Realtor Going To Jail for Doing an A-B-C Short Sale?!
Rental Property Investor · St Louis, MO · Member since 2009 · 83 posts · 234 votes
Realtor Going To Jail for Doing an A-B-C Short Sale?!
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Real Estate Investor · Portage, MI · Member since 2010 · 470 posts · 315 votes
15yThis is an old case from a year ago and for some reason has just resurfaced again. I commented on this in a LinkedIn discussion, too. Here are the main points:
McElaney (listing agent) and Natera Already had an offer for $132,500 and inserted a lower offer to the lender, intending to keep the difference. THIS WAS THE FRAUD THAT THE COURTS FOUND. Had their offer to the lender been in place and was being negotiated BEFORE the $132,500 offer, there would be no fraud!
As members of BOS Asset Management, LLC the agents had a right to purchase the property as long as it was disclosed (which if I remember correctly without re-reading the whole case again, it was)
The lender is not the client of the listing agent, the seller is.
The agents have NO FEDUCIARY DUTY TO THE LENDER
The highest offer is not always the best offer. The best that can be done for the seller is to get their short sale with no deficiency.
One offer at a time is all that should be negotiated. The lender has no right to ask or be notified of other offers that may be held as back up or as an “end buyer”. Who ever has a contract to purchase is the one that has the right to have his offer accepted, countered, etc. before any other offer can be considered.
Bill
23 Replies
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes15y
Joe, Reread the article, She was the listing agent for the bank. She didn't show the bank all offers as would be her fiduciary duty.
The issue was she was the listing agent for the bank. Even if not the listing agent, in my state, agents must disclose any any material fact. A higher offer is certainly a material fact.
This is obvious fraud. I have to wonder did the agent understand that or was she clueless.
Now if B is an arms length buyer and resells to C at a profit, nothing wrong with that.
- Involved In Real Estate · Hyattsville , MD · Member since 2011 · 298 posts · 256 votes15y
I think it was obvious fraud as well because it wasn't just a A B C transaction it was the fact that C was offering to the bank directly and she withheld the information then got it for a cheaper price and made the diffrence.
I dont think this would have been an issue if she had found her own C buyer but she used her position to have knowledge of someone willing to pay more and use that information to make a profit. - Rental Property Investor · St Louis, MO · Member since 2009 · 83 posts · 234 votes15y
Ned - good to hear from you! I wasn't expecting to hear from you here!
I beg to differ. She was not a listing agent representing the bank. The article says she was a "listing agent for the property". This was not an REO. There were still 2 mortgages in place.
The big question I think is - did the bank ask her if there was a higher offer, and did she lie about it?
Otherwise, I don't know if I see much of a difference in what she did and what everyone else does.
Just playing devil's advocate....
- Wholesaler · Fort Myers, Cape Coral, Naples, FL · Member since 2009 · 185 posts · 33 votes15y
All other things aside, if she did not disclose she was the buyer she committed fraud. She also did not do her fiduciary duty to try getting the best price for the seller.
In the end, it's really the banks fault though. Banks need to make sure properties are listed for x number of days on the MLS and all offers submitted. This will net the banks more money.
So many listings here are pending on day 1 for less than they would otherwise sell for.
- Real Estate Investor · Portage, MI · Member since 2010 · 470 posts · 315 votes15y
This is an old case from a year ago and for some reason has just resurfaced again. I commented on this in a LinkedIn discussion, too. Here are the main points:
McElaney (listing agent) and Natera Already had an offer for $132,500 and inserted a lower offer to the lender, intending to keep the difference. THIS WAS THE FRAUD THAT THE COURTS FOUND. Had their offer to the lender been in place and was being negotiated BEFORE the $132,500 offer, there would be no fraud!
As members of BOS Asset Management, LLC the agents had a right to purchase the property as long as it was disclosed (which if I remember correctly without re-reading the whole case again, it was)
The lender is not the client of the listing agent, the seller is.
The agents have NO FEDUCIARY DUTY TO THE LENDER
The highest offer is not always the best offer. The best that can be done for the seller is to get their short sale with no deficiency.
One offer at a time is all that should be negotiated. The lender has no right to ask or be notified of other offers that may be held as back up or as an “end buyer”. Who ever has a contract to purchase is the one that has the right to have his offer accepted, countered, etc. before any other offer can be considered.
