Are Your Short-Sale Clients Colluding?

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  1. Philip chang

    What number do you contact when you are aware there is fraud. Also Reo transactions.

  2. Philip, thanks for the question. If the suspected fraud involves a Freddie Mac loan, you would contact that company’s hotline, 800/4FRAUD8, or send an e-mail to If it involves a Fannie Mae loan, you would call 800/732-6643 or go to a fraud page on the company’s website at

  3. Regarding the BPO, I have a few observations. I am a Realtor in a major metropolis and find that many BPO’s are not familiar with the housing stock nor aware that there are value differences block by block. The BPO represents the lender and because the incentive of future REO listings exists, they are not necessarily inclined to give a fair picture of the property. On the contrary, they are often disinclined. While not true of all BPO’s, I have a fiduciary responsibility to my seller to present my comps to the BPO andto point out anything that affects the value of the property. To imply that there is something wrong with that practice is unfortunate.

  4. I just closed a short sale last Friday, that was delayed due to the first title company refusing to sign the Freddie Mac form. All they did was write on the form “our legal department won’t let us sign this form” After trying to get it worked out, and the title company would not budge, we changed title companies. BOA was excellent, they gave us an extension. We closed later that week with a title company that did sign the form but with a disclaimer. This was a completely honest and above board short sale. That’s the only way I work. I was astounded that the first title company was not willing to sign. We were lucky the buyers stayed with us.

  5. Great information Robert! Thank you for bringing this topic to our members! Any REALTOR® handling distress sales must understand the potential for fraud that may be perpetrated in these transactions.

    As the co-author of the SFR Certification, we stress the importance of questioning the practices of the brokerage, attorneys and any additional intermediaries involved in the transaction. Often, when agents are approached with ways to get the transaction closed it’s from an agent, short sale negotiator or attorney that simply says “this is how it works…and we always close deals this way”.

    For someone new to the distress sale transaction, the one committing the fraud is extremely confident and tells a great story about all the success they have had in the short sale market and without intension, the innocent agent “goes along with the program” when all along that confident party commits fraud and the agents cooperating in the sale are unaware of the fraud.

    In the SFR Certification, we stress the need to understand all components to a legitimate short sale transaction and stress reporting suspicious activity to Freddie Mac, the FBI and state regulatory bodies in addition to speaking with their managing broker.

  6. Freddie mac is contradicting themselves again. David Sunlin says Freddie has a problem with seller concessions being paid to a short sale negotiator…so what? So long as it is clearly defined on RESPA, and it is a separate line item charge to the seller, than the credit is being paid to the buyer directly, there is no fraud. Zero. In fact, we spoke to a Freddie investigator and while they did not like this arrangement, they do in fact allow it and can do nothing about it. In fact, Freddies own purchasing guidelines (Fannies too) specifically allow the buyer to pay short sale negotiating fees, and to be reimbursed by a seller credit. So which is it David? You cannot allow a practice on one side of the transaction and say it is fraud on another side. Again, as long as it is clearly distinguished on RESPA, then adequate notice is given to all parties. You cannot cry “fraud>’

    Keep in mind, Freddies CEO was publicly embarrassed last year when he published a series of “Anonymous” articles detailing how all flipping was fraud, and was forced to retract when attorneys all over the county nailed him for his blatantly untrue statements.

    My opinion is this: Freddie is in far worse financial shape that Fannie (chronic mismanagement) and with the Fed looking to unload these two GSE’s to a private buyer, Freddie is frantically trying to shore up their books and make it seem like they are not in as dire a shape as they are. This is one reason why Freddie is doing the opposite of Fannie. Fannie is going out of their way to streamline the short sale process and are much more flexible in getting foreclosures stopped and deals done. Freddie is starting to refuse short sales and opt to go to foreclosure. Why? because once a property is foreclosed, it becomes an “asset” on their books. We all know that asset will convert to a loss )bigger than a short sale) when that “asset” is sold, but in the meantime, they can show an investor their books that look better than what they are.

  7. ellee celler

    As far as I am concerned, after many years of real estate practice, the biggest practitioners of fraud are Freddie and Fannie. What they should have done was reduce the mortgage to the real value for the current mortgagor instead of spending billions of our tax $s getting reimbursed from the Feds for their unwise lending inthefirstplace.

    Then the banks who use and abuse the Realtors have the nerve to ask us to report fraud over and above their own. What a world we have created! Sorry for the young who are inheriting the spirit of greed, entitlement and fecklessness.

