Selling a Short Sale to a Person You Know Could be Short Sale Fraud

short sale mortgage fraudA potential short sale seller in West Sacramento called a few days to ask questions about selling her home to a relative. Friends told her she could sell the home to a Living Trust, which her son controls, and then she wouldn’t really be selling the home to a relative — what bunk. This type of short sale transaction could very well violate an arms-length agreement. I can’t believe any lawyer would suggest that idea, but it’s possible because lawyers are not infallible. They make mistakes. Plus, they can then charge a client even more money to build a defense. Pretty good racket. Just think: Better call Saul.

This seller said she read in some of my blogs that it’s not a good idea to try to pull the wool over the lender’s eyes because it can come back to bite you. Hard. Right on the butt. I realize people get emotional about their homes and want the real estate to stay in the family, but if you’re doing a short sale in which you have to sign an arms length agreement, it’s not worth the consequences. The lender could say it’s mortgage fraud and reverse the seller’s release of personal liability, not to mention, prosecute everybody involved.

If you want to read about what recently happened to a seller and his real estate agent regarding short sale mortgage fraud, you should read this article in the Modesto Bee. There were so many alleged wrong doings, it made my head spin. The federal prosecutors say the agent and seller conspired. Here are some of the allegations:

  • The agent wrote the short sale hardship letter for the seller.
  • The hardship letter misrepresented the seller’s ability to make the mortgage payments.
  • The seller and agent made false statements about the seller’s assets.
  • The agent and seller misrepresented knowing the buyer.
  • The seller sold to the buyer, which was the listing agent’s son, as a straw buyer.
  • The seller gave the buyer the money to purchase the home in exchange for the buyer giving it back to the seller.

The buyer’s agent also gave the listing agent 75% of the buyer’s agent commission, which makes me wonder — what about the buyer’s agent in all of this? Is that agent’s broker liable? What about the listing agent’s son? Sounds like a group effort.

At this point, the seller apparently has pleaded guilty and is awaiting sentencing. If the agent is convicted, she could face 30 years in jail plus a $1 million fine. This might be a good time for the agent to watch the Netflex series Orange is the New Black.

Before you judge that listing agent too harshly, consider the fact that it’s possible she doesn’t really sell much real estate and just happens to hold a real estate license, like about 80% of the agents out there. It explains why she might not know any better but it doesn’t relieve her from responsibility to have known.


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