Mortgage Laundering in the San Fernando Valley
The illegal sales practice occurs fairly openly and goes largely unchecked, says Valley-based real estate broker Monique Bryher.
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 tuned.
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.
bernie miller
7:12 am on Tuesday, November 29, 2011
I am sorry but I do not find this illegal. I know it is, i would not do it, but it should not be illegal. Reason? The banks have taken NO steps to help the homeowner out. Why sell it to a stranger at a reduced price, but bank is not willing to give the present homeowner a reduced mortgage. Reason? they make money off the short sale via a government subsidy. Maybe if the bank tried working with the present homeowner this kind of "fraud" as they call it would not exist..The banks make money off the short sale process by a government subsidy of 85% of value loss and then another 35% insurance coverage, then another 35% for a tax write off...Now who is committing fraud? The banks were given TARP and then another loan in trillions that were never disclosed till yesterday for their losses. But the homeowner has been given the boot, bad credit, and loss of respect. While the banks who made the "same" decisions as the homeowner did, received bailouts over bailouts..
Terrel Miller
7:41 am on Tuesday, November 29, 2011
Bank's make policy, not law. Only our legislators can make law. What is being described is simply a policy that the banks have employed. We all need to stop handing over all of the power to the banks and hold them responsible for the laws they continually break!
Jennifer Niman
11:11 am on Tuesday, November 29, 2011
Fabulous article and about time someone wrote about this! It's more common than you think! To Bernie and Terrel - there are many legitimate short-sales out there and they are legal and offer a good solution to someone who is upside down to get out of debt without the stain and stigma of a foreclosure. What the author is describing is the ILLEGAL "dirty short-sale" as I call it. This is dirty because the Seller is defrauding the Lender by not doing his due diligence to expose the property to the market and try to recoup the bank's losses by getting the highest and best price the property can fetch. In a legit "clean" short sale the house is given a week or 2 of exposure to the market, then all the offers are submitted to the bank. The bank and the agent will then select the BEST offer and that will result in a "kosher" short sale transaction. Kudos to Monique for bringing this dirty business to the fray.
Jennifer Niman
Prudential CA Realty
Sherman Oaks
Terrel Miller
12:08 pm on Tuesday, November 29, 2011
Well, Jennifer, If you don't want to hold the banks to task, how about our colleagues (I have been an active RE Broker for 22+ years) who participate in what YOU call "dirty short-sale" activity? The agent represents the seller, NOT the bank, and needs to be held to that fiduciary. We do have laws, and we have policy. When we Realtors treat bank policy as if they were law, we are major participants in the problem and not part of the solution.
Jennifer Niman
3:59 pm on Tuesday, November 29, 2011
I would like to see our colleagues who participate in all matters of fraud, including dirty short-sales, be held accountable for their actions. Yes we have a fiduciary to the Seller but the Seller has an obligation to pay off the debt, albeit a short-fall as in a short-pay situation, to the best of his ability and not scam the bank with a low-ball sale just to sell it to a pal or make out with an advantage some other way. A short-sale is debt forgiveness and one should try to make good on repaying that debt to the best of his/her abilities.
Sarah Taylor
8:14 am on Sunday, December 4, 2011
I agree. Banks have a "policy" which reminds me of my parents saying, "Because I said so." An arms length short sale is yet another method for banks to hold homeowners hostage.
Linda Coburn
10:43 am on Thursday, December 1, 2011
This is very interesting and brings up some difficult ethical issues. Banks have certainly not been putting their best foot forward by cooperating with borrowers that truly want to make good on their debt and get the best value for the property. They were also complicit in the inflated market that created this huge bubble as well. So I can see that people in a tough situation are looking for a way to keep their home and if no laws are being broken, then what's the problem? My guess is that most banks just want to get these properties off their books as quickly as possible and that's why they're not enforcing their own internal policies. I look forward to reading the next installments of this story.
Culver
1:43 pm on Friday, December 23, 2011
Just potentially had this occur in my townhome complex. While I don't have written proof the fact that the buyer is the niece of the agent, the selling price was 25K below the listed short-sale price, the seller, agent, and buyer all share the same ethnic background, and the rental tenents of the original owner stayed as rental tenents with the new owner. Definately not an at arms length transaction.