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Category Archives: client protection

Sellers, protect yourselves

There are a couple of stories in the last few days that have hit the same sour note.  And, if you are selling your home (with or without representation), you need to be aware of this situation.

Loan fraud is still rearing its ugly head.  Speaking at the Mortgage Brokers Association fraud conference:

Merle D. Sharick, vice president of sales for MARI, stated that Suspicious Activity Reports received by the Federal Bureau of Investigation and the Financial Crimes Enforcement Network from federally regulated banks jumped 139 percent between 2006 and 2007. The jump in fraud will spell record losses for lenders, easily topping $1 billion, says the report. 

Georgia ranked 6th in mortgage fraud last year.  Most common types of fraud are still generally on the buyer side, things like mis-stated income, assets or debts.  However, that isn’t all.  The FBI is looking at mortgage fraud on several levels.

The FBI has assigned 100 agents to investigate corporate fraud aspects of the housing crisis, including subprime lending and insider trading. Another 150 are looking at related securities fraud, and 153 are looking at loan originations, says Neil Power, economic crimes unit chief of the FBI’s financial crimes section.

To break it right down to an individual level:

A Las Vegas couple is accused of orchestrating more than 400 sham real estate deals and cashing in on millions of dollars through a mortgage fraud scheme that involved inflated house values and straw buyers.

Eve Mazzarella, ABR®, GRI, broker and owner of Distinctive Real Estate & Investments in Las Vegas, and her husband, Steven Grimm, were indicted last Wednesday and charged with bank fraud, money laundering, and aiding and abetting, according to the U.S. Attorney for the District of Nevada.

If convicted, they could face up to 30 years in prison and a $1 million fine on each of the six bank fraud charges. They could also face up to 10 years in prison and a $250,000 fine on the money laundering charge, according to the U.S. Attorney.

The couple operated numerous limited-liability companies and allegedly used them to engage in 432 straw buyer transactions and obtain control over about 227 properties at inflated values. The total purchase price of the properties was more than $100 million.

The couple defaulted on mortgage payments on many of the loans, which caused at least half of the properties to go into foreclosure, according to officials. The foreclosed properties have caused losses to the banks of more than $15 million. 

This is a little different from the buyer overstating their qualifications on a mortgage application.  It is also the type of fraud that sellers need to be tuned in to.  

One more than a couple of listings I have had offers presented that could be fraud.  Often, the other agent didn’t know that what they were asking for was fraud.  The offer would typically look like this:

  • List price of $300,000
  • Offer of $375,000
  • Seller to rebate the buyer $60,000
  • Preparation of two contracts
    • First contract to govern the deal between buyer and seller
    • Second contract to be submitted to the mortgage lender
  • In some cases instead of a rebate, the seller would pay a large amount to a contractor for renovation.  The contractor would be involved with the buyer.

As a seller, being involved in this type of transaction can land you in deep water.  Just as with the agents, appraiser and buyer (possibly the mortgage broker and closing attorney as well) there is a possibility of criminal charges for the seller.  Jail time.

So, the bottom line is that sellers need to make sure that they don’t fall into one of these schemes.  The offer might start out sounding normal, and then there is a call to change some of the terms.  Obviously, I would say that having a good agent is one way to stay out of this type of trouble.   You need to know and trust the person you are working with.  If in doubt, contact an outside party to see what they think.

The case to buy now…

This is not meant for everyone. But, for the right people, this should be a must read. Those people are:

  • First time buyers
  • People that aren’t selling a property to buy another
  • Those living in a high demand area and looking to move to a lower demand area
  • Long term investors

If you are in one of these groups, I would recommend looking around and thinking about the future. We know that the real estate market downturn will go away. We know that values will begin to rise. What we don’t know is exactly when… or if there is much more to fall.

Honestly, looking for the bottom of the market is somewhat of a fruitless search. At its base, “the market” is made of individual sales. And EVERY individual sale has to find its own bottom… and that bottom is only found when a buyer gets an offer accepted. As we have seen in the recent past, that property might change hands and make a new bottom, but I also think it would be fair to say that there isn’t a lot of fat built into the current pricing.

Here is an example:

I know of several similar properties that the owner is thinking of selling*. These are 4plex units. They currently bring in roughly $3500/month in rent, and have longer term renters. The seller is thinking of a price in the range of $450,000/4plex. With a 10% down payment, a buyer could be looking at a P&I of around $2600/month. Even with taxes and insurance, these would be providing positive cash flow from day one. At least a couple hundred dollars a month… and then when we start adding in depreciation…

Of course, the real magic is when we start looking at appreciation. Over the course of 30 years of ownership, one of these properties would provide over $500,000 in income, as well as appreciate to over $1,000,000 in value… while others pay the mortgage. So, one of these properties could net the owner $1.5M.

In this case, the sellers are retiring. Comfortably. And they have moved out of the area.

