You are thinking of selling your home next year and using the equity to fund part of your retirement or a move to a smaller property. You have spent years building that equity, including keeping your home in impeccable condition in a neighborhood known for pride of ownership.
Your neighbor has just listed his home with a real estate agent on the Multiple Listing Service as a “short sale.” A short sale occurs when a property is sold for less than the value of the loan owed against it.
Despite a tough real estate market, your neighbor’s home sells in one day for cash. Oh, and did I mention the seller and his/her bank agreed to take 10 percent or more off the listed price without the benefit of having the property on the market even one week so that local real estate agents could preview it with their buyers and bid competitively? A listed price that the presumably competent agent determined by analyzing local neighborhood values?
In this example, the borrower sold his home to a relative, one with a different name. He did this so that the lender, which requires the sale to be “arms-length,” was unaware that the new buyer would not be moving into the property, thereby allowing his relative to remain on the premises, which is forbidden under the terms of the short sale. In the long term, the original borrower will most likely “buy” the property back at some point from his relative, achieving a huge write-down in his principal, something I refer to as “mortgage laundering.”
Welcome to the world of short-sale fraud, one in which the normal rules of a real estate transaction often fly out the window in favor of unenlightened self-interest, conflict-of-interest, bribes, kick-backs and lack of proper due diligence by lenders. And it often occurs fairly openly because the chances of getting caught and punished are between slim and none.
How does a legitimate short sale work? And where is the line crossed that turns that legitimate short sale into one that is fraudulent? I will be writing about these subjects in the coming weeks. Stay turned.
Monique Bryher is a licensed real estate broker who is based in the San Fernando Valley. Another Patch article on short sales can be found here.