BiggerPockets

Any thoughts!! Is this new??

http://www.freddiemac.com/singlefamily/news/2010/0412_payoff_fraud.html?attr=EMC-SFNCAEFTSPF

here is a 'clickable' link

http://www.freddiemac.com/singlefamily/news/2010/0412_payoff_fraud.html?attr=EMC-SFNCAEFTSPF

This stuff scares the crap out of me. I can see why the perception people have of Investors is that we are defrauding people.

I know most of the active members here on this short sale forum do things differently than me but the reason we wait to relist the property until it's pretty much accepted is this line here: [i]
The facilitator neglects to disclose to the lender/investor that there is an outstanding offer between the facilitator and a second end-buyer for $95,000. [i]

Now you can interpret this many ways....as an investor, I don't need to TELL MY NEGOTIATOR (i.e. my facilitator) that I have a higher offer and the facilitator really has no knowledge...Technically in my case, we usually don't have an offer by approval. We get the offer AFTER approval and still do a simul close. We probably eat away at our profits because we do drastic price drops to get the offer in, in some cases, AND on occassion we've asked for extensions, but I still feel safer getting an offer close to or after an approval.

Thoughts?

I guess the BIG question is if you're contract clearly states you intend to resell the property immediately for profit, is it fraud? I notice that is not addressed anywhere.

I tried to google it and found this:
http://coloradospringsrealestateconnection.com/colorado-springs-short-sale-scam-is-mortgage-fraud/

Read the read section.

Let's say the blogger form Colorado is correct - he stipulates:

* The investor MUST make a FULL DISCLOSURE of the intent to make a profit off of the immediate re-selling of the home - to both the BANK and to the SELLER.
* The investor CANNOT have a simultaneous close - meaning: The home must belong to the Investor for a period of time before being resold to another Buyer, even if it is only for just 24 hours.
* The investor MUST have WET (available) FUNDS to purchase the home even WITHOUT a new buyer. Basically, each deal should be able to stand alone.

That's very easy for most to comply with. If you do not have enough personal cash to be able to borrow hard just in case your flip does not go as planned - then do 2 flips with someone else and voila you will have enough money.

It just takes 10% and you can line up some HML to back you just in case. As for holding for 24 hours.... hold for 48 and pay a little more to the transactional funder.

As for disclosure - well if you are not already fully disclosing to all parties then you are "crazy". Disclose! Disclose! Disclose!

And, for the record..... How is it that these multi billion dollar quasi public/private institutions like FREDDIE cannot figure out how to protect themselves against the little investor doing a flip? Is it really possible that they are not able to conduct a transaction where they know the true value of the property? Are they really claiming that we are smarter than they? Sorry for the rant - but really - the institutions are more than capable of protecting themselves without crying fraud at every turn. There are a dozen ways they could ensure they are protected ... the reality is that they want cash offers that will close in 15 days and they want the guy who is paying cash to pay full retail price as if they were financing the deal...... What B school did they attend? A friend of mine works with cars - he buys with cash at auction then re-sells to finance (payment) buyers at a higher price - this is how our economy works. A wholesaler works/creates a deal and then sells to a retail buyer for a spread - how is this fraud?

OK I am done. No more espresso for me.

Guys this is nothing new even though this particular FM posting may be somewhat vague.
Jeff Watson has done numerous webinars on this subject but I suppose he will be doing a few more...sorry Jeff
I think JCC addressed most of the issues very well so I thought I would just add my 2 cents.

FM posted this bulletin last October:
http://www.freddiemac.com/sell/guide/bulletins/pdf/bll0924.pdf
Page 6 States:
Freddie Mac recognizes the benefits provided by private investors who invest in the housing market by purchasing distressed properties that are legitimately renovated and resold at a fair market value. Thus, while we are strongly committed to preventing improper transactions, including property flips that are predatory, fraudulent or otherwise illegitimate, Freddie Mac encourages continued legitimate and sustainable investment in distressed properties and distressed neighborhoods.

