We have all heard the stories about real estate and fraud. It seems like they go hand in hand. You can’t have one without the other. We assumed with tighter lending controls in place and with home buyers actually having to put some of their own money into a transaction, fraud would become a thing of the past. Just like a no doc loan and $1.99/gallon gasoline. However some things just will not go away. The human spirit endures and comes up with new ways to scam the system.

The latest “stick it to the lender” approach has to do with none other than our previously described short sale. When a property is sold “short” it means the bank is accepting a payoff for less than the outstanding balance. A short sale is an alternative to foreclosure and there seems to more willingness and cooperation on the banks part to try and avoid a costly and timely foreclosure process. In the banks opinion, it may be the rabies shot in the stomach as opposed to actually becoming infected with the disease. You might as well step up and take your medicine now, because the alternatives just seem to get worse, but the loss does appear to be minimized.

This past weekend an offer was presented on behalf of our clients on a property that was marketed as being a short sale. The proper procedure is to disclose this fact, due to the additional time involved on an acceptance, plus it lets everyone know that no matter what you agree to, the bank has the final say as the sword of Damocles hangs precariously over your head for the next several weeks. Before the offer was presented, communication was established with the seller’s agent who informed us that the previous offer had fallen through as is often times the case as buyers decide to move on, instead of treading water while the bank goes through its mandatory process of having 10 VP’s sign off on the transaction. Then (and here is the kicker) the other agent informed us that his seller wanted an additional $15,000 under the table, as in gratis, nolo contendere. In other words, defraud the lender.

At the very minimum there are two issues here: 1) in a short sale the seller is not to receive any money and 2) not disclosing the terms in the purchase agreement is a fraudulent act, not to mention tax evasion. I have a low tolerance for cheats and an even lower tolerance for crooks. They make it harder on the ones of us out here who are trying to run ethical businesses. This agent should have informed his seller, thanks, but no thanks. I can’t imagine it would be worth losing your license over. The other thing that complicates this issue, is provided we do have the best offer on the property, their under no obligation to accept our offer or submit it to the bank.

So here we have a situation where we do not have anything in writing to confirm the statement of the other agent. Basically our word against his. But you can bet, we will call his managing broker and provide them with the details and we are also exploring our contacts at the bank to alert them to the proposal that was made to us.

My guess is that before long we will see new guidelines and provisions placed upon properties that are in default and pursing a short sale procedure. Banks that are taking huge monetary losses will demand that each and every offer be submitted placing the burden of decision in the hands of the bank and not in that of the delinquent homeowner.

Tags: cash transfer not disclosed, short sale fraud