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Darned you evil short sale investors… you are sinners through and through…

The Herald Tribune in Sarasota published a rather scathing rebuke of some rather typical investor short sale quick flipping practices.

Any person in foreclosure will tell you how many solicitations from people looking to buy their home they get. Investors claiming to have cash circle like sharks smelling blood along with attorneys and Realtors and everyone else wanting some rich food.

It is very typical for an investor / flipper to work with a homeowner by making an extremely low offer on the property. You can’t fault them for that. They have a business to run and a profit to make. The investor will list their right to purchase the property in the MLS or otherwise market to find someone who will pay a retail value for the property. When the investor has a buyer in place they will finalize their negotiations with the lender at a lower price and quickly purchase the property and then resell it to the buyer that is in place.

The article starts with a rather interesting premise:

“Untold millions of dollars that banks could have recovered from the sale of distressed Florida homes have instead been pocketed as profits by a new breed of property flipper.”

I think the assertion is a little one sided.  How can Michael Braga & Chris Davis the writers of this article be so assured in all of their righteous indignation that if a flipper didn’t purchase a said property at a low price and quickly resell it for a higher price, that some how the lender on the property would have taken that much less of a loss.  There is no way of knowing how much of loss the bank would of taken in any given scenario.  It might very well be that the investor purchasing at a discount might have actually saved the bank a lot of money or increased liquidity thus making good business sense.

The authors of this article echo some of the thinking we see in politics today.  Namely “it’s not O.K. to make money.”  I think it is rather interesting to see how quickly we give billions of dollars to banks who threw it all away on risky investments and (and unearned multi million dollar bonuses to the people that gambled with other peoples money).  But it’s somehow some how it is unethical to buy and quickly resell a property for a signifant profit (God forbid you didn’t atleast fix it up a bit).

The article mentions mentions the following:

“In a June 2009 report on mortgage fraud, FBI officials described various forms of short sale flipping fraud. Each type involves misrepresenting the value of a house to a lender.”

I think the misrepresenting the value of a house to a lender is at the crux of the issue.  Lenders are big boys and should understand that all sales are “seller beware.”  They should not take any ones word for the value and all representations of value are  ultimately opinions.  However if investors are colluding with the lenders own agent that is determining value on behalf of the lender or bribing appraisers to misrepresent value then you have legitimate fraud.

Going after people who flip properties is an easy diversion.  It’s so easy to sell something to someone and then see that person make money and then feel robbed somehow.  It’s human nature.  However the only issue that should even be brought up is the true issue of fraudulent misrepresentation.  Period.

Let me change angles a little bit.  From the sellers perspective: Does it benefit the seller to have a flipper make a low offer and quickly resell?  There are times when it makes sense to work directly with a principled property flipper.  This is especially true when dealing with a property that is in disrepair and is difficult to get a loan on.  Also when there are multiple liens a property flipper may have the resources to bring extra cash to the table to pay off extra liens that are not able to be negotiated to be paid directly out of the proceeds on the sellers side of the standardized HUD 1 closing statement.  I do caution a seller though that a flipper is not working for your benefit.  The flipper only wants to get your house for as little as possible (no matter who nice the man or lady seems).  Lower proceeds coming to your lender may make it more difficult to get them to forgive all of that deficiency debt.   And if something goes dreadfully wrong the deficiency against you will be that much greater.

As a real estate agent who specializes in short sales I bring value to both sellers and banks.  The amount of money I make is clearly disclosed up front and approved by all parties.  If you are a short sale seller with me, I expose your home to the market through the MLS and bring our full service marketing to bear on your home.  Banks like to work with Realtors like me because they trust us that we actually have incentive to bring in a market value offer.  I won’t be skimming anything extra out of the deal.  To assist my clients I have our title attorney look over the final pay off letter to make sure the terms of the letter benefit my client.  And my sellers are my clients.  I have a legal duty to act in their best interest and operate in full disclosure.  I have been both a property flipper and an agent.  I have chosen to be an agent instead because I love representing my clients and actually helping people.
Andy Morris is an Ohio real estate broker with an expertise in selling homes on a short sale. If your Ohio home is heading towards foreclosure or you owe more than your property is worth, please call Andy at 888-4-STOP-IT to see if you qualify for a short sale with your lender.

6 comments to Darned you evil short sale investors… you are sinners through and through…

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