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Short Sale Scam is Everywhere and Unprosecuted

By Patrick   2013 Jan 8, 11:26pm   4,786 views   28 comments   watch (1)   quote      

I was talking to a friend yesterday who told me that is normal for underwater owners to block offers that don't give themselves a large illegal kickback.

Say an owner borrows $300K to buy a house for $400K. Then reality hits and the current market price of the house falls to only $250K. The owner is then underwater, meaning his loan ($300K) is larger than the current market price of the house ($250K).

So the owner has zero equity, and is stuck, right?

Nope, all he has to do is convince the bank to take an offer of $200K. Then he can sell the house for the current market price of $250K to any buyer willing to split the payment into $200K for the bank, and $50K illegally under the table in a suitcase to the buyer personally.

So the seller blocks good offers and gives a bad price to the bank, in order to walk away from an underwater house with $50K in his pocket, instead of the $0 that he is supposed to get.

It's just bribery, but it is normal now, and if you're a buyer who won't also break the law along with the seller, your offer will be rejected no one is going to tell you why.

This is another reason why there should be a law that all offers on real estate should be publicly listed for everyone to see.

#housing

Comments 1-28 of 28     Last »

1   lostand confused   225/225 = 100% civil   2013 Jan 8, 11:35pm  ↑ like (1)   ↓ dislike   quote    

In many Asian economies, this is the norm. In some countries, the "underground" economy is as big, if not bigger than the "declared" economy. Although with a lot of the illegals and other small business, there is a significant underground economy in some states. If this practice becomes the norm, we will have a huge underground economy.

2   Tenpoundbass   994/996 = 99% civil   2013 Jan 8, 11:51pm  ↑ like (2)   ↓ dislike (3)   quote    

lostand confused says

In many Asian economies, this is the norm. In some countries, the "underground" economy is as big, if not bigger than the "declared" economy.

It was that way in this country before Clinton forgave all of the underground tax cheats, as long as they filed beginning that year. I suspect Obamacare is going to create an even bigger underground economy than that one Clinton fixed.

3   elliemae     2013 Jan 8, 11:56pm  ↑ like (5)   ↓ dislike (2)   quote    

CaptainShuddup says

It was that way in this country before Clinton forgave all of the underground tax cheats, as long as they filed beginning that year. I suspect Obamacare is going to create an even bigger underground economy than that one Clinton fixed.

It's all President Obama's fault. It only took two posts to get there.

4   zzyzzx   571/571 = 100% civil   2013 Jan 9, 1:47am  ↑ like   ↓ dislike (1)   quote    

In your scenario, why would the buyer be willing to split the payment unless they are getting a discount?

5   gbenson     2013 Jan 9, 2:08am  ↑ like   ↓ dislike   quote    

I have been involved in quite a few short sales, all with no buyers agent, which I would think would open up my chances for seeing this type of behavior more, and I have yet to hear of this. I doubt its as prevalent as your friend makes it out to be.

Additionally, with today's short supply, which by law have to be presented to the bank, so you'd have to have multiple buyers colluding to pull this off now. Or if they overprice the property to keep buyers away, then it would never get past the BPO.

A lot of things would have to happen exactly right in order for this scheme to work.

6   swebb     2013 Jan 9, 2:09am  ↑ like (1)   ↓ dislike   quote    

zzyzzx says

In your scenario, why would the buyer be willing to split the payment unless they are getting a discount?

What Patrick was suggesting (I think) is that the buyer would be willing to split the payment because otherwise the seller would block the offer.

I have to say I find this whole thing hard to believe. I mean, sure, I can believe that it has happens and does happen on occasion...but to be the norm to the point that you can't buy a house unless you are willing to commit fraud? Maybe it's that bad, but holy shit...California must suck.

7   iwog   1538/1539 = 99% civil   2013 Jan 9, 2:11am  ↑ like   ↓ dislike (1)   quote    


I was talking to a friend yesterday who told me that is normal for underwater owners to block offers that don't give themselves a large illegal kickback.

I wrote about my personal experience with this years ago. The victim of course is the bank, and they don't give a crap.

8   APOCALYPSEFUCKisShostikovitch     2013 Jan 9, 2:55am  ↑ like (4)   ↓ dislike   quote    


I was talking to a friend yesterday who told me that is normal for underwater owners to block offers that don't give themselves a large illegal kickback.

Why do you hate innovation?

9   PockyClipsNow   60/60 = 100% civil   2013 Jan 9, 3:30am  ↑ like   ↓ dislike   quote    

This is what big gov does.

Its like welfare fraud - mostly its minor like selling food stamps at half off for cash to buy drugs, lying about live in boyfriend etc.

Do we really want the feds wiretapping everyone in the country to make sure the buyer isnt banging the listing agent or the seller? I say no.

