A short sale is an arrangement between the homeowner, with the consent of the mortgage lender, to sell the home for an amount less than the mortgage balance. With many home values now less than the value of their mortgage balances, short sale is becoming a more attractive alternative to foreclosure.
Short sale fraud, however, is on the rise. The California Department of Real Estate, The California State Bar, and the California Attorney General Brown warned homeowners of a rise in short sale fraud across California. Attorney General Brown said: “while short sales can provide homeowners with a last-ditch alternative to foreclosure, this market is rife with scam artist …… homeowners and buyers, agents, and lenders should beware of short sale negotiators who operate without licenses, use straw buyers or charge illegal fees”.
Last April, the government launched an initiative called the Home Affordable Foreclosure Alternative Program, which encourages homeowners in financial distress, especially those who failed a trial modification or qualify for a loan modification, to consider a short sale as an alternative to foreclosure. Thus, an industry of so-called short sale negotiators has arisen. The Department of Real Estate is already investigating more than 40 complaints of short sale fraud, up from “virtually zero” cases only three months ago.
Per warnings from these government officials, homeowners should consider the following signs of fraud before working with, or paying, short-sale negotiators:
No License – with limited exceptions, only licensed real estate agents or attorneys can engage in short sale negotiations with a homeowner’s lender.
Up-front fees – Licensed real estate agents wishing to collect up-front fees from homeowners for short sale transactions must first submit an advance fee contract to the DRE and receive a no-objection letter.
Surcharges – With many distressed properties listed well below market value, negotiators and agents are charging potential buyers thousands of dollars in surcharges and hidden fees just to place an offer on a home. These illegal fees are frequently not disclosed and are paid outside escrow.
Straw buyers and house flipping –short sale negotiators misrepresent the market value of a property to a homeowner’s lender by only submitting offers on the property from an affiliated straw buyer. After the home is purchased below market value, fraudsters immediately flip it and pocket the difference.
Short sale negotiators and agents may use a number of titles, including debt negotiator, debt resolution expert, loss mitigation practitioner, foreclosure rescue negotiator, short sale processor, short sale coordinator and short sale expeditor, among others.
As always, know who you are dealing with and don’t fall into these fraud traps.
(DISCLAIMER: material presented above is intended for informational purposes only. It is not intended as professional advice and should not be construed as such. Rey Tancinco is a partner at Tancinco Law Offices, a professional corporation with offices in San Francisco, Vallejo, and Manila. The law office website is at: tancinco.weareph.com/old. Rey Tancinco can be contacted at (800) 999-9096 or (415) 397-0808 or via email at: attyrey@tancinco.com
