Those short sale flipper investors are really getting active now. As a Sacramento short sale agent, I have been receiving a lot of calls lately from investors and their agents asking if they can lowball some of my short sale listings. It's not that I have anything against a guy trying to make a buck. Buy low, sell high is the name of the game in real estate. But I do object when those offers affect my sellers' chances of closing escrow.
My sellers don't hire me to make money for investors. They hire me to protect their interests, get them the highest price possible and to close the short sale in a timely manner.
A new twist that seems to be developing among short sale flippers is to submit an offer at list price with the buyer paying all of the closing costs. It is customary for the seller / short sale bank to pay those fees. One might, at first glance, wonder what's wrong with that; full-price offer and the short sale bank pays no closing costs except commission. I'll tell you. When the buyer pays title and escrow fees, the buyer chooses the title and escrow company. Generally, the escrow officer is a person the buyer knows, and this person may or may not share certain information about the transaction with the listing agent. It means the buyer controls the transaction.
Why would a buyer need to control a transaction? Because there might be something going on that the buyer doesn't want the listing agent to know. It could be anything. It could be the buyer is planning to do a double escrow, that is, turn around and resell the property to an end buyer, and close both escrows concurrently without disclosing this plan to the seller. Many short sale banks prohibit resale within a certain number of days, and they try to hold the parties accountable. If a buyer agrees not to sell the property within a particular time period and instead immediately sells it, that action might be considered mortgage fraud.
It could also mean the buyer has signed an all-cash offer but is actually borrowing the funds from a private source, which may or may not be qualified to make such a loan. If the loan doesn't fund, the escrow doesn't close. Or, the buyer may be counting on transferring funds from escrow #2 to close escrow #1. So, if escrow #2 falls out, so does escrow #1. The seller has a right to know if the purchase is contingent upon resale, but often those intentions are not disclosed.
The title companies I work with in Sacramento typically will not open a short sale escrow on behalf of strangers. The liability is too great. The potential for fraud is too high. They work with me because they trust that I am ethical and are assured that I won't any allow hanky-panky to go on in my transactions if I can help it. I advise my sellers to just say no to those short sale flippers.
Photo: Big Stock Photo
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Elizabeth Weintraub is an author, home buying columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout Sacramento. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. DRE License # 00697006.
The Short Sale Savior, by Elizabeth Weintraub, available through bookstores everywhere and at Amazon.com.
Photo: Unless otherwise noted in this blog, the photo is copyrighted by Big Stock Photo and used with permission.
The views expressed herein are Weintraub's personal views and do not reflect the views of Lyon Real Estate.
Great post Elizabeth, get these calls all week. Agents shouldnt think they are off the hook once the transaction closes with these issues, what happens when the investor or the MI does a follow up and sees the property sold 40 days later for 50K higher, eventually they will catch on and since they cant nullify the sale who do you think they are going to come after? The listing agent!
Oh my ... I have always opened escrow immediately after listing a short sale to obtain the prelim and HUD-1 and have never had anyone object to using my escrow agent. This is good to know ... thanks Elizabeth.
Why must people make an already difficult situation even more so? Good for you for being wiser than they are.
Hanky Panky isn't good in any real estate transaction and I even on traditional sales advise my sellers to run from it if there's as much as whiff of it.
I had no idea so many flippers were out there in the Sacramento market. On the whole that is good news, but there will always be the shady characters.
I know several companies that are doing exactly what you are describing. To tell you the truth I didn't know it was fraud, as I have seen it done so often. Glad, I have not been involved in any of those transactions.
It's not fraud, Tere, to pay for your own escrow and title as a buyer. It's unusual to do so in Sacramento, though, because it is customary for the seller to pay for those services. I'm just saying that it could be a red flag and to be careful. If a buyer insists on his or her own title and escrow, you've got to ask yourself why a buyer would pay thousands more. There is generally some benefit to the buyer that might not be apparent to the seller.
These deals with banks are difficult enough without adding to the mix with a buyer trying shenanigans to get around a resale. I work with title companies I know and usually the buyer goes along. If not, it's time to ask questions. Good post.