Flippin’ Short Sales

I will never forget reading a sign that was posted on the Venetian Causeway a couple of years ago. The pitch was something along these lines – “Do You Have Excellent Credit? Need Fast Cash? Help Us Buy Real Estate. No Risk!”

Unfortunately, Miami continues to suffer from real estate fraud, and flipping a short sale has been the latest craze for several months now. Whether Medicare fraud, mortgage fraud, insurance fraud, it’s all here. Then months ago, one of my agents was personally involved in flipping a short sale deal, and after catching wind of the scheme, I had to spend days to skillfully work my way out of it. As a result, I terminated our relationship with the client and agent in the same week.

So finally some good news came across the wire this week to help us put a stop to this “flip your short sale” bonanza. According to a recent article published by Florida Association of Realtors, titled “Home short sale flips nixed,” Attorney’s Title Insurance Fund will no longer provide title insurance on deals made with closing flips of short sales.

The formula is simple – the buyer and seller work together to convince the existing mortgage holder to sell the property at a low market value. The buyer, or investor, then resells or flips the property at an inflated price to a new buyer and closes on the same day. The sale occurs simultaneously and the investor then pockets the difference.

So what is the issue? There are several, including defrauding the original mortgage holder, defrauding the new mortgage lender (if there is purchase money financing involved), the end buyer paying an inflated price over market value (memories, anyone?), collusion, professional liability, and the list goes on.

Flipping short sales is not good for anyone, it’s just more of the same. Kudos to Attorney’s Title Insurance Fund for taking a stand.

If you would like further information in regard to buying, selling or renting Miami real estate, please do not hesitate to contact us at info@miamiangelproperties.com.

Miami Short Sales – Know the Law

A few weeks ago I wrote a brief introduction to short sales titled Short Sales 101. As a buyer in today’s Miami real estate market, it is essential that one become an expert to navigate the challenging, and at times, perilous seas of short sales.

This is an example of a typical scenario that I worked on recently, and one in which there was plenty of questionable, unethical and illegal activities. Here is a short version of what transpired:

1. After an exhaustive search for a “steal” in Coral Gables, my client, the buyer, decided that he loved a single family home that was listed as a short sale. He instructed us to make an offer at $1.8 million.
2. The seller’s agent, upon receipt of the offer, disclosed to us that the buyer had engaged a “loss mitigation” expert to handle the deal. When asked about this individual the listing agent did not know  this “expert’s” role or how they were to be compensated.
3. The following day, the contract was accepted and returned with the buyer’s name altered to that of the “loss mitigation expert” along with a limited power of attorney.
4. We contacted the “expert” to discuss our concerns over the power of attorney and questioned how they were to be compensated. He stated that ”the seller tried to handle this himself and he could not get it done with the lender,” and “he is too busy to deal with his own property,” and “there is no problem as I have the authority to legally bind the seller,” and “don’t worry about compensation, i have this worked out with the seller on the side!” Say what?
5. Following many further heated discussions to determine what is really going on the deal was exposed. The “expert” had an agreement with the seller to get paid a $15,000 “loss mitigation fee” at closing [on the HUD] and had his own purchase contract in with the lender to purchase the property at a lower price. He would then close in double escrow, pocket the difference of around $150,000 plus the loss mitigation fee.
6. You can only imagine my next conversation with the “expert,” who was essentially asking my client to pay more than what the lender was willing to accept, and swindle the new lender, existing seller and buyer all at the same time. Does this sound familiar?
7. Upon our clear objection to such a scheme, the “experts” next offer was to be paid just a straight real estate commission instead of the loss mitigation fee. 
8. As such, we immediately informed our client that he should cancel the contract and walk away from the deal. Additionally, that we were not willing to be party to the transaction. The buyer signed the release and escrow monies were returned.

This leads me to my next point. It is important to be aware and knowledgeable of the new Florida law titled Foreclosure Rescue Fraud Prevention Act, which took effect on October 1, 2008. This law protects homeowners who face the threat of foreclosure from individuals who would prey upon them, including the payment of any upfront fees to mitigate any loss.

The flood of Miami short sales has no end in sight. You need to be motivated and willing to do the work. To help navigate the way for you in buying a short sale property in Miami, please contact Ross now at info@miamiangelproperties.com or call 305.673.5300.