Thinking of Short Sale Flipping?….Think Again.
In an Article in the Los Angeles Times Business paper, written by E. Scott Reckard published on-line 10/16/2013 @ 6:15am cst, he reports that a former Bank of America Corp. employee Kevin Lauricella was arrested on federal charges for accepting bribes in the amount of $1 million to allow homes to be sold far below their market value.
Based on the report, it appears that Kevin is indicted on 18 properties where he allegedly allowed them to be sold far below the price the bank would have accepted. These alleged transactions took place in 2010 and early 2011. To get the sales through the BofA system, Kevin is accused of falsifying bank records.
The buyers who bought these ridiculously low priced homes would then turn around and sell them for market value or even refinance them at market value, pocketing the profits. To better understand the allegations, see an example of a possible scheme below, not related to the specific allegations of Kevin’s.
Homeowner owes ………………………………………………………………. $100,000.00
Based on Sold comparables, his home is worth……………………… $75,000.00
Which means homeowners is upside down…………………………....$25,000.00
Buyer / Investor makes a low ball offer of……………………………….$50,000.00
BofA completes an appraisal and the home is worth……………..$75,000.00
Now, here is where it get’s fishy. Instead of BofA countering the buyer’s $50,000.00 offer with a counter of $75,000.00, someone at the bank has to do something to allow the $50,000.00 offer to be approved, even though it’s $25,000 less than what the bank could get on the open market. So, to more the story along, the bank approves the fraudulent $50,000.00 offer and the buyer / investor closes the deal on Monday. They then turn around and close the 2nd deal….that’s right, the deal they had in their back pocket from a buyer who was willing to pay $75,000.00 for the property on Tuesday morning, making $25,000.00 in profit in less than 24 hours.
Now, the really sad part of this, the opportunity for fraud is rampant. It doesn’t take a cooperative bank representative to pull this off. In fact, I have seen this strategy myself, in play, here in my local market with corrupt appraisers. I have even been pressured myself, by buyers / investors to tell them when the appraiser is scheduled to be at the property so they can meet with them and give them their comparable analysis. These buyer / investors make it sound so reasonable, they say things like, “well, we want to write up the offer” or “we want to negotiate our offer with the bank direct” or “we can meet with the appraiser so he can see our comps”, etc… however, it’s fraud!
In fact, this is happening so rampantly in my own market place, I was contacted by such a buyer / investor’s Realtor back on Sat 9/21/2013 @ 10:06pm cst through my email. That’s right, these fraudulent buyer / investors are enlisting Realtors to now do the dirty work for them, offering them “double commissions” or higher splits, playing on the agents greed. Sadly, the agent that contacted me is working with a well known Principal Broker in a very well known firm however, the firm is one of those 100% firms and they offer very little to no mandatory training and chances are, after drilling this agent via email about his actions, he may actually believe what he is doing is “the American way” of buying low and selling high.
This topic always seems to get a lot of response and most of the time, I am demonized and vilified saying that I have no business being in Realestate or, I have no clue what I am talking about however, you don’t have to take my word for it. If you really believe what you are doing is above board, legal….and some investors package you bought for $999.99 gives you a indemnity clause or a release of liability statement that says you can do what you’re doing, then I have one thing to say to you. Take your package you bought, take your forms you use and call my friends over at the HUD’s office of the OIG and ask to speak with the Lisa Gore, Assistant Special Agent in Charge or Harvey Wayne Martin, Special Agent. I know they would love to talk with you and answer all your questions.
Comments
Hi Jimmy Payne,
Yes, I have seen this same problem in REO. I have seen where a Listing Agent has a preferred investor network that they send their pre-list assignments out to. It's always funny to me how this network is made up of companies owned, partially owned or silently owned by members of the listing agents family. I don't understand why people would risk prison time for doing business this way but, it's happening a lot....maybe way more than any of us even realize.
Seen it here in Atlanta for many years. It is also rampant in REO assignment with asset managers getting kickbacks from listing agents. It makes it difficult for honest agents to get the work they can do. If people would work hard and work within the bounds of law, there is plenty of money to be made. Greed will always be present and it is even more so when times get tough and easy ways are presented to those with limited morals.
Hey Frank Popeleski,
Thanks for the words of encouragement. I wish I could find that old discussion thread I started on LinkedIn several years ago on this very topic. If I could find it, I would include it on this discussion thread because, it was filled with ugly, hate, nasty comments. People called me everything but my good Christian name....lol. None the less, I knew I was right then, I know I am right now and it's important for us who are in the right to stand strong and stare down this fraudulent scheme. So, thank you again, I appreciate it.
Touché my friend, right on the MONEY! You are THE MAN Mr. Jesse. Eventually those playing with fire will get burnt! There are many who will poo poo you but you are telling them the way it is. I remember a few years ago on another board on the Issue of BPO payments. Most states require all payments to go through the Broker. There were those who were touting that a BPO is not selling real estate, hence they get the money direct! Hell, if it takes a license to perform, and that license is a real estate license, it goes to the broker. Many try to create ways around the professional practice. You are good to bring this up.
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