  8. Michelle Houze

    Here, Here G. Marie Leaner….I have banks sending BPO agents from 25 miles away to do a pricing option in an area that I do the majority of my business. I agree that I feel as if I would be breaking my fiduciary responsibility to my client if I do not make the BPO agent aware of things specific to a particular neighborhood. I just had to so this when a BPO agent wasn’t aware that there was a recent closing IN THE SAME SUBDIVISION for considerable less than his comps….why should I have to make sure that they know what they are doing?????

  9. Terry Irmer

    I have seen the arms length form from Freddie and Chase. They want you to swear under penalty of perjury that the pending short sale is at arms length. They are not asking if you believe, to the best of your knowledge, the sale is at arms length, but want you to swear that it is. I can see big trouble coming down the pike to any one who gets caught up in a fraud investigation even if the 3rd party’s had no knowledge of non arms length .
    I would not sign that agreement as written.

  10. Neill Taylor

    I just recently walked away from a short sale as buyer due to this language (recently added paragraph 13 in BOA addendum). It was to be our primary residence, was an all cash offer and we had signed a short–sale addendum at time of offer (but without the ‘each signatory will indemnify…’). As we were approaching closing, BOA required the form with the new language to be signed. I could not do it and walked away though
    I had never met or even spoken with the seller and had no plans to do anything other than move into our new house after closing.

    The language of the liabiltiy which the new addition added is such that, unlike Patty, I can’t believe anyone actually WOULD sign–other than perhaps the seller. It seems totally unreasonable to me to indemnify the servicer/Freddie Mac for statements and representations on affadavits to which I was not a party and which I’d never even seen!

    BOA wouldn’t accept amendment/addtion to paragraph 13 in which I stated that I agree to indemnify ONLY for statements and representations which I had made and not for those of any third party. Their unwillingness to agree to this in a legally binding format speaks much more to me than all the ‘explanations’ of what is intended when they are being interviewed, etc. I would be stuck with the language I signed, NOT what some person at Freddie Mac or BOA indicated the purpose was for. In speaking with the closing attorney (only does real estate), he understood my concern re the language and though he felt it was unlikely to mean that there were hidden ‘bombs’ which could blow up on me later, the language couldn’t exclude that.

    I KNOW I wasn’t colluding, but without such an legal assurance from the ‘servicer’ and their ‘investors’, I couldn’t rule out the possibility that THEY in fact were doing so.

    I hope that you agents and brokers and all buyers in short-sales don’t wake up one day to find that these transactions have blown up on you and destroyed you financially due to such language. At this point, to feel that way in the face of the plain language seems to me to be nothing more than a wish or a hope.

    Good luck.

  11. What should an agent that knows a fraud is in works do. I do not know whether the loan is a FNMA, or other type of guaranteed contract, but I do know the plans regarding the current resident and the potential buyer are not ethical.

  12. I could see reasons why the title company’s legal team didn’t let them sign the form.

    It’s very interesting that they wouldn’t. Why should the title company put their necks on the line. They have no way of knowing if any of the parties are colluding.

    I love doing short sales. This is a very interesting article. Now I need to talk to my brokerage’s legal team.

    Thanks all!

  13. Why does KC imply that paying a negotiator on the settlement sheet is a kind of fraud? If the short sale negotiator is providing a valuable service, and their fee is clearly stated on the settlement sheet as an expense to the seller or buyer, what is wrong with that?

  14. Amy Hayslett

    Can a buyer rent back to the seller after close of escrow as long as there were no agreements made between the parties prior to COE?

  15. I agree with the person that said why dont the stupid greedy banks just give the homeowner the deal and let them stay in their home. It’s not their fault their home took a dive and they owe more than it’s worth anymore. It would keep more fine folks in their homes raising their children. It would also keep more money local and help the local economy as well as the rest of the country if all the banks just did that. There would be more money left at the end of the month to spend on other things like home improvements that have been deglected due to maybe a future foreclosure. I know I wouldnt paint my house or invest in new carpet or nicer cabnets or any kind of upgrades if I knew I might be getting foreclosed on. I got a feeling the word has got out and our President thinks the same way. Instead of letting someone else come buy yout home for 1/2 price, give the borrowers a break and let them stay in their homes. Do the right thing! I’ve seen good families end up loosing their home that they loved to a family of illegals that bought it with grant money from our goverment!! Can you believe that crap! And now the original family is on the street with their kids and watching another family take over their home and trash it with vehicles thaat don’t run. It’s time to give the citizens of this country a break! There are too many non-Citizens taking everything they can from this state. So I will say it again so it sinks in. Are listening BofA? Chase? and all the rest of the greedy banks out there. Give the homeowner a break, the same deal you are willing to sell it for on a short sale. Rewrite the notes and keep them in their homes. There are too many REO’s out there already. There I’m done. I can’t wait for the Presidents new plan. I hope it works better than the HAMP one did. That was a joke.

