by looking at the sales history on Zillow and the comps in the Press Enterprise. I don’t think either one of these houses would sell for anything over the mid 500’s in the current market. In fact, MOST of the comps for these are in the mid 500’s. Also, I find it odd that both of these sold for the exact same price!

39644 Tamarisk St, Murrieta (3139 sq ft tract home)
$730,000 02-07-2007
$548,000 05-01-2006

39599 Tamarisk St, Murrieta (2913 sq ft tract home)
$730,000 11-28-2006
$615,000 03-31-2006
This one is currently on the market as a short sale for 600K, dead lawn and all. It will be interesting to sell how much it sells for – this time. AMAZING!

[sdrealtor]

SD R,
Never heard of the listing agent but the funny thing is that I recognize the buyers agent as an advertiser on bus benches along Mira Mesa Blvd. I also checked the realist information and when I see names I cant pronounce it makes me nervous.

[SD Realtor]

hahahahahah…. sdr I was gonna put that in the posting but I didnt want to make fun of him but yep yep yep… old bus bench eric d… I am glad you got that….I bet ANautica knows who we are talking about…If you ever shop in the vons in MM you also get to see him on the shopping cart…

It is only a guess but I think he also did the loan for the buyer… SD Realtor

[SD Realtor]

Can’t argue with you guys on this one either. I guess I just take the stand that I do because it just seems so wrong and lame. Several weeks back I posted about an offer I received for one of my listings that came in from a mortgage broker that smelled fishy to me. I advised my client to walk and he did… It was not as bad as some of the cases you guys brought up, but they came in full price and wanted more then 3% in credits because they said they wanted to make the home handicap accessible. Anyways it is what it is and it sucks. All I can say is good for all of you who didn’t fall for it and it sucks that comps do get affected by this sorrowful behavior.

SD Realtor

[lniles]

SDR You’re right, the address is 7943. Sorry for the wrong address posting before. And thanks for looking it up on the MLS!

[Ozzie]

Why would anyone advise a client to walk from an offer with cash back unless the net price was unacceptable? It’s completely legal to offer cash back to the buyer as long as it’s written into the contract and the lender is aware of it. When lender’s send back their approval conditions they will include a provision saying that sellers can offer a maximum of “X%” back to the buyer. I’ve seen 10%, 6%, 3%. Heck I’ve seen 30% on a $10,000,000 land purchase where the developer needed the money for entitlements.

The problem with working with Realtors is that most aren’t creative enough to get a deal done when confict arises so the easy thing to do is walk away. Realtors should spend a month working with a developer trying to purchase land and they’d gain a new appreciation for creative negotiations and financing. Most agents are so stuck in their ways that they automatically raise a red flag if they see something new. In the end it can hurt their clients’ bottom line.

[no_such_reality]

Heck I’ve seen 30% on a $10,000,000 land purchase where the developer needed the money for entitlements.

I think everybody’s point here is that the real purchase price of the above was $7,000,000. The 2nd point is those cash backs should all be disclosed and aren’t.

Hence what is really happening in many cases, the above is being listed as a $10,000,000 sale with no information on cash back and the lenders often are kept blind too.

[Author]

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