San Diego real estate blog - Peter Toner

In both the following scenarios foreclosure and short sale numbers are over inflated, by how much nobody really knows  ….

Heard of the well publicized scam where a buyer makes an offer on a home well above the listed price and asks for cash back at closing (usually not in the contract)? Of course the seller, if the property has been languishing on the market for a while, is tempted to accept the offer – but wait ….

… what’s wrong with this picture? It’s lender fraud and the Feds are getting heavy with perpetrators.

Here’s how it works: A “friendly” appraiser comes in and appraises the home to show the value of the above listed price offer (although the comparable sales don’t support it). The buyer then submits the misleading appraisal to a lender for 100% loan to value, the lender unknowingly approves the loan, seller gets paid and buyer takes ownership of home. The buyer cashes out the loan amount above listed price (often tens of thousands), never makes a mortgage payment and allows the home to be foreclosed upon.  Shocking yes, and amazingly it is being done across the country and it’s just now that we are reading about it in the papers. Reading about the litigations that is, because the transaction is not only 100% fraudulent its 100% illegal! This behavior more importantly also hurts the real estate market by creating a non stable comparable sales environment as well as unnecessary added foreclosures to the market!

As if that isn’t enough …

… others have figured out another way to defraud the industry. The set up is simple: Joe Smith’s mortgage has adjusted from his fancy 3% rate to an ugly rate of 11%. His home is not worth what he paid for it 2 years ago. Joe calls his lender and begs to be relieved of some of the debt he owes and asks his lender to allow him to list the home as a short sale. Joe then asks his brother-in-law to purchase the home at the new “lower” discounted price of the short sale. Joe’s brother-in-law fraudulently purchases the home as “owner occupied”, saves thousands for Joe Smith and Joe stays in his home with the help of his brother-in-law.– what wrong with this one?

It rips off the original lender - as lovely of a solution as this scheme sounds, this too is 100% fraud and 100% illegal! Now cases like this haven’t hit the papers yet, but the word is out and the investigations will be around the corner. This type of scam also hurts our real estate market (this time in reverse) by lowering the sales prices of homes in a neighborhood, thus lowering the comparable market sales used for future homes listed for sale. Plus it fraudulently adds to the numbers of short sales the real estate and mortgage industry tracks. 

My point here is that there are home owners facing financial hardship due to the “fancy” low rate ARM’s they were blindly sold into that are now adjusting and Mr. Bush cannot help all of them. Before it gets to the point of desperation do yourself and the market a favor, first call your lender and let them know your situation - chances are they will be willing to work with you.

Another great source of information is an experienced real estate agent, one who knows the market and the in’s and out’s of staying afloat with the changes occurring. An agent that has been in the business long enough to know that the market is ever changing, ever adjusting ….  

Written by Peter Toner.