  16. John

    We were seeing a lot of short sale fraud two years ago. I have noticed that it seems to have been curtailed somewhat now that the lenders are aware of it. I am a broker at a real estate company in Atlanta. We had many “investors” making offers to our agents to help them facilitate short sale fraud. The most common type was where the “investor” already had pinpointed a property that he knew the owner was at risk of foreclosure. The investor-buyer wants a real estate agent to list the property for sale to legitimize the transaction, and give it the appearance of being on the market for all buyers. However when it is listed, the investor-buyer already has a contract with the seller. The investor- buyer wants the listing agent to find another buyer to flip the property to, for a profit, undisclosed to the seller’s lender, of course. You can imagine the inequities of this type of transaction, start with the fact that the broker is to be representing the seller in the G.A.R. listing contract, but he is really working for the flipping- investor- buyer. The listing agent willingly goes along with the investor-buyer, obeying his instructions, while the investor- buyer ties the seller up with a contract that can be extended unilaterally and can be unilaterally terminated by the buyer if needed. I was shocked at some of the offers and contracts that these folks were using to put properties under contract while looking for a buyer to pay the true market value. It will be interesting to watch what happens when the entities that were harmed by the transactions get around to taking legal action against those that defrauded them. The sad thing is a lot of unknowing agents were participating without realizing the potential harm that they might be causing. A cautious, experienced practioner would avoid it, but a new eager agent without good supervision would jump at the chance to have a long term buyer to work with. To all the lenders and their investors I beg you to pay attention to what is going on out here, and protect your business. If that had happened ten years ago, and after, we would be living in a much better economy than the one we have today.
    Thank you for this article.

  17. Anne R.

    It is legal to buy a property for one price and sell it for a higher price. “Fraud” only occurs when there is a failure to disclose material facts to the parties in the transaction. And,the lender is NOT a party to the transaction, as the purchase contract is between the seller and the buyer. The seller has the discretion to accept the offer that they feel is best. The phrase “highest and best” is very misleading. Often the highest offer is NOT the best, because it has less chance of closing (financing contingencies, etc.) Even in standard sales, it is not unusual for a seller to accept a lower offer because the buyer is stronger (paying cash, larger down payment, etc.).

    When an investor buys and re-sells a short sale, there are usually several months between the contract for buying and the contract for selling. It is common in a volatile market for values to change in several months, particularly when the investor is buying the property when it is in “distressed” status, and selling it after the liens have been paid off.

    The banks do not have the right to interfere in the contracts between buyers and sellers, but these affidavits represent their attempts to do so. If and when the affidavits are challenged legally(which they will be, as they are asking Title companies to assume liability that it is impossible for them to truly assume).

  18. Noah Ark

    I am so tired of banks/Asset Mangers ordering BPO every week or every 30 days-gas is expensive. Are they “fee hunger” or Asset Manager”. Are Asset Mangers REALTORS aka, Loan Officer Aka Appraiser “acting as a license realtor without license and not mention auction companies which are invented by Bankers too “saving heir own money”?. Why are they acting as REALTOR and collecing fees. Why EQUATOR collection fees out of Listing agent commission? I thought REALTORS are listing agent and not hired to do all the above, not to mention pay for repairs and wait until ” NOAH Arks” comes back to be reimbursed. This is out of Control and Government definetly needs to stabilize the market to save taxes and medicare. If you looking for fees, look at the Bank,Aucion Companies and Asset Managers. If I was President, I will decrease interest rate to 2, pay off home within 10 years instead of 30 years and eliminate escrow. This will stabilize the neighborhood and everyone will refinance , keep a home and find work. Working people are suffering and loosing home-when you loose home, you are depressed and YOU will “QUIT” a job. Stabilize market, please.

  19. Margaret

    If I have the buyer and I believe the listing agent to be committing fraud how do I determin which type of loan it is? Freddie or Fannie when I am not privelidged to that information being the buyer’s agent.

  20. Charles Turner

    June 2, 2011 a new US Treasury Directive – Supplemental Directive 11-02 page 8, which modifies Section 7.3 of Chapter IV of the Handbook – it amends the requirement for am arm’s length sale or certification – to allow servicers the discretion to approve sales to non-profit organizations if the sale is made to a non-profit organization with the stated purpose that the property will be sold or rented back to the borrower so long as all other HAFA program requirements are met.

