BiggerPockets

I am surprised no one else posted on this today! This is some scary stuff.

It seems that non-disclosure to the respective lenders in short sales flips has already gotten the feds involved - and some investors will be sentenced to prison because of it:

http://www.connpost.com/ci_13523546

I know investors are not lawyers (Thank God!), but, given this latest news, how on earth now will an ethical, law-abiding investor know if he or she is breaking federal law when it's been vague as to what disclosures need to be made in order to avoid an "intent to defraud", in this case, the short sale lender.

Where does one cross the line from what is considered free enterprise and the essence of capitalism to what is outright intent to defraud???

Even the guys doing simultaneous "dry closings" didn't go to jail. All I've heard is that the title cos. have put a moratorium on these transactions, but that's about it!

Though I've read a great deal about it being a good idea to disclose the resale price to the short sale lienholder, where does it say in the law that it's mandatory? Again, isn't that what capitalism is all about - buy low, sell high?

If the investors in this example were using "wet funds" closing on the buy and then simultaneously selling to end buyer they already pigeon-holed as the end buyer - isn't that how most investors are doing these?

And even if you disclose to the bank taking the loss on short selling, what happens if the feds decide all of a sudden to indict investors who failed to disclose the facts of the transaction to the other side of the deal - the end buyer's bank? You might think it's a non-issue and completely legal and within your right and none of the end buyer's bank's business when all of a sudden the feds think it should be - and boom, you're screwed!

When you really look at it objectively and in general terms, how is this transaction any different than one in which the investor ( or any buyer) would have held, say, a few months and then re-sold for a profit???

Someone tell me what I'm missing here!

:roll: :roll: :roll: :roll: :roll:

As Scott stated there probably is more to the story than was originally printed. Will be watching in coming days for more developments to drop. Although I am interested in whether the fact that both of the indicted parties were allegedly realtors posed something of a conflict of interest. Thinking that they say licensing as a realtor holds one accountable to a higher standard.

This pair was very crafty. They actually convinced a homeowner to go into default so they could negotiate a short sale with the bank. Then they found a buyer that paid more than what was owed on the house. Therefore, a short sale wasn't even necessary. So, the homeowner most likely could have sold it on their own. Instead, the homeowner got screwed and the bank got screwed. Also, there were no disclosures to the bank.

If you have a house with a $370K mortgage and you tell the bank that they need to take less because it is not worth $370K, and you immediately resell it for $460K, you are going to have a big problem. This will be considered mortgage fraud because you told the bank it wasn't worth $370K.

Full disclosure and a good real estate attorney will help keep you out of trouble.

It is because of idiots like these "investors" and I use that term loosely... that Maryland has one of the most stringent Pre-Foreclosure and Foreclosure laws in the country... and I believe 11 other states have seen the "light" and implemented their own version of this law.

Why can't investors just be ethical?

I'm not defending these guys' actions, but how do we know whether the properties weren't already underwater and the owners already in default? It didn't state that. And the BPO, you're right. Why didn't the bank send their own agent to do the BPO?

I didnt read the story yet cause i just found out its nearly impossible to make a shortsale in CA and found the laws im gonna post to see if anyone doing these can give this to their attorney.

But as stated before, it would be fraud if they sold it for more than was owed. This is on fannie mae and freddie macs web page. Also if they offered more than what something was listed for and got cash back at closing. these are inflated sales prices and would eventually be used by appraisers to do other properties as comps.

i have a document on this from there maybe i can find it online....

cash out buyer
https://www.efanniemae.com/utility/legal/pdf/fraudnews/mortgagefraudnews0709.pdf

Property flipping
http://www.freddiemac.com/singlefamily/preventfraud/flipping.html

Hey James... you are so right. Once money, easy money enters the picture there is no thing as ethical behavior.

Sad... very sad but true.

I do short sale flips and fully disclose everthing.

My contract states that I can market and resell for profit. Its states I am investor and my intent is to make a profit. My final HUD-1 that the bank approves is stamped with big letters "BUYER MAY RESELL THE PROPERTY FOR AN IMMEDITATE PROFIT."

Anything can be done illegally if its done unethically. The banks are not our enemy if we disclose.

Reasons banks like investors:
1. We are cash/hard money buyers.
2. We don't walk away from the deal if we can make it a profit. If we cannot make a profit we refer a retail buyer.
3. We know how to do short sales
4. We close our deals

A banks main goal is to make money. Right now in most areas of Phoenix, banks will make more per square foot on a short sale versus an REO. So banks want to sell.

There are bad people who screw it up for us. Just like their are insider trading at big companies. It doens't make buying and selling stocks illegal as long as its done ethically.

Disclose, disclose, disclose. I have only one bank tell me they will not sell to me and that was ING. Every other bank will play ball. I'm buying a house this week where the 4th bedroom was filled with dog feces. Do you think the bank wants that house? Nope. Do you think a retail buyer wants that house? Nope. But I do. :)

First of all. I am not an accountant or an attourny and my contracts state they need to seek compentent advice on that subject.

To answer your first question, yes they need to know. Because the lender will find out anyways. I disclose everything to everyone, you have to make them work. If its a cash buyer, they know it as well. My contract with them states that this contract is only valid upon a successful negotiation on the first contract. If that makes sense....

Several properties I have are with investors who are losing a lot on rent. I first tell them "I am not an accountant and you should really seek the advice of one". Secondly I tell them it is possible that a 1099 will be sent to them because the government see's them as making a profit. I tell them to talk with their accountant about it. That is it. I do not give out legal advice or tax advice and they sign documents with me stating that I am not a real estate agent, broker, foreclosure expert, attourny, accountant or whatever. My documents state that I am an investor and "my sole motivation is to make a profit". Of course I want to help them out of a bad situation, but you need to tell them how it is. If I cannot make a profit then I cannot buy the house. It is as simple as that.

On a side note, I attended my REIA meeting last night that had a panel of short sale experts on it. A couple take aways:

1. They stated that bank are opening up to investors because we move properties. They are "sick and tired" of retail buyers walking away from properties and having to restart the negotiations. To be honest, I have not seen this, but the title company mentioned it.

2. Secondly, as I mentioned. Disclose, Disclose, Disclose. Do it ethically and no one cares if you make a dime. The seller is happy cause they avoided foreclosure, the banks are happy cause they were paid the money they wanted, and the end buyer is happy cause they didn't have to wait 3-4 months to find a house.

The idiots who ruin it for us are the people not doing it right. The media only writes the stories about the bad investors cause no one cares about the good investors. It causes an over public reaction that gives us good eggs and bad name.

I don't openly state it but its public knowledge. In AZ the A-B HUD-1 will have the sale price and B-C will have the sale price and the amount to be paid to seller (me this case). So they find out one way or another.