Scam xSmall.jpgBy now most everyone knows that a short sale occurs where the proceeds from the sale of a property are less than the debt owed on the property. Short sales have seen rapid growth recently as both investors and lenders turn to them as a way to maximize returns over foreclosure sales. As short sales have increased, so have short sale scams. Therefore, prudent homeowners, prospective buyers and real estate agents should be vigilant to avoid short sale scams.

Some examples of short sale fraud schemes include:

  • Flopping. When a property is flipped illegally, it is sold for an inflated value in order to obtain a mortgage in excess of the property’s real value. When the seller, who is often in on the scheme, is paid at closing, the difference between the actual selling price and the loan amount is split between the fraudsters. When a property is flopped, it is usually owned by an underwater borrower who has asked the lender to approve a short-sale at a price less than what is owed. In this scenario, the fraudster, which may be the owner, real estate agent, or both, supply one or more opinions of valuation that show the property to be worth significantly less than its actual fair market valuation. When the lender agrees to take the lower price, the fraudster purchases the property in his name or that of a straw buyer, thereafter flips the property to an arm-length purchaser at a higher price than the one negotiated with the lender, and pockets the difference. Like flipping, flopping is the intentional misrepresentation of a property’s true market value. However, whereas flipping usually takes place when housing prices are rising, flopping occurs when values are depressed.

Continue Reading Flip, Flop – Beware Short Sale Scams

money.jpg“Short sales” deserve attention as we continue focusing on opportunities in a down real estate market. As you probably know, a short sale is where the current lender agrees to release property from the lien of the mortgage in exchange for less than the outstanding mortgage debt. Shorts sales gain popularity as owners owe more on their outstanding mortgage than their property is currently worth.

The devil is in the details with commercial and residential short sales. All parties to the transaction (seller/borrower, lender, buyer, guarantor(s)) should consider how to protect themselves with written agreements. This article will examine some of the critical terms that should be reduced to writing when navigating a short sale.

Essential Contract Terms

A short sale comes to life when a contract for sale is executed by the seller/borrower and buyer.  At a minimum, the contract should clearly state that the transaction is a short sale and provide 

Continue Reading Short Sales: Don't Sell Yourself Short

I came across an article by Lora Shinn entitled “5 Buyer Mistakes in a Short Sale.” Number 3 on Shinn’s list is “ignoring legal and insurance information.” Although I agree with the author’s list, the list focuses more on the physical attributes of a short sale property than legal issues (specifically title issues) that are often overlooked until they become a problem — either just before closing when such problems can cause further delay, or worse yet, after closing when they can become a legal and financial nightmare. I would like to expand on the buyer’s mistake of “ignoring legal information” while being blinded by the seemingly “good deal” they are getting.

Continue Reading Short Sales and Judgment Liens: Unforeseen Issues