    Has anybody used this yet or tried to use it? I have a case submitted to Chase on a large loan that exceeds the HAFA limits. I have not yet hada response.

  21. Cindy

    I totally agree with Lou. I personally would be spending money to improve my home had it not decreased in value by $100K. And wouldn’t that be giving back to the economy ? I know many of my clients want to stay in their homes but aren’t offered that opportunity. Why are the banks willing to take less money from a new buyer rather than reduce the balance based on todays’ value for the current owner? Maybe this is what is driving people to fraud. Also, I think that many of the REO brokers are ruining our reputation. It seems as though ethical and REO do not mesh.

  22. DB

    I agree with Lou. It would be so much better for the ecomomy to use this approach, keep famalies in their homes than to let the number of foreclosures continue to rise and put us deeper in the hole. Banks don’t want to hire the necessary number of people to process the rising number of foreclosures let alone spend the time and money to properly train then. Could it be that even when a home goes into foreclosure, the bank winds up making money?

    If a morgage is adjusted down to the current market value and the homeowner is allowed to stay in the home, the home is better take care of, it is a good investment to the bank, to the community. Also, when this process is allowed to continue, more and more homeowners will have a little extra cash to put back into the home, the economy and just maybe more and more jobs can be created.

    Just for the record, the average wage earner makes less than ten, twenty years ago when you factor in the cost of living. The $ just dosen’t go as far as it used to and you can only streatch it so far.

  23. I see it as a good thing that lenders are making this a requirement. As Realtors we are at the front lines and should be doing everything possible to stop short sale fraud.

  24. Eileen Plundo

    I am a buyer who’s short sale bid was not accepted because I would not agree to rent from the seller at 3K and pay all utilities because they were not getting approval from the bank for this to be done. I’m pretty sure that we were the “higest and best” offer but the accepted one that agreed to the rent, then they changed the wording to buying personal property, now a “caretaker” is living on the property. How do I notify bank of america or PNC about what I think is going on?

  25. JIm Smith

    I am quite offended by the misuse of the term “Arm’s Length Transaction” as the traditional meaning, before being hijacked / misused by banks and investors, was that the two parties are standing on equal footing. In a short sale transaction, neither party is standing on equal footing, AND there is a third interested party, not part of the original contract that is negotiating in their own best interest.

    While I understand the “reasoning” behind why the banks want to ensure there is not fraud, I think a form entitled, RELATIONSHIP DISCLOSURE or CERTIFICATION OF INTERESTED PARTIES might be a more appropriate form.

    I am a buyer, and I am now forced to sign a document which is a lie, i.e. Both Seller and Buyer are not on equal footing, and I have to live with the fact that the Banks and Fannie Mae, BELIEVE that they have solved a problem, which they haven’t. Would this Document even stand up in court? I doubt it. But worse in my mind is that the use a legal term in existence as long as Law itself is being redefined by the stupid and their agents.

    I came to the NAR website to look for support for my position, and have found you folks to be just as inept as the “legal teams” on the Bank / Investor side?

    I’m not a lawyer, but I think in this case, I could be for a large bank. I’m going to apply now.

  26. JIm Smith

    @Noah Ark “are they fee hungry”

    My take on the Bank / Servicer relationship, is that it is the servicer’d “duty” to charge and collect as many fees as possible, for their own benefit before the servicing reverts to a new servicer. I’d like to know statistics on how much of those charged fees they actually get to keep, and who pays that? The Investors on the other end? Do they all get paid in time, or do some get waived or discounted. Seems once again, the banks have figured out a way to rob the public.

    Now the definition of BANK ROBBERY being subverted and redefined, is something I could stand behind… just not Arm’s Length Transaction.

  27. Casie

    Hello, just curious if any of you can help me. I am a buyer of a short sale who was set to close in 2 days. I received a call from my lender today and he said the selling agent sent over HUD-1 forms for closing with 2% concessions. All parties have signed the purchase agreement with 6%. Is he trying to make more money? We originally intended on only having 3.5% approved but thought we would try for 6, and it was approved by seller and bank that approved short sale. I am so confused why this is going on, what is the big deal to him, only thing I can think of is that he can make more money on the deal. As we are paying 76,100, bank approval of short sale states they want to have 63,976.93 by the set date of the 30th. It also states any excess funds have to go to them. If anyone knows why this would happen please let me know.

    Thank You!

