Recently California’s own Real Estate Commissioner, Jeff Davi has announced the release of a Consumer Alert by the California Department of Real Estate (DRE) warning consumers and real estate agents about the perils and potential pitfalls of short sales which affects real estate agent earnings and may result in the unwanted consequences in realtor career.
Real estate agents and consumers have to be educated to spot the elements of a questionable or even fraudulent arrangement.
Since the number of short sales has increased dramatically many consumers and real estate agents are participating in the process and do not fully realize the pitfalls and consequences of short sale transaction.
Like all real estate transactions a short sale is a complex process and involves many variables which have to be diligently checked by the real estate broker to ensure the integrity of deal. A short sale transaction is based on the premise that the seller of the property receives an offer from the buyer that is less than the amount of the outstanding mortgage(s). To make this transaction happen the sellers (owner of the property requests the lender (mortgage company) to accept this lesser amount and authorize the transaction to take place. Due to economic state of the country short sales have become a very popular alternative to foreclosure.
Since a short sale is not your typical real estate transaction, there are more details to which real estate agents and consumers have to pay attention to. As in example, in some cases a seller may have to pay taxes on the amount of the forgiven debt. Also, the seller may not realize but he or she may become an unwitting participant of a fraudulent transaction where an agent or a negotiator is working not with a real buyer but with a straw buyers who is making a very low offer taking advantage of the situation which results in the misrepresentation of the true value of the property. Often what happens after the owner accepts this offer the straw buyer quickly resells the property at its current market value. Now the seller is left with tax obligations on the debt forgiven by the lender and while the profits are split amongst fraud perpetrators, the lender and the seller are at loss.
Real Estate Agents and Homeowners List of Considerations When Looking At Short Sale Option:
- All short sale negotiators have to be licensed real estate agents working under the supervision of a licensed real estate broker or licensed real estate brokers themselves.
- A full disclosure of each and every payment must be made as a part of escrow documents. If someone requests of payment of any fees that are not included in the escrow it should raise a red flag because these payments may be illegal.
- If the buyers presents himself as a fictitious entity or a person or purchasing the property under a power of attorney or a LLC ( limited liability company), this is another red flag that possible illegal activity is taking place in the transaction.
- If an unlicensed negotiator, facilitator or even processing is involved in managing a short sale you have to be aware that illegal activity is taking place. In the state of California attorneys acting as attorneys and investors acting on the behalf of attorneys are allowed to participate in short sale negotiations.
Whether you are a real estate agent or a seller, beware of these important points when it comes to short sales.