Also remember the banks approve these low offers - like they care if fannie eats 100k loss its a joke! You want no fraud then get the feds out of mortgage biz (impossible!) you can either play the game or pay retail in a bidding war beacause 'eliminating fraud' is like eliminating cussing in the navy.

Patrick needs to accept the corrupt lying world as is - only then will he find happiness in RE. Its open to everyone no matter race , creed, religion, etc . It took 5000 years to get here but people want 'lying' eliminated too? Lol

10   bmwman91     2013 Jan 9, 3:36am  ↑ like (3)   ↓ dislike   quote    

iwog says

I wrote about my personal experience with this years ago. The victim of course is the tax payer.

Fixed that for ya. ;p

11   lostand confused   225/225 = 100% civil   2013 Jan 9, 3:40am  ↑ like (1)   ↓ dislike   quote    

zzyzzx says

In your scenario, why would the buyer be willing to split the payment unless they are getting a discount?

Well you can lower property taxes, sales taxes and a whole bunch of other taxes, plus convert undeclared income, if you are trying to make your money "legal".

12   HEY YOU   638/638 = 100% civil   2013 Jan 9, 4:12am  ↑ like   ↓ dislike   quote    

Stupid buyers?

13   Patrick   1849/1849 = 100% civil   2013 Jan 9, 4:14am  ↑ like (1)   ↓ dislike   quote    

swebb says

What Patrick was suggesting (I think) is that the buyer would be willing to split the payment because otherwise the seller would block the offer.

Yes, that's exactly it.

Offers are blocked unless kickback is paid. The bank just never hears about those offers.

14   iwog   1538/1539 = 99% civil   2013 Jan 9, 5:03am  ↑ like   ↓ dislike   quote    

bmwman91 says

iwog says

I wrote about my personal experience with this years ago. The victim of course is the tax payer.

Fixed that for ya. ;p

Ultimately yes, however too big to fail banks have created a catch 22 where the tax payer will be punished more by not keeping the bank alive than by letting it fail.

15   curious2   594/594 = 100% civil   2013 Jan 9, 5:04am  ↑ like (3)   ↓ dislike   quote    

I like Patrick's proposed solution, that offers on real estate should be public information. That would address many realtor scams. Real estate ownership and liens are already public, and bona fide offers should be likewise.

Regarding this particular scam, it's usually possible to look up the mortgage creditors on the deed and contact them directly. So, if underwater sellers are withholding offers from the creditor, it's a symptom of the "robo-signing" (actually forgery on a massive scale by humans and not involving robots at all) mess, where creditors sold and re-sold mortgages without following existing law. I get a bit peeved when TV news and others trivialize "technicalities" involving secured transactions, because trillions of dollars depend on being able to find out who owns what and who has a lien against it etc.

BTW, if bona fide offers were public, it could create an opportunity for discount brokers to do something useful in real estate as in stock markets. If you offer to buy shares in AAPL, chances are you use a discount broker and the offer is made publicly in the broker's name. The broker certifies the offer, and protects your privacy, in exchange for a very small fee. You can buy $100k of AAPL and the total fee (commission+spread) might be less than 0.1%.

16   Dan8267   2634/2667 = 98% civil   2013 Jan 9, 8:21am  ↑ like (1)   ↓ dislike   quote    


It's just bribery, but it is normal now, and if you're a buyer who won't also break the law along with the seller, you can't buy the house.

Digital video recorder. Then let the "seller" know that you are going to the police. Don't ask for a much lower offer, the seller will be offering you the kickback.

17   PockyClipsNow   60/60 = 100% civil   2013 Jan 9, 8:26am  ↑ like (4)   ↓ dislike   quote    

I cant prove it but i bet this is way more common in Ca than Az.
Reason: dollar amt at stake is 10 fold higher and ca is overun with smarty pants ferners who do biz like in china.
Also in az no agent will do dirt for a 5k maybe bonus but in ca that is a 50k bonus or split or watev. Hell the whole home is 50k im az! Lol

The proposal that all offers are public is a nightmare. Its been done and is a failure see ebay for cars/Re. (Those high offers seldom close, creates huge wasted time) ive sold 2 cars on ebay it sux man!

Anyway its private property! Get your nose otta muh bidness!

18   PockyClipsNow   60/60 = 100% civil   2013 Jan 9, 8:28am  ↑ like (1)   ↓ dislike   quote    

Dan8267 says

It's just bribery, but it is normal now, and if you're a buyer who won't also break the law along with the seller, you can't buy the house.

Digital video recorder. Then let the "seller" know that you are going to the police. Don't ask for a much lower offer, the seller will be offering you the kickback.

haha funny. Good way to get dead on a russian mafia listing in LA.

19   Patrick   1849/1849 = 100% civil   2013 Jan 9, 10:24am  ↑ like   ↓ dislike   quote    

underwaterman says

I don't think this is too common. Little problem of reporting the 50k to the IRS to overcome.

