Freddie Mac and Short Payoff Fraud
Freddie is at it again and hopefully the other government agencies will NOT follow suit.
On Friday, April 16, 2010, in a Freddie Mac newsletter, a Freddie Mac investigator wrote an article accusing A-B B-C (double closes) – the kind we’ve been doing and I’ve been teaching and am proud to teach because it is Disclosure, Disclosure, Disclosure – of being fraud.
They are stating that if they are not told there is another offer on the property at a higher price – that constitutes fraud.
They also state if the seller is walking away from the house and they really can afford to make the payments – that is fraud.
Realtors, of course, are believing that any same day double close is now fraudulent – because it gets the investors out of the way.
Current Business
In the Option Contracts we have been using for over 2 years, we have always used DISCLOSURE. It has always been included. That was their purpose. That was the reason they were used in the first place was to tell all parties exactly what was taking place in the transaction.
The problem was the short sale lender had to read the contract.
The days of buying short sales through a Trust which didn’t have any language in it about ‘reselling the property for a profit” were changed for this exact reason.
Transactional lenders (borrowing money for 1 day to fund separately the first transaction) so the C buyer’s cash paid NOTHING toward the first transaction – were created.
Many steps were taken to avoid the accusation of Fraud.
Even on February 1, 2010, FHA WAIVED the 90 day seasoning rule. So they must have seen many buyers/investors were doing ligitmate transactions, helped the economy, and made it a little bit easier to close deals and keep houses from being empty and going through foreclosure.
Does this investigator really speak for all of Freddie Mac?
Ya – unfortunately he probably does. I won’t be so naive as to think they don’t want more money for their agency and to remove the bad name on their head either.
Will they issue something else to counteract this newsletter? I sure hope so.
Let’s look at Attachment A from Freddie – an official statement. “Best Practices for Loans involving Possible property Flips”
Paragraph 2 “Property flips are not inherently illegal and not all transactions involving a rapid purchase and resale are improper. Legitimate property flips are acceptable transactions that may be legitimate include:
Point #5 Sale of properties that the property seller acquired at or below market value after purchasing as a result of a distress sale (i.e. REO sale, short sale, tax lien sale, bankruptcy trustee’s sale, etc), where any increase in the sales price over the property seller’s acquisition cost can be clearly shown to be a result of the difference (if any) in the market’s reaction to distress sales and typical arms-length market sales”
That being said, when people/buyers hear that the house is in foreclosure, don’t they want to buy it at a DEEP discount? Once it is out of foreclosure, bankruptcy, etc. it’s value increases because the “distressed” situation has been resolved. That is the market reaction! We can sell it for more.
The banks do see the contract – whether they read it or not. However, they can see when the “B” buyer is a “LLC” it says an investor is buying the property and most likely reselling. (not enough for Disclosure – but certainly a clue what will happen with the property after closing. Banks have even told me this!
So what is the solution?
Stay tuned for the next Blog. I don’t want to bore you now and you stop reading! For more tips Click here!
Deb McMillan
The Short Sale Queen and Coach
www.shortsalequeen.com for more in coaching and the latest on the goofyness of the feds and the Solutions!
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