It’s become commonplace to see advertisements of all type promoting some new foreclosure rescue company that is the savior of those in distress and about to lose their home. These companies appear to have all the answers to the distressed homeowners mortgage issues, and for absolutely free, they will save you and get those nasty banks off your back!

Last week I had the great displeasure of learning a bit about the inner workings of such operations, and believe me, they’re not helping anyone but themselves. A client of mine noticed a short sale listing in his neighborhood boasting a price of 130k under the homes tax assessed value, which is pretty incredible. I found it hard to believe the lender had approved that price, since they’re almost certain to do better than that at auction. The home had sold for over one million three years ago and is on the water; it carried 1.3 million in debt, and was listed at just 878k.

My client was very interested in making an offer on this home, so I contacted the agent, and then the foreclosure rescue company (as directed by the agent) that was apparently mediating between the lender and homeowner. I’ve been involved in a few short sales and I’m quite familiar with the process, so I asked the foreclosure co. when the offers would be presented to the lender; I was told, they would not.

He (the company owner) was bold enough to tell me that he would hold all of the offers, and then submit his own offer to the bank for just 500k. Now all of this was being done without the seller’s knowledge, or the listing agents. The foreclosure company was attempting to acquire the property for ½ price, then “accept” an offer from one of the sellers for over 300k more. The idea was apparently to manipulate the escrow company into some type of a dual close with two sets of docs (the lender only seeing one set), which would never happen at an honest escrow company.

Now some of you may even feel this is an ingenious way to make a fortune, and I have to disagree; there are several things that concern me here (aside from the overall dishonesty of it all). Mainly that the seller is being mislead, and believes the offer she accepted and signed is to be presented to the lender, and the listing agent (after I informed him of what is happening) is turning a blind eye to whats going on, and believes that as long as he submits the offer she accepted to escrow, his job is complete. Also, the agents that are spending their time and money showing this property and writing these offers are doing so in the belief their offers will be submitted to the bank, which is exactly what the listing says. That is a lie.

They also lead people to believe the lender has approved the listing price, when in fact they have not (there are of course too many MLS rule violations to even get into for the agents participating in this process).

Then there are the major issues. The seller will be reported to the IRS for capital gains tax purposes by the lender; if you borrow one million, and the lender accepts payment of just 500k, then in the eyes of Uncle Sam, you made 500k on the deal. So that seller may end up on the tax hook for the money that went into the pocket of the “rescue” company. Also, the lender may still pursue the sellers for the money owed, and attach liens to other properties or assets they may have.

Many company’s do make legitimate profit buying homes from lenders at lowball prices, and selling them for profit. Theres not a thing in the world wrong with that. The types of company’s I’ve just described are attempting to play the middle, and use no money of their own. They are creating additional problems for people already in distress and that is wrong.

So if you are involved in this practice, I beg of you to stop preying on people and destroying lives and making the mortgage crises worse (not that you will listen). The lenders are already going broke, and stealing a little more from them isn’t being a business genius, it’s being a thief. Until people stop viewing the theft of money from banks as a victim-less crime, our economy will continue to suffer.

If you’re a seller, in need of a short sale, contact the bank directly. These sales need to have their approval to move forward or you will never close. You can, if you choose, have your agent deal directly with the lender (you must write a letter of authorization) and submit all offers to them.

The lender will pre-approve a listing price, as well as a commission for the agents involved (it’s typically lower than average commissions). Never go to someone and think you can hand them your problem and they will fix it for free, it simply doesn’t happen that way. If you want it done right, you must do it yourself. If not, then your troubles have only just begun. Don’t fall for the farce of foreclosure rescue.

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Tags: foreclosure, foreclosure rescue, foreclosure rescue scam, foreclosure scam, real estate, real-estate-scam

The following information is about what the U.S. Senate is up to. If any of this becomes law, it will have a direct and severe impact on my business.
There are very good and honest investors out there and BiggerPockets has been a great place for new & seasoned investors to get together and let others know how to do things the right and honest way.

• Legislation Expected to be Introduced Soon.
• Measure Likely to be Modeled After Minnesota Law,
• But May Contain Additional Restrictions Harmful to Investors Nationwide

February 22, 2008 (U. S. Senate)

Wisconsin Senator Herb Kohl has announced plans to introduce legislation aimed at curbing the rise of ‘foreclosure rescue scams’ - using a model which may include restrictions that could be harmful to all real estate investors. The measure is likely to contain some or all of the following provisions:

• Ban on leasebacks-to-owners
• Ban on upfront foreclosure consultant fees
• Ban on all “subject to” transactions
• Limitations on an investor’s ability to purchase or take an equity interest in a home in default
• Ban on all advertising related to “Saving Homes from Foreclosure”
• Restrictions on real estate seminars, which could even apply to Real Estate Investor Association meetings

Also noteworthy - in the Minneapolis / HennepinCounty area alone, foreclosures have increased more than five-fold since the 2004 passage of the Minnesota statute.)

On behalf of real estate investors at the national level, the National Association of Responsible Home Rebuilders & Investors (NARHRI) is already tracking this legislation. NARHRI Executive Director John Grant says that NARHRI will offer alternative legislation from the Commonwealth of Virginia, which has the support of the local realtors, lenders, consumer groups, and which recently passed the House unanimously.

NARHRI expects to see intense political pressure for passage of the legislation before members of Congress leave in the fall. NARHRI indicates it will be providing updates on this effort as circumstances warrant.

This is a very serious in my opinion. It is very frustrating to know that there are legitimate, honest and good investors, mentors and teachers that will be affected in a harsh way.

Please, spread the word on this to everyone you know in the business. It is our job to protect our business. If we sit back and say nothing, there will be no voices to be heard and this could actually become law.

Thank you!

Tags: bailout, foreclosure, foreclosure rescue, foreclosure scam, herb kohl, housing, legislation, scams, senate