Attny Respnse to me Using Land Trusts and Simul. Close as Realtor or Investor

The Short Sale Scam

The Players:

A “savior” who is a party with cash or access to cash, looking to make a fast, very
high return in his investment.

A property owner in financial trouble who is trying to forestall foreclosure by any
available mean.

A real estate broker or agent who is generally connected to the savior through
business or family ties and who stands to make commissions on the savior’s sales
of properties.

A closing attorney who is willing to look the other way and do what is necessary
to close for the buyer.

The Scheme
The savior advertises throughout the community in a manner calculated to reach
homeowners in financial distress. In some instances, these saviors monitor foreclosure
activity and contact the defendants directly, offering their “services”. The pitch is that
they can save the house from foreclosure by selling it, thereby saving the homeowners’
credit, getting them out from under the mortgage and sometimes generating a little cash
for the homeowners.
The savior then persuades the homeowners to convey the property to him, either directly
or “as trustee”, often representing to them that they will be allowed to remain in the
property. The savior will then immediately list the property for sale with the broker, who
sometimes already has a buyer waiting, often at full fair market value.
The rest of the scheme, where the mortgage fraud occurs, happens in one of two ways.
The savior may contact the lender directly, holding himself out as a representative of the
homeowners. He negotiates a “short sale” payoff for the mortgage by deliberately
misrepresenting the purchase price under the new purchase and sale agreement. Often,
there will be a “dummy contract” submitted to the lender, showing a lower price.
Under a variation of this scheme, the savior or his attorney contacts the lender,
representing that the savior is the buyer for a much lower purchase price than the actual
contract. A short sale will be negotiated on the basis of the savior’s “purchase price”,
although the savior already holds title and took it for no consideration.
If the lender decides to go along with the short sale rather than pursue the foreclosure, a
payoff letter will be generated for an amount that is less than what is owed, but for which
the lender is willing to settle and release the mortgage. Many of these payoff letters
reflect the sales transaction as it has been presented to the lender. While most contain a
dollar figure the lender is willing to settle for, some require that the entire net proceeds of
the transaction as reflected on the HUD-1 be paid to the lender. The lower payoff figure
in the context of the real fair market value purchase price can result in a substantial
amount of cash coming back to the seller at closing, which is not disclosed to the lender.
Depending on what the short payoff letter requires, the savior may “close” with the
homeowner on the deal presented to the lender, using the short payoff letter to clear the
title and generating a HUD-1 that shows all money from the “closing” going to the
lender. The savior will simultaneously go to closing with the real buyer to generate the money that will actually be used to payoff the mortgage. The savior then pockets the
money from the closing as a “fee” for helping the owner avoid the foreclosure.
In some cases, the savior will request the buyer’s attorney to “fold” the transactions
together, so that the HUD-1 reflects the homeowners as the sellers, with a commission 01
fee being paid to the savior for “services rendered”. The commission is often half or all
of the net proceeds left after payoff to the lender and payment of the other expenses of
the seller. Where the net proceeds are to be paid over to the lender, it will be a flat fee in
a substantial amount, that will show as a^seller’s cost on the HUD-1.

The Victims:

The lender who has agreed to settle its foreclosure action for less than the full
amount of the debt owed on the basis of fraudulent information. The real closing
often generates enough cash to pay the loan off in full.

The homeowner who may be left subject to a deficiency action on the promissory
note, and who lost all or a substantial portion of the equity in their home to the
“savior”. Without the interference of the savior, the homeowner might have been
able to sell their property, pay off their mortgage and walk away with some

How To Detect:
Be wary of any closing transaction in which a third party claims to have negotiated a
short mortgage payoff for the seller. Never close without a written payoff on the
letterhead of the mortgage holder. Scrutinize the payoff letter. If it isn’t based on the
terms of your closing, particularly the purchase price the buyer is paying, don’t close. If
you have any doubts about what the lender was told, call the lender. Remember, if a
fraud is perpetrated on the lender and is discovered, the mortgage will not be released and
the foreclosure action might be recommenced.
Never agree to prepare a HUD-1 that reflects anything other than the closing transaction
that will actually occur.

Mortgage fraud has far-reaching consequences. For borrowers, it can be disastrous, resulting in
loan default, foreclosure and loss of their homes and credit ratings. Many will never recover
their ability to buy a home. For lenders who are victimized by dishonest brokers, appraisers and
real estate agents, fraud can mean higher rates of default and forced repurchases of loans sold to
warehouse lenders and secondary-market investors. Many such lenders have already been
bankrupted and shuttered; others are on a “watch list”. Nationwide, lenders have been forced to
withdraw from the sub prime market, which has been the largest source of funding for low
income homebuyers and homeowners. A significant segment of the American population is
currently unable to access mortgage money to buy a piece of the American dream.