Bill
- Real Estate Agent · Winter haven, FL · Member since 2011 · 572 posts · 336 votes15y
Well I am glad this post came up because I was curious about a couple things. I was speak to a realtor who has a short sale he is trying to flip him self(he wants to do an a-b-c closing) is he obligated to present any offer maid to the bank? Even though he has it listed could I make an offer directly to the bank or would they reroute me to the realtor? Any advised would greatly appreciated.
Thanks in advance!
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes15y
Joe,
Shame on me. I chastised you for not reading closely enough and then you pointed out it was a short sale and the listing agent wasn't working for the bank. I was the one that didn't read closely enough. :oops:I was going to write more but Bill Patterson covered it well and clearly is more familiar with the details than I am. The devil is in the details. I hate it when writers leave out key details in their news reports.
- Real Estate Investor · Portage, MI · Member since 2010 · 470 posts · 315 votes15y
That's OK Ned! Those articles are written for their "shock value" to attract hits. Either that or to advance an agenda that would be in favor of the author.
Manny, your offer needs to be submitted to the seller (or a person that has a contractual right to receive offers in the seller's place). He has apparently accepted an offer that is being negotiated and it would be breaking that contract to accept and negotiate another offer while the first one is still in effect.
Bill - Real Estate Agent · Winter haven, FL · Member since 2011 · 572 posts · 336 votes15y
Thanks Bill,
Well that makes sense and clears up the addition questions i had in my head. I appreciate the help!
Manny
- Specialist · MA · Member since 2009 · 858 posts · 306 votes15y
Bill, you get all my votes as usual :D
Guys, I think people look at short sales like they look at REOS. The bank in an REO situation looks at all offers as the BANK is the seller.
The HOMEOWNER can look at all offers and only legally accept ONE which is to be submitted to the lender. If the homeowner choses a LOWER offer that is submitted that is his legal right. All other offers at that point would be considered "back up" - If the first offer fails or can't get approved for whatever reason the SELLER (not the lender) has the right to look at other offers.
There is WAY WAY WAY to much smoke and mirrors on the internet these days regarding short sale flips. Do not believe everyone running around calling short sale investors fraudulent, scammers, etc.
I LOVE these type of talks... I've been fighting this for YEARS now...
Bill and Ned I love you insights... I've been quietly following this thread but now making a voice...
Here's my thoughts (someone who has closed over 60+ A-B-C SS closings)
Let's first define FRAUD: I'm sure many will agree... Fraud is intentional deception of "material fact" resulting in injury to another person/entity.
So... what happened in this case?
- In a SS Listing agent has fiduciary responsibility to the SELLER (not to the bank. 95% of folks get this wrong)
Now... what is fiduciary responsibility?
Its defined as an obligation to act in the best interest of another party. This type of obligation typically exists when one person places special trust and confidence in another person and that responsibility is accepted.
If so... does the "highest offer" mean it is the "Best Offer"... ABSOLUTELY NOT! A cash-offer that can close from a bona-fide investor is much better than a finance offer (MHO).
So... if the listing agent had a higher offer but if the seller "rejected it" then with all means no foul play... if the listing agent got a higher offer first... SAW the offer and made a lower offer after words.. then heck yeah that's hiding material fact...
BUT... this article doesn't even go into deals of the case... it a raaaa raaaa article to get views... (no biggie happens all the time)...
Now... Let's open this up even bigger...
take a look at this article...
http://www.freddiemac.com/news/blog/ed_haldeman/20100927_fighting_mortgage_fraud.htmlOur lovely quasi government entity... and now our tax money shoulders...
Read it...
And you'll see this...
Freddie Mac’s article is no exception. NO SOLID LEGAL FACTS. There’s nothing instructive there.
I'm ALL for open market solutions to the housing and finance “crisis crap" (pardon my language)...
The solution is the use of small, private-investor assisted liquidation. For the difficult short sale properties when... and a MUST... with proper ethical principles that are followed by all involved and appropriate disclosures are provided.
For no rational reason (it's the government right) Freddie Mac apparently doesnt want this kind of assistance to help clear its non-performing assets.
Maybe because it reveals the magnitude of the losses they are creating. I dont know...
BUT...
Freddie Mac says that the problem with short sale flips is... that the industry professionals may work “against the borrower’s best interests by misleading the lender into settling for less than what an informed buyer would pay for the property.”
REALLY!?!?!?
