Protect yourself from real estate fraud
I view my tent ministry as a real estate professional as an honorable job. I am helping people who are in distress to have a new mindset. In a broader sense, owning a property is part of the American dream. Unfortunately, there are vultures out there who want to prey on the innocent with things that sound good but are just plain trouble. I recently read an article from the California Department of Real Estate and thought I’d share some tips with everyone.
(Note: this is written from a California point of view, most of the advice should be applicable anywhere in the US, but check with an RE agent in your area if you have specific questions.)
Does the person helping me with a short sale have to be licensed by the state?
Yes, anyone who “negotiates loans…or performs services for borrowers or lenders…in connection with loans secured directly or collaterally by liens on real property…with the expectation of compensation” must be licensed.
What is that in English? If a person wants to help you negotiate with a lender regarding a property, that person must have a license. This applies to anyone who wants to speak to their lender(s) on their behalf regarding a property secured loan.
Application – we are looking at ‘short sale dealers’ as a new business. If they can’t produce a DRE license number, then run. Also, once you are given a license number, check it against your state’s real estate license database. Some of these negotiators hire a broker to list the property who is a licensed professional. However, if THEY talk to their lender(s), they must also be licensed.
What should I take into account if I use a negotiator?
upfront fees – It is against the law for anyone to charge you up-front fees for handling your loan; either a short sale negotiator or someone helping you with a loan modification.
giving up your rights – Some of these negotiators require you to sign a document that gives them exclusive rights to negotiate on your behalf. While it’s true that you only want one person to handle your short sale, beware of anyone who wants to leave you completely out of the loop. By law, all offers must be made between you and the lender.
The fraud we are seeing is that the negotiator hides high offers from the lender and only presents low offers. They keep the bids high until the short sale is complete. They then bring in the highest bidder to buy the property.
Example, this negotiator receives an offer of $400,000. They have a friend who makes them an offer of $350,000. They submit the offer for $350,000 and complete the short sale. Your friend then relists the property and contacts the highest bidder and sells the property for $400,000. They just won $50,000 at your expense and at the expense of this nation’s economic recovery.
They committed fraud by withholding all offers from the lender; this is a felony. This ‘short sale fraud’ is now on the radar of the FBI, which is actively looking for these quick short sales.
Can I pay anyone ‘under the table’?
No! In short sale situations there may be more than one lender. Sometimes the second (or more) lender will try to slow down the process and get as much money from you as possible. Payment to any lender outside of the process (under the table) is called fraud.
If a licensed lender, agent, or other party encourages you to do something illegal, don’t do it. If you’re a lender, be sure to tell your agent this so you can talk to your broker to see if there’s anything legal you need to do. If your agent is asking you to do something illegal, contact your broker. Fraud in our industry can never be acceptable. You can also report them to the California Department of Real Estate (or whatever your state department is called). If the offending party is the broker, contact the Department of Real Estate and report the incident.
If you are ever unsure about an action, it is best to ask for advice. It is much better to be safe than to get into serious trouble.
final thoughts
In any real estate transaction there are many elements that need to be done at the right time and in a specific way. It is very important for your financial future to ensure that you are being properly advised. If something sounds too good to be true or doesn’t feel right, caution is advised.
*Here is a site that tracks real estate fraud in California: http://www.californiarealestatefraudreport.com/
* Never pay fees in advance (they are illegal)
*Never work with someone who is not licensed (they may say they don’t need to be, and the answer is if you are dealing with real estate in any form, such as dealing in real estate secured loans, they must be licensed).
* Please be aware of any unspecified surcharges or fees
*Be careful if you are contacted by a ‘short sale dealer’. This is the highest form of fraud and scam. As states crack down on fraudulent loan modification scams, these unscrupulous individuals are moving into the field of short sales.
*Some lenders may try to induce you to commit fraud. They don’t care if you’re breaking the law; they just want money. The seller, buyer or agents cannot make hidden payments. Anything paid in the short sale process must be disclosed and appear on the HUD-1 form.
*No one should ever tell you to stop making your mortgage payments. One, you don’t have to be in default to short your home. Second, it will trash your credit report for no purpose.
*In a short sale with 2 or more link holders it can be very difficult. They will play extremely rough with you. Make sure your agent can play hardball back (as I’m happy to do).
Disclaimer: Seek help from a licensed tax attorney or CPA before making any decisions regarding your home. The information in this article is to help you understand the real estate transaction and should not be construed as legal, tax or financial advice. This article is for informational purposes only.