Short Sale Facilitators - Helpers or Hucksters?
Imagine you own a home, you’re upside down and falling behind. Maybe you have to move for work or family, maybe you lost your job…maybe your trouble is more obscure. In any case, you’re in a pickle.
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Then imagine you’re approached by a real estate “investor” who promises a solution to your issues. “I’ll write an offer,” they say, “to get the ball rolling.” Then they offer to put the home back on the market to try to find a buyer. Your angel “investor” says, “If I can sell it for more, I’ll pocket the difference…”
You’re going to sell short or be forced into foreclosure anyway, right? What can it hurt?
The answer? A lot.
Just to avoid any confusion, let me say right here that there are legitimate short sale service providers that are offering real honest-to-God help to people in a pickle. And then there are folks that are…well…not so helpful.
Consider the following scenario:
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?
Annie Fitzsimmons, attorney for Washington Realtors, opined:
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.
…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.
What’s the moral of this story? First of all, if you’re in a situation where you may need to attempt a short sale, please seek the help of a trustworthy real estate professional and an attorney. Secondly, if you’re approached with a situation that seems fishy, never sign anything until you have the paperwork and/or scenario reviewed by a professional.
June 20th, 2009 at 7:06 pm
“please seek the help of a trustworthy real estate professional ”
Such as a RE Agent?
Like the one who sold you the property and got you into the option ARM with promises of rising RE values based on historical proof!
How about you give us some examples of the RE agent who takes the short sale listing….fumbles the ball…and it results in a foreclosure? Plenty of those out there.
RE Agents submit incomplete short sale packages all of the time. They cause delays. They don’t follow up with the banks. And the house goes to foreclosure because they had no idea how to complete a short sale or the time required to do it properly. That happens everyday/
Tell us about these stories. Because those situations are in every county in the country.
To Annie Fitzsimmons…try again…Fraud? When the bank has full disclosure about the intentions to resell the house at a profit. Bank knows all about it. Full disclosure equals no fraud.
June 21st, 2009 at 9:43 pm
Kevin, thanks for your comments.
Yes, if you’re facing a situation where you need to attempt a short sale I’d suggest you speak with a professional such as a real estate agent as well as an attorney well versed in real estate law.
In the event you cannot afford an attorney, I’d refer you to the previous post where legal aid may be available to you through the Washington State Bar Association.
Notice that we didn’t say, “the first agent you run across with a pulse” or “the Realtor most closely related to you” or “that guy who’s face you see regularly on your shopping cart”. Any of those agents may turn out to be a trustworthy real estate professional, but I’d recommend an interview before making your selection.
I’d recommend that you don’t use an agent with whom you feel uncomfortable or who pushed you towards a risky loan product in the past. Generally, it’s best only to accept advice on loan products from mortgage professionals and decisions should be made based on careful evaluation of the circumstances and in consideration of your overall financial goals.
It’s also worthwhile to note that, historically speaking, real estate prices did tend to rise. The stats I read indicated that the 100 year trend line rose at 3.5% annually, the 50 year rate came in at 4.4%. Of course there have been declines in past recessions, but the exponential increases over the past few years are as unusual - historically speaking - as the precipitous decline we’re seeing now.
Certainly, most people would have behaved differently over the past few years if they had known the circumstances they were to face in our current national economy.
Thanks for your suggestion on potential pitfalls on short sale transactions when working with an inexperienced agent. I suspect that your assertion about incomplete short sale packages is accurate. It is surely true that mistakes are made daily by many people in myriad industries. There are good doctors and bad doctors, good teachers and bad teachers, good short sale negotiators and bad short sale negotiators…you get the picture.
I don’t know if Ms. Fitzsimmons reads our blog, but I’ll leave her to respond to the comments directed at her if she so chooses.
Again, thanks for your comments and have a nice day.
June 21st, 2009 at 11:23 pm
Thanks for the reply.
There are also very good short sale services and real estate investors out there.
There are plenty of RE Investors who not only help homeowner avoid a foreclosure BUT they also do it with full disclosure to homeowner, agent AND Lender. Andmany of thise short sale services and investors step in after an agent has made no progress on a short sale with the bank.
We just finished one in California. The agent had the listing for over 5 months. Agent was not following up with the bank. We stepped in with only 17 days until the foreclosure date. We got it done in less than 2 weeks. We, as RE investors, saved the homeowner from foreclosure and bailed out an unmotivated RE agent. The agent did not handle the situation correctly. Without us the homeowner and the bank would have had a foreclosure.
I was not happy with the broad generalization of RE Investors I read here especially the comments by the attorney. When there is full disclosure with the lender there is no fraud.
We all know the banks are a mess right now. They have billions in bank owned property. The SS process is a mess too. They sure don’t make it easy. However, SS negotation services and RE Investors can be a very big part of the solution. Not only helping the homeowner, but also helping the banks and many agents(who simply don’t have the time or ability to have a high success rate with short sales).
June 21st, 2009 at 11:48 pm
You’re absolutely right that there are short sale negotiators and investors that are doing good things for sellers, banks and agents! There are also real estate agents that are doing good things for sellers, banks, and investors. Then, as we both know, there are investors, negotiators, and agents that aren’t - shall we say - helping the reputation of our occupations!
In our last short sale situation we represented the seller. The seller’s previous agent was unable to get an offer accepted. Then the seller was approached by an investor who wasn’t able to get an offer accepted. Finally, after several months of educating the bank about the value of the home after we took the listing, we got an offer accepted by the bank and brought it through to successful closing. The seller and bank avoided foreclosure, the buyer got the place they wanted, and we all lived happily ever after.
I’m not an attorney, so I can’t address issues of legality. I do know, however, that the name of the game in real estate is disclose, disclose, disclose.
I fear that we have a bumpy ride yet with short sales and foreclosures before the real estate market rights itself. In the mean time, it’s going to take the work of a lot of dedicated negotiators, investors, agents and attorneys to help folks get on with their lives as best they can.
Good luck!