John Rebchook is a former Rocky Mountain News reporter with more than 30 years of experience in writing and communications... By Oliver E. Frascona
Oliver E. Frascona, a Boulder attorney gives advice to real estate brokes invovled with short sales.
A federal grand jury indicted several real estate agents for participating in fraudulent short sale transactions in Connecticut.
The agents bought properties by negotiating short sales with the bank holding the loans and then resold the properties to third party buyers for a profit.
One of the issues is that in one of the deals, the agent listing the property advised the distressed homeowner to stop making mortgage payments to Wells Fargo, the lender. Next, the agent negotiated a short sale with Wells Fargo.
During the short-sale negotiations, the agents did not reveal that they had another buyer waiting in the wings that had agreed to pay a higher price for the property. In one case, a New York trust created by the agents to hold title, bought the property at a short-sale price of $128,000 and quickly re-sold it to an investor for $150,000.
Prosecutors called the trust a “straw buyer,” noting that neither Wells Fargo nor the owner benefited from the higher price.
I see again and again that the prosecutors are not happy with this sort of behavior.
No one wants to be indicted.
Somehow that does not seem like the type of publicity that enhances a career. Government agencies are serious about these type of transactions.
Be extremely cautious dealing with “land trusts,” listing brokers who also have “investors” that are buying from their listed sellers (a no no) and then re-selling through that same broker.
There are many other systems that encourage buying a property and then negotiating with the lender and ultimately selling for a profit.
I have often wondered who the land trust is really representing. In many cases, I suspect it is the investor, not the former owner, who is the beneficiary of the trust.
Remember, you live in Colorado and the real estate commission takes a dim view of these apparent sham real estate deals.
My advice to real estate brokers is to use a quality title company, an established lender and deal at the highest level of professionalism, which requires the agent to fully disclose all pertinent information to the homeowner and lender. And realize that disclosure is not enough. If an armed bank robber wearing a ski mask hands a teller a withdrawal form, he still broke the law.
There is nothing wrong with buying low and selling high. It is the representations to the players in the middle and at both ends of the transaction that is the issue.
Real estate agents: Know which side you are on. Stay away from both sides of a transaction. When a desperate seller is dealing with you, be careful you have no conflicts of interest with the “investor” you are working with.
Finally, representations to federally insured banks need to be documented, so that when you next see them, you recognize what was actually said.
And remember, if it is not on the HUD-1 it is not in the transaction, period.
Oliver E. Frascona, Esq. is licensed to practice law in Colorado and is a shareholder in Frascona, Joiner, Goodman and Greenstein, P.C. in Boulder,and can be reached at 303-494-3000 or oliver@frascona.com.
Thanks – this is important — and I will be re-reading and sharing with my co-workers.