Why the heck does Freddie feel that borrowers that are facing foreclosing shares the same “best interests.”
Few borrowers in foreclosure who I've talked to really feel their lender is sharing their best interests.You get my point?So let's look at Freddi's statement...
1 - “A real estate agent in Pennsylvania recruited an associate to act as the buyer on the short sale of a property backed by a Freddie Mac-owned loan, for a price of $160,000. Simultaneously, the agent was marketing the property for sale as if the associate was the owner, and found a buyer unaware of the actual sale price who was willing to pay $225,000. Both loans were scheduled to close the same day.”
2- “Our fraud investigators were tipped off about the plan and successfully stopped it. But had the deal gone through, the new owner would have paid more than an informed buyer probably would have, Freddie Mac would have been denied a legitimate recovery, and the real estate agent would have fraudulently netted a $65,000 profit at the taxpayers’ expense.”
Hmmmm.... REALLY!?!?!?
Give yourself a big high five... but what did the fraud investigators “successfully” stop?
Seriously... Did they stop the $160,000 sale that Freddie already agreed to in open negotiations? Did they stop the $225,000 sale of the buyer “who was willing to pay” $225,000? Did they renegotiate the deal with either buyer? Did they let the $225,000 buyer close at that price but cut out the initial buyer who successfully negotiated a good deal? Just what did Freddie do? Who did it help? How?
BUT THE MOST IMPORTANT QUESTION IS...
When the F' did it become fraud in the United States market-based system to openly negotiate a good purchase price?
Hmmmm..... On to the next point...
The article states, “the real estate agent would have netted a $65,000 profit . . . ” I’m not sure how this would happen. How does all of the difference go to the agent’s commission?
There must be no closing costs, other commissions to pay, profit to the intermediary buyer, local transfer taxes, nor federal and state income taxes on the profits.
So is there any recognition that the $225,000 sale price would have raised the local comparable sales prices, collateral values and eventually the local property taxes. I would say HELL YES...
So...
Is it likely that the $225,000 was “more than an informed buyer would pay”?
Hmmmm... I dont think so.
If it was a financed buyer... the buyer’s lender would have one or more appraisals plus other strict lending requirements to assure that the new loan is properly secured. (HVCC, +20% increase w/ 2 appraisal etc)
We are NO LONGER in the days of easy money and manipulated appraisals (does it happen yeah but not like before).
So what if...
If it was a cash buyer, then the buyer likely would have been too sophisticated to pay too much.
And anyone on this site will agree that majority of cash buyers are tight-wad purchasers looking for discount properties. (i know I am)
Final thought and RANT
Either the $225,000 sale was not going to close in reality or else it was a reasonable market price, not “more than an informed buyer would pay.”
So what did it really do... not much other than make me type this long rant LOL.
Also..
Don't get it twisted. I KNOW there’s mortgage fraud out there... including a small percentage of short sale flips.
To Mr. Haldeman’s... his article provides a link to FBI mortgage fraud information.
But REALLLY (I'm sure you missed the link)... When someone reads the examples the FBI has successfully and properly prosecuted...
No wayyyyy do they do resemble the “case study” in any material way.
The link to the FBI web site MHO again... is merely a BS link to add legitimacy to a BS fallacious argument and example.
For the casual reader who won’t follow the link or understand what this all means... ALL IT DOES is create a sense of FEAR... on this investor-driven short sale transactions.
God Speed.
JC
- Real Estate Investor · Portage, MI · Member since 2010 · 470 posts · 315 votes15y
Jeff,
I just spent my BP time for the day just reading your post! You make lots of good points. I did not go to the Freddie Mac article since I have already read it, but I remember it just as you state...lots of misleading statements and little fact.
Bill - Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes15y
Jeff the problem with interpretations of things is you will see it one way and the government or a banking entity will see it another way.
Some look at the lender taking the hit as an implied agency.So your prime fiduciary duty to the seller and then secondary to the bank.
Many ways to look at it.As a licensed broker I simply do not get involved in these types of deals.The pay day does not equal the headache or the risk to the license.
This is where to an investor the payday might be so large that they take the risk but to the broker/agent it's not worth it.
- Real Estate Investor · Portage, MI · Member since 2010 · 470 posts · 315 votes15y
Originally posted by Joel Owens:
Jeff the problem with interpretations of things is you will see it one way and the government or a banking entity will see it another way.Some look at the lender taking the hit as an implied agency.So your prime fiduciary duty to the seller and then secondary to the bank.
