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There Are Enough Crooks in Sacramento Short Sales
We have enough crooks in Sacramento short sales that we, ourselves, don’t need to add to the mix, whether we are a seller, a buyer or a real estate agent. I tell my short sale sellers that they need to keep their noses clean. Don’t do anything that the lender can later construe to be mortgage fraud. Because if a seller is dishonest, the bank can reverse the release of liability for that short sale and pursue a seller for the remaining balance, which is the whole reason to do a short sale in the first place. To get that release of liability.
I realize that sellers are upset with their banks, and they hate the fact they’ve been strung along for years paying on rotten loans that they can’t afford but that is no reason not to level with the bank during a short sale. Sellers also tend to worry that if they don’t make up some facts to color their financial situation the bank won’t approve the short sale. What they don’t realize is the banks typically prefer a short sale to a loan modification.
If you’ve been in the middle of a loan modification or attempting to obtain a loan modification and been turned down, you’re probably a prime candidate for a short sale. Especially if your bank is one of those institutions established for the sole purpose of picking up worthless mortgages. The bank might expect you to short sale.
Sometimes sellers want to say, for example, that they live in the property so they can apply for a $3,000 relocation incentive. If they don’t live in the property but instead live elsewhere, that could be mortgage fraud if they lie about it. Collecting $3,000 under false pretenses could cause a bank to withdraw the release of liability on that short sale after it closes. The bank could also demand the return of the $3,000, and then prosecute the perpetrator for a million dollars-plus. Mortgage fraud is a federal crime.
California Civil Code 580e (effective 2011) gave sellers the protection and the release of liability in a short sale, but it also takes it away if the seller commits mortgage fraud. If you’re contemplating such an act, you might want to ask yourself if the consequences are worth the risk. It’s not a harmless act of omission. The bank will track your credit card purchases, examine where your credit card statements are delivered and check to see if cable TV is still in your name. Don’t move in furniture because the BPO agent will open the refrigerator and check to see if the washer and dryer are connected.
You either live in the property or you don’t. Don’t mess around.
Selling a Short Sale to a Person You Know Could be Short Sale Fraud
A 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.
Back From French Polynesia
While you are reading this blog, I will be going through the agony of US Customs at LAX, having landed back in the country from French Polynesia. I know there are people who say just pack those black pearls, Tahitian rum and Cuban cigars in your luggage and keep your trap shut, but I am not one of those people who listen to that stuff. I don’t believe in smuggling stuff when you can report it, pay the tiny little tax and be done with it. Not everything that is Duty Free means you don’t pay tax anyway. And, if a US Custom official finds unreported taxable crap in your luggage, they can take it away from you. Why anybody would try to sneak stuff through US Customs is beyond me.
Why break the law? Why cause more problems for yourself? Life is filled with enough problems all by their lonesome little problem-selves, we don’t need to create more of them for ourselves. It’s like sellers who try to find creative ways around the rules of a short sale. They don’t realize that when they try to do that, they are taking a chance that the lender will find out. If the lender finds out, the lender can take away their release of liability. Just rip that rug out from under their short sale noses. There is no reason to tamper with your release of personal liability. None.
SB 458 paved the way for banks to go after sellers who commit mortgage fraud in a short sale. If there is no mortgage fraud and everything is clean and above board, sellers get a clean break. No deficiency judgment and no liability. They get off scott-free and can walk away into the sunset or hop on Air Tahiti if they so please. But there could be consequences if a seller breaks the law.
But consequences are not the only reason not to break the law. Heck, we have the death penalty in California and it doesn’t stop murderers from killing other people. Consequences don’t mean much to some people. Unfortunately, neither does just doing the right thing. For example, nothing seems to stop the antics of a person like Lindsay Lohan. Oh, wait, I think I spot her in line, three people down from me. Oh, crap.
In case you’re wondering, you don’t pay tax on $800 of merchandise, per person. Two people equals $1,600 of tax-free items. Pearls are taxable even though they are hand-made, regardless of what you may read online elsewhere.