  28. Daniel Rivera

    Ok. I’m going to come right out and say it. I’M A FLIPPER. I buy and rehab 90% of my flips BUT I do on occasion get very good deals on shorts that I can resell at a great profit without significantly improving the property. In many peoples eyes I’m he bad guy but in my opinion their are bad apples that stain my profession. First let me be clear. #1 – Me and my partners fully disclose to the seller and bank our intentions to re-sell the property at a profit. In fact we put it right on top of the first page in our contracts. No hiding and no BS. #2 – Our end buyers are also informed via a very detailed addendum that we are selling the property to them once we have officially closed on the short and making a profit. The end buyers never really care because they are getting a good deal as well. #3 – My offers are ALWAYS in with the bank and I’m ALWAYS under contract with the the seller before any other offer from an end buyer is on the table. So far so good. Here is my beef: Quoted from the above interview “We’re not saying you can’t flip a property; we’re just saying we need to know about it so we can make an informed decision. Because our expectation is that the highest and best offer is presented to us as well as the full disclosure of any a-typical fees and costs. When we look at the short sale transaction, the offer amount as presented is material to our risk assessment and the ultimate decision on that short sale.”
    This quite bluntly is BS. Lets think about a normal transaction for a moment on a property you intend to keep and resell at a later date for a profit. That is the point right? Maybe live in it for 3-5 years. So, you find a house and negotiate a great price. You’re ecstatic! You go into attorney review (I’m in central NJ where it’s customary to use attorneys), You then go UNDER CONTRACT. Now if another buyer comes along once you’re UC, they can NOT circumvent a transaction once there is a meeting of the minds between the seller and the buyer. This is the whole point of being UNDER CONTRACT. It does not matter if the next buyer is willing to pay a million dollars more. THEY ARE TO LATE. So I ask, why in my right mind do I have to tell the bank that someone is willing to pay me more for MY property?? I have already gone the extra mile and told them my intent to re-sell for a profit. No one seems to have an answer for this. Even in REO situations the banks tend to look at one offer at a time I assume due to liability of someone like me raising hell. If I’m under contract and another offer is sent to the bank you better believe I’m claiming “TORTUROUS CONTRACT INTERFERENCE” Full disclosure is key to shorts and it is what make me better than most flippers. But I’m tired of being demonized for getting a good deal. This is America no?? This is the law so why is it different for the big banks? They were willing to agree to sell it to me based on their own valuations. So a higher offer showed up. BOO HOO BANK. I’m under contract. Thanks for listening. I’m ready to get flamed 🙂

  29. Nancy Jones

    This is for Danie Rivera-
    How do you ALWAYS become under contract with the seller first before
    any other buyers present their offers? Just wondering if it is legal to
    have inside knowledge of a SS the second it hits the market? Do you work directly
    with the bank, realtor? If so, do you think this is “fair”, or an opportunity for
    you to become rich in the current market that was created like people like you
    doing the opposite which caused the housing crisis. Working “inside” jacking
    prices high and flipping at an even higher price. FRAUD, FRAUD, FRAUD some
    are going to prison for this and it seems people like you are getting rich and richer
    at the expense of those not “in” on it.

  30. joan

    Daniel, please DO answer Nancy’s question. How are you ALWAYS able to be under contract before other buyers present their offers? I can understand if you were the first offer presented to the seller but to ALWAYS be under contract before any other buyers present their offers looks like you yourself have a real estate license and access to the MLS before any other buyers. Since the sellers do not care what the house sells for in a short sale, most of the time they just accept the first offer and submit it to the bank without waiting a couple of hours for more offers. THIS is the tragedy in the situation…the fact that the sellers “DO NOT CARE”. Unfortunately there are too many unscrupulous real estate agents who are “helping themselves” (fraudulently). Daniel, I disagree with you when you say that once your offer has been submitted to the bank and the bank doesn’t reject it (assuming they have accepted it at that point), no other offers should be submitted, even for a million dollars. The selling agent has a responsibility to submit ALL offers to the “sellers”….oh, here we go again; the sellers don’t care!! If someone hasn’t figured it out yet, short-sales, by their very nature should be illegal because the seller (the only person in control of the property) doesn’t care what happens to their property and have no interest in getting the best price for their property because they won’t profit from it. Daniel, spend your time and efforts at the county auctions, like I do. I am a “flipper: too.

  31. The industry already has a huge black eye from all the crazy lending practices, so trying to curb fraud is something I applaud. It remains to be seen whether it will be effective across the board but it is a step in the right direction.Enjoyed the post…thanks Robert.