Joel,
I don't think that "perspective" changes what is legal and what is not. Perspective has more to do with what is good for the particular position of the person involved.
As for fiduciary responsibility.....That is cut and dry. The agent has a contract with his client and that is where his fiduciary duty lies. Certainly not with a lender that has an arguably adversarial relationship with the home owner as they attempt to foreclose on the property. While it is within their rights to do so, many home owners caused their own problems and it is the correct business decision for the lender, it does not infer any duty upon the agent other than to disclose the facts that are required by law.
Bill Originally posted by Joel Owens:
Jeff the problem with interpretations of things is you will see it one way and the government or a banking entity will see it another way.Some look at the lender taking the hit as an implied agency.So your prime fiduciary duty to the seller and then secondary to the bank.
Many ways to look at it.As a licensed broker I simply do not get involved in these types of deals.The pay day does not equal the headache or the risk to the license.
So let me ask you this... just for kicks :lol:
What if I hired you as my buyers agent. And you found me a property that for sale as a FSBO w/ equity. Would you then have fiduciary responsibility to the seller?
MHO is no... If so, What if you did a single party compensation agreement... kind of like a FSBO and you represent me as the buyer looking to buy a distressed SS properties.
Joel understand I'm just asking this question just to ask...
Why because... I'm in California... and it's probably the MOST litigious state and that's the ONLY way I'm able to atleast cover my a$$.
I love these types of topics!
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes15y
Bill Patterson wrote:
I think what Joel was getting at is the government (attorney general, courts etc.) may interpret the law differently then you or I do. There have been cases in Maryland where the law was very clear and the courts ruled the other way. Fair or not, investors are often viewed as the bad guys taking advantage of people.
I agree with you Bill, I just don't want to have to ever be in front of a sharp attorney and a judge with agenda.
- Real Estate Investor · Portage, MI · Member since 2010 · 470 posts · 315 votes15y
Ned,
That is what I was saying, too. The law is interpreted by the perspective of the parties in a case. The court determines the outcome. There are very specific criteria that all have to be met to be guilty of fraud. To do a short sale purchase and resell at a profit, if done correctly, with disclosure and in the proper sequence is not fraud.I would be interested in the cases in Maryland that you speak of. Can you get me a link to them?
Thanks,
Bill - Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes15y
Bill,
These cases weren't related to what we have been discussing. Sorry I don't have links because this info just came from discussions with my attorney.
My point is in Maryland you can't always trust that the judges will rule by the written law.
- Real Estate Investor · Portage, MI · Member since 2010 · 470 posts · 315 votes15y
Ned,
This is the good ole' U S Of A!! They have to follow the law or one of two things will happen (or both). The losing attorney will appeal to a higher court. When elections come along, a bad judge should not get re-elected!
Bill - Specialist · MA · Member since 2009 · 858 posts · 306 votes15y
I think they key is "intent" - Did these guys misrespresent, mislead, lie, conceal, coerce, etc? The answer would be YES they DID.
Bottom line is if you have clearly written contracts that state you are and investor and plan to resell the subject property IMMEDIATELY for profit, someone would REALLY have to do some work to show that you committed fraud in some way.
"McELANEY and Natera concealed.....that Natera owned BOS Asset Management, LLC, (that was buying the property )and that McELANEY and Natera planned to keep the difference between the two prices."
- Menifee, CA · Member since 2008 · 194 posts · 46 votes15y
Use one agent A-B & another agent B-C. Make sure you have the right to market before purchase. These are getting tougher, but still doable. I got out because the banks are not negotiating down to a price that works for me... At least not for now anyway. Biggest thing is to make sure your ducks are in a row & EVERYTHING is above board.
- Involved In Real Estate · Las Vegas, NV · Member since 2009 · 10 posts · 1 vote13y
The only place the agent went wrong was not disclosing her future interest in the deal...
An agent simply shows the bank which offer the seller chose. The seller can choose whichever one they want.
It doesnt sound like everyone really understands what they did here ..
It was not only that they were the listing agent, but they waited until they received an offer, then instead of submitting the buyers offer, they submitted their own offer to the bank for much less. Once they got approval of their own offer they double-closed with the 'real' buyer at market value.
It's clearly unethical and apparently illegal.
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