I have helped short sale clients who once had millions and closed transactions for folks that never had much and perhaps should not have bought property to begin with. Distress affects us all. Few things are as difficult as financial stress. Illness or a crisis with our children certainly could be worse, but facing foreclosure truly sucks. It can bring out desperation, and it can also bring the scam artists to the front door.
On a number of occasions, one of our agents has listed a property for a short sale and brought an offer to the client. Most of the time the seller is ecstatic. There is light at the end of the tunnel. On a few sad occasions, the seller has gotten into the web of some pretty brazen scam artists who promise them things that cannot possibly be delivered. Instead of realizing that if it sounds to be too good to be true that it isn’t, the seller went along with the scammer’s plan. It follows a pattern:
- The short sale gets listed
- One of these bad people harvests the short sale listings and solicits them for their “better option.”
- The seller client, desperate and stressed, agrees to fire their agent, ignore perfectly good offers, and agrees to sell to the scammer for significantly below market value.
- In exchange for the sale, the scam buyer promises the seller tens of thousands of dollars that would otherwise go to their lender to defray the shortfall.
- The end game is, as an example, to sell a $400,000 property for $100,000 to the scammer. They have no skin in the game if the bank isn’t deceived; if the bank is fooled into the lowball deal, the scammer re-sells the property for $350,000 and pays the seller $40,000. Maybe. I don’t know how one would ensure their performance. That would be like running to the cops and complaining that the dope dealer shorted you a few ounces of crank.
In the above example, the lender is defrauded; a consumer is complicit with bank fraud; a valid listing contract with a reputable broker is broken. Worse, the consumer has no recourse if they aren’t paid off.
This has occurred with clients of modest means with an uninhabitable property they abandoned years before, and clients who had high net worth portfolios who fell on difficult times. The modus operandi is the same. The scammer approaches the owner of a listed property, promises them a big payday when they would ordinarily have little or no proceeds, and gets their cooperation in bank fraud. This plays right into the Achilles heel of lenders who do a poor job of valuing the distressed property. That valuation problem is for another day’s discussion.
Is That $30,000 Incentive to do a Short Sale for Real?
July 16, 2012 by J. Philip Faranda
A number of short sale clients have shown me letters, mostly from Chase, offering them an almost incomprehensible amount of money if they’ll do a short sale. It would seem hard to believe, in a world where short sale sellers typically walk from closing with the clothes on their back and no proceeds, that lenders would suddenly offer them tens of thousands of dollars to sell for less than what they owed the bank. But there, in real living color, I have been shown these letters, right at the kitchen table, with numbers to call for verification and everything.
We’ve looked into it. The ones from JPMorgan Chase are legitimate. In some cases, Chase is giving a $30,000 incentive to underwater borrowers to complete a short sale. I have verified it through attorneys, Chase, and several Chase officials, and the explanation has been the same: Chase wants to close out these assets and they’d prefer not to foreclose. In the cases I have seen, the loans were originally Washington Mutual mortgages acquired by Chase when they absorbed WaMu in 2008. Chase paid $1.9 billion for Washington Mutual’s assets in 2008 after they were shut down by the FDIC. They did not pay face value for these mortgages. They can afford to sell them at a loss and even pay an incentive to the borrower and still remain in the black- and safely distant from the robo-signing scandal headaches.
According to a senior VP at Chase I have known for many years, other banks are doing similar incentives. Wells Fargo bought Wachovia. Bank of America bought Countrywide. And they can, in house, offer a far better cash incentive in many cases than what sellers could get under the HAFA incentive of $3,000, which many people often do not even qualify for. Not only that, under the TARP rules, the banks can claim a loss on the face value of the loan on their taxes. And that appears to be what they are doing.
Not every letter a delinquent homeowner gets in the mail promising them cash, incentives, and other goodies is legit. As a matter of fact, much of the mail I have been shown by delinquent homeowners struck me as a scam. But I have to say, in the case of banks like Chase, those large incentives to complete a short sale are a fact.
WHATEVER you do, however, never do it alone. If you are in New York or Connecticut where I work, contact a lawyer and check everything out before you ever deal with the bank directly alone and without help. We have a team including lawyers and a CPA who can make sure that our clients make all the right moves and have their backsides covered. Forewarned is fore armed.
Originally Published on the Westchester Real Estate Blog.
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