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
money.
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.
CONCLUSION
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…
Mohegan