Again in their November update:
http://www.freddiemac.com/learn/pdfs/uw/bp_propflips.pdf
[i]Transactions that Freddie Mac Considers to be Property Flips
The term property flip refers to a transaction in which a property is purchased and quickly resold for a significant profit. A large increase in property value coupled with a short time period between transactions may indicate that the property is being flipped. Properties targeted for property flips generally include properties that can be acquired at lower prices than other properties in the same neighborhood and often include real estate owned (REO) properties, properties subject to a "short sale", other distressed properties or newly constructed properties where the builder or developer must liquidate housing inventory quickly. A property involved in a flip may be resold on the same day or within days, weeks, or months of the purchase. In some cases, the seller of a property flip never holds title to the property, but instead sells or assigns their interest in a contract to purchase the property to a third party.
Property flips are not inherently illegal and not all transactions involving a rapid purchase and resale are improper. Legitimate property flips are acceptable transactions in connection with loans purchased by Freddie Mac. Some indications of property flip transactions that may be legitimate include:

• Sales of properties that the property seller acquired at below market value after purchasing as a result of a distress sale (i.e. REO sale, short sale, tax lien sale, bankruptcy trustee's sale, etc.), where any increase in the sales price over the property seller's acquisition cost can be clearly shown to be a result of the difference (if any) in the market's reaction to distress sales and typical arms-length market sales.[/i]

FM even states they will buy the loan:
[i]Best Practices for Loans Involving Property Flips or Suspected Property Flips
To assist Seller/Servicers in their responsibility to ensure that any Mortgage involving a property flip or suspected property flip meets our definition of an investment quality Mortgage, Freddie Mac recommends that they consider adopting the following best practices:[/i]

RE; Red Flags
They don't need Red Flags for my offers which clearly states that "I am an investor who intends to purchase the property and immediately resell it for a profit and that profit may be substantial!"

RE; Second/Higher offers
The offer made by the C/end buyer wasn't made to the lender in an effort to buy a short sale.
I don't see the lenders name on the Purchase and Sale Contract submitted by the end buyer.
The C buyer is not buying a short sale.
They are making an offer to buy a property that is Free and Clear in which the increase in the sales price over the property seller's acquisition cost can be clearly shown to be a result of the difference (if any) in the market's reaction to distress sales and typical arms-length market sales.

RE; Simultaneous Closings
The operative word here is "Back-to-Back" closing where each closing including it details are completly independant of the other which includes the funding.

RE; Colorado Poster
Looks like she is taking quite a beating.
Maybe she should have googled ( colorado real estate commision+E47 ) before making that post. lol

BOTTOM LINE; Freddie Mac recognizes the role that Investors play in Legitimate Property Flips associated with Short Sales.
Does that mean someone won't try and circumvent the process? Of course not. There will always be someone out there trying to figure out a way to beat the system.
Our biggest problem is separating ourselves from the fraudsters who use short sales as a vehicle to ply their trade.

The best way to do that is to FULLY DISCLOSE.

You know what I find so funny about all of this is that regardless if a buyer is buying the property to live in or not. The property is being bought as an investment that the buyer is hoping will go up in value in order to profit. Regardless whether that profit comes in one hour, one year or ten years from now they are still speculating to make a profit. Do you think if the seller new the buyer is eventually making a profit from the transaction that they wouldn't sell it? Of course not, that is why the buyer is buying it! The seller/lender has done their own independant evaluations and determined what is a fair price that they are willing to accept. So all of this is just hype.

So someone is ticked we are making a profit, oh well.
That's Capitalism and Free Enterprise at work.

Just my 2 cents.
Ok, maybe a $1.00

RE; Red Flags
They don't need Red Flags for my offers which clearly states that "I am an investor who intends to purchase the property and immediately resell it for a profit and that profit may be substantial!

Doug the majority of Investors out there use this clause in their contract. If the Freddie Mac new policy sticks that will not matter. Below you'll see what I mean by the 'right to re-sell' clause will be a Red Flag.

Short Payoff Fraud Prevention Red Flags
Remain alert to the following flags, which may suggest short payoff fraud:

Sudden borrower default, with no prior delinquency history, and the borrower cannot adequately explain the sudden default.
The borrower is current on all other obligations.
The borrower's financial information indicates conflicting spending, saving, and credit patterns that do not fit a delinquency profile.
The buyer of the property is an entity.
The purchase contract has an option clause to resell the property.

*Here`s a short video re:
http://www.reiwebinar.com/short-sale-fraud/go/

If you don't have enough for the 1st flip how do you do the other 2 flips? Also, let's say you do have the 10%. How do you get the HML without the accepted offer which you can't get without the money - seems like a catch 22 that I am trying to get figured out.