Her response to my claims were this letter and that me, discounting the property, simultanious closing, was Fraud… got mad at me for debating this and walked off saint i dont have time for this…

:evil :deal
How should I respond and debate this effectively…?
What can I do to be sure I dont fall into a legal trap and be sued for fraud like she says…
I even said what if im not trustee and / or if my name appears on no part of trust…
I said can you show me a law against it… she said its Fraud once again…

Who can contribute to this debate … I need this to strengthen my own fears… which she didnt help…
The last thing i want is to get nailed for helping a homeowner , short saling a property, and trying to sell for a profit…


Ah, heck. I have to leave town for a meeting today, so I don’t have time to answer completely. This is a good thread!

Yes, this scenario is what is taught in many short sale books, seminars, boot camps, ect. Most of the ones I purchased and experienced taught that this is the way to do short sales. I quickly learned the negative side to this.

My solution: I negotiate the payoff to a dollar amount that I can obtain enabling me to purchase the property myself, then do my rehab (if needed) and resell. There is nothing illegal about this because I use my own money, or borrowed money, to purchase the negotiated short sale. I do not use the end buyers funds and double close never having invested any of my own capital.

I never use the land trust, beneficial interest, ect. to secure the property. I use a simple listing agreement with a Realtor, who in turns assists me in finding the buyers. This also is not illegal, regardless of my relationship to the Realtor. Some states may require a disclosure if there is a legal relationship, like a family member.

The other thing is that I NEVER ask the homeowner for money. If I can’t do the short sale, then I don’t get paid. I don’t think it’s fair to make the homeowner, who is already financially strapped, to pay me money to do a short sale. Some say it’s for your time, I say, with the amount of money that’s made on a short sale I get paid enough for being successful. Besides, it makes me work harder.

I’m interested to see other points of view on this. I doubt however that those who still practice the way outlined in your post will speak up admitting they are breaking the law. But, I’ve been surprised before.

Because of all of the books, seminars, teachings in general that have been done over the past 20 years people still believe this is the way to do a short sale. The fact is, laws change for various reasons. These laws affect different things, in this case there are many laws that have been made in the past years that have affected the way one can legally do a short sale. Those books and teachings have not been updated… they just continue to sell.

I’m interested in hearing more about this also as I’m beginning to focus my investment activities on the foreclosure market. I’m somewhat confused by the attorney’s response that the homeowner’s equity is being stolen. I thought that properties weren’t typically considered candidates for shortsales if there was too much equity in them as the lender would rather take their chance at auction to recoup as much as possible. Aren’t most approved shortsales happening where there is little to no equity in the property? Isn’t the “equity” being created via the shortsale? In which instance I would argue the homeowner should not be receiving anything and I could see why the lender would have a major problem with this (i.e. I receive a mortgage for 100k, 2 years later I basically still owe 100k, someone negotiates a shortsale on my behalf for 80k and resells the property for the original 100k. How am I entitlted to any portion of that 20k?)

I guess I’m also confused about the selling of the property immediately versus later. If a double close versus a simultaneous close is used, does this make a significant difference other than the closing costs incurred? I realize that there could be potential seasoning issues, but couldn’t that still be the case if the property is sold after a rehab?

The other thing I wonder about is whether or not these properties are truly selling at market value. I know it’s not impossible, but my first thought upon reading the response was there would be no need for the shortsale in the first place if the homeowner could receive a full market offer in a timely fashion to prevent foreclosure. My thought is that most people facing foreclosure have probably considered selling as an option and if they could actually list the property and receive a suitable offer, once again they would not be in need of a shortsale.

Mohegan, I’m just as concerned as you and can’t wait to hear the responses to your post.

Does anyone else have anything to add to this?

I know you’re out there! Let’s hear your 2 cents worth!

Just a rule of thumb and a generalization: Fraud accusations come when you are taking people’s money under false pretenses. It is when you do not disclose what is happening and deliberately lead someone into thinking something else is going on while you relieve them of their money.

All you have to do is disclose. There are plenty of folks out there right now that are desperate enough that they are interested in a short sale to get out of their property.

If you have to trick the seller to get your business done, you are taking the risk that they will turn around and sue you. You also take the risk of being charged with a crime. Lying to a person in order to take their money away from them is generally against the law, expecially when it involves large sums of money.

I am an attorney and real estate broker who does my own short sales and I used to get a lot of similar resistance from other attorneys but short sales are so frequent now that attorneys are usually better at understanding which transactions are fraudulent and not. The Massachusetts AG has enacted some regulations against the fraudulent schemes and are clearly outlined on her website, so that makes it a bit easier in this state for us. I usually just send them the link to the AG regs and explain exactly how I was in compliance with the regulations. I even tell them to call the AG to ask about the deal if they were uncomfortable.

A key problem with the letter that she wrote you was that it implied that you were going to flip the property to a buyer at “full” market value, which would appear to be at or above what is owed. But the property owner would never have come to you in the first place if they could have sold it through traditional methods. It is the bank’s responsibility to assess the value and as long as you are not artificially deflating the value, I don’t see the problem with it.

Lawyers tend to be very risk averse and uncomfortable with anything out of the norm. You should have your own attorney who understands short sales who can call reluctant attorneys on your behalf and explain the legality of what you are doing.