But, there are a lot of instances where there are great deals on properties. And, one of the things I have learned from investing is that the noise of the market is well behind the curve. When people are talking about the upside… the upside is slowing. When people are looking at the downside… the downside is slowing.

The more I see on the news and the more I hear about how bad the real estate market looks, the more I know that the deals are there and the turn is coming.

Need a little more proof? Look back at the top of the housing bubble. Or the top of the tech bubble. Or the bottom of the last real estate meltdown.

So, if you are thinking of being a buyer, and you have good credit, this might be a good time to do it. I would counsel that you get together with a local real estate agent (like me) and also talk with a good mortgage broker (I have a couple that I can recommend). Look at the options. It might not be the time for YOU… or it might.

*I do not have these properties listed and would likely be serving as a Buyer’s Agent on the purchase of one of these properties.

Message from the President…

… of the NAR.  Here is a link to the post.  Dick Gaylord, the President of the NAR, raises some very good points, but I had to rebut the post as a whole.

The first thing I need to say is that I am proud to be a REALTOR®.  I love the work that I do.  I love helping clients buy and sell houses at the various stages of their lives.  Seeing their goals realized is incredibly satisfying.

As you know, NAR has been criticized in the news media for our “rosey” outlook for the real estate market. More often than not, they say we are too positive about the prospects for housing values in the future.

Terry gave his clients and agents a look at how accurate the news media has been about previous housing cycles. Below is the e-mail he forwarded to me, which shows how various media outlets have consistently predicted a long-term decline in home values since the 1940s. Yet, every time, the so-called decline was short-lived.

The email has quotes from various media outlets over the last 60 years.  In each case, the quote points to a long term prediction based on short term information.

And I agree with both Mr. Gaylord and Mr. Forsberg.  I think that the media does give real estate the short stick… but they do the same thing to EVERYONE else.  In fact, let’s look at the VERY recent past.  This isn’t real estate, but it shows the mindset.

The media (in general) wants to be first to break the story.  So, they often make wild jumps in order to get the conclusion before anyone else.  That would be why the results of an election are projected based on 1% of precincts reporting…  That would be why Hillary Clinton was presumed to be the nominee of the Democrat Party… and Rudy Guliani was to be the Republican nominee… and then it was Barak Obama and Mitt Romney.  Now we find John McCain the actual nominee, and Hillary hasn’t quit… and isn’t that far out of contention.

But, back to the subject at hand… the NAR and their rosy predictions, ostensibly to counter the negative spin from the media…

Here is my complete reply to the post at the NAR blog.  I do not know if it will clear moderation.

But you have to admit that 5 or 6 quarterly reports that say “the worst is behind us” each time… while the market continues to erode is a little tiring.

We all know that the media’s market readers keep preaching that whatever is happening in the short term will last forever.  But the NAR hasn’t been too realistic about the short term.  Instead of telling people that the market looks challenging, the NAR message has been “Prices are up, it’s a great time to buy.” or “Prices are down, it’s a great time to buy.”  The truth is that it is a great time to buy for some people.  It is a lousy time to buy for others.  Consumers should consult with THEIR REALTOR(R) to find out which camp they are in.  

If you want to know if this is your time… call me, and we’ll talk.  I would also recommend talking with a good mortgage broker.  Feel free to let me know if you need a few names.

Price ≠ Value

price does not equal valueIf you didn’t know, this little thingie () is the ‘does NOT equal’ sign.
Creative Commons License photo credit: ejhogbin

So many people have an idea that price and value are connected… or more specifically, discount from original list and value have a connection… they don’t.  Bluntly, two buyers could go out and buy properties in the same neighborhood.  One might have a deal, and the other may not.  The one that got a deal might have paid more… and might have paid full list. The other might have paid 20% under list, and had a lower overall price.

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I don’t know it all

And my wife would be happy to provide a list…  But, this is about real estate.  Specifically, short sales.

A short sale in real estate is selling a property below the mortgage payoff, and getting the bank to take the loss.  They are done, but they are pretty rare… and I ran across a great post about short sales from FranklyRealty.
Creative Commons Licensephoto credit: Eric I. E.

He knows a lot more about these beasts than I do.  For that reason, I don’t take on short sales.  Unfortunately, there are a lot of agents that have figured out that being a “Short Sale Expert” might be real profitable right now.  It leads to a lot of listings… which can net a lot of buyer leads.  In other words, they aren’t really worried about the short sale, just the buyers they might get while trolling the listings.  To pile on, there are a load of classes so that agents can talk the talk… even if they can’t walk the walk…  Three hours does not an expert make! 

I refer out short sales to agents that are experienced in making them happen… and they CAN happen.  They just aren’t likely to happen with “Experts” that have never done one before.

So, if you are in a short sale situation, feel free to give me a call, and I’ll find an agent that can help you… just about anywhere (I have a pretty good database).  If you are looking to buy a short sale, I can help with that too.

Honestly, for buyers, they may not represent the best deal.  Focus on the value, rather than discount from list price… that is a whole different post.

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