You'd report $50K in a suitcase to the IRS?

I have to admit that a suitcase with $50K would tempt even someone of such impeccable moral character as myself to "forget" about that money.

20   Tenpoundbass   994/996 = 99% civil   2013 Jan 9, 11:43pm  ↑ like   ↓ dislike   quote    

elliemae says

It's all President Obama's fault. It only took two posts to get there.

No that's not what I said at all. It will be the fault of rushed crammed through legislation that nobody took the time to read, but the lady at H&R block. And she didn't even sound to happy about having to wade though 9,000 pages, boy let me tell ya.

Listen I WAS part of that underground economy pre Clinton. I know exactly where I'm coming from. Everyone in the trade industry worked "under the table" south Florida, from the guys the poured the slab, to the guys to hung the curtains just minutes before open house. It's NOT a far stretch of the imagination to see this happening again.

21   gregpfielding     2013 Jan 10, 2:05am  ↑ like   ↓ dislike   quote    

I've been a part of dozens and dozens of short sales since 2006 and never seen this happen. I'm sure that it does from time to time, just like other kinds of real estate fraud happens sometimes.

Two things to note... First, the seller's bank will have multiple appraisals done along the way to ensure the price is at, or close to market value. Second, all parties - the buyer, the seller, and the agents/brokerages involved have to sign affidavits legally swearing that there are no kickbacks and no funny business happening.

Lenders do follow up sometimes and I hopefully pursuing legal action in cases of fraud.

22   TechGromit     2013 Jan 10, 12:27pm  ↑ like   ↓ dislike   quote    

underwaterman says

What they do is understate the short sale homeowners assets and income and invent a hardship to qualify for the short sale according to the banks criteria.

Wouldn't the homeowner have to sign off on this? If they sign paperwork knowing the information was false, aren't part of the scam?

23   TechGromit     2013 Jan 10, 12:29pm  ↑ like   ↓ dislike   quote    


Offers are blocked unless kickback is paid. The bank just never hears about those offers.

I wonder how they go about hinting to the buyer that I'll only approve your offer if there's something in it for me.

You'd report $50K in a suitcase to the IRS?

I have to admit that a suitcase with $50K would tempt even someone of such impeccable moral character as myself to "forget" about that money.

Well obviously the seller "forgets" to report the income to the IRS. But the buyer could report it to the IRS. After all you basically screwed me out of 50k, I'm one to hold a grudge. And I could get 10% of any money recovered, although I think it's 10% of tax amount in 50k, so for investment income, that's $7,500, I would end up with a $750 kick back from the IRS.

I'm not sure of the legality here. The seller is the one blackmailing the buyer, I would think the seller is the one legally liable here. The buyer is no more guilty then someone paying a ransom to a kidnapper.

24   AlexMir     2013 Jan 14, 3:29pm  ↑ like   ↓ dislike   quote    

My agent, who is also the listing (seller's) agent, and a friend of the seller, tells me he has submitted my offer to the bank (how would I know). He wants me, and insists that I inspect the house now before bank has accepted my offer. The reason, seller may run out of time and the house goes into foreclosure. Does that make sense? If my offer is rejected by the bank, I am out of the inspection expense. Should I do that?

25   JodyChunder     2013 Jan 14, 3:42pm  ↑ like   ↓ dislike   quote    

AlexMir says

My agent, who is also the listing (seller's) agent, and a friend of the seller, tells me he has submitted my offer to the bank (how would I know). He wants me, and insists that I inspect the house now before bank has accepted my offer. The reason, seller may run out of time and the house goes into foreclosure. Does that make sense? If my offer is rejected by the bank, I am out of the inspection expense. Should I do that?

Do you have any money tied up on escrow on the house?

26   AlexMir     2013 Jan 14, 3:50pm  ↑ like   ↓ dislike   quote    

No, we haven't gone into Escrow yet.

27   varmint     2013 Jan 14, 3:59pm  ↑ like   ↓ dislike   quote    

robertoaribas says

TechGromit says

I'm not sure of the legality here. The seller is the one blackmailing the buyer, I would think the seller is the one legally liable here. The buyer is no more guilty then someone paying a ransom to a kidnapper.

total bullshit, both parties and both agents sign documents swearing that NOTHING is being paid out of escrow as part of the short sale. Any and all could be sued or go to jail for loan fraud for this.

Why do you even post here?

Everything about your market is so different than what the majority here sees in the SFBA. You're not wrong, but people here don't misunderstand you anymore than you misunderstand them.

28   FortWayne   432/436 = 99% civil   2013 Jan 15, 12:11am  ↑ like   ↓ dislike   quote    

I'm sure there are plenty of pretend short sales. Banks aren't stupid, they know.

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