Short Sale Scams

That low short sale price catch your eye? Wait, if you're in Salt Lake City its possibly a mirage, a hoax, a FAKE! Unfortunately for buyers, some realtors have taken to trickery to market these properties. Let's consider how it works.

With an increase in foreclosures, home owners in trouble are seeking short sale agreements with their banks. Short Sales happen when banks agree to accept less than the amount owed by the borrower as satisfaction for the debt. No, banks are not that generous, but they know getting some money is better for the bottom line than foreclosing.

It's a good system that can provide relief to homeowners, banks and lucky buyers who can find deals. But its not nearly that simple, especially here in Utah. Like many things in the Beehive State where business is king and fraud is common, short sales are often used by unscrupulous realtors for profit.

Realtors often list homes for short sale at prices they know or should know are unreasonable and the bank will never accept. Consumers need to realize that when listings say short sale, the price they see is likely worthless, a scam to recieve numerous offers and create a bidding war. They should remember that only the bank can set the price, and usually at the listing stage they are not involved in any way. Let's look at the typical situation.

Homeowner is near foreclosure, realtor suggests requesting the bank to approve a short sale. Realtor lists home, once an offer comes in that homeowner likes, the home is listed as a short sale while the bank decides on the offer. It's important to remember this process often takes months. Meanwhile, until the bank decides on the offer they will accept, the home stays on the market recieving bids. It's a fallacy, buyer and seller come to terms on a price they have NO ability to control. Only the bank can decide. It would be like me accepting half the market value for your car. I'd get lots of takers, but would the sale be valid without your approval?

Classic Bait and Switch

It all looks a lot like ILLEGAL bait and switch used by retailers. For example, say an eyeglass store runs a sale advertising $99 designer Ralph Lauren frames. The retailer has no intention to sell the frames at this price to however many customers will pay, they may sell one pair as a pretext, but their real intention is to use a bogus offer to attract as many customers as possible into responding to the ad. Retailers know once consumers have their appetites wetted by the prospect of a deal, they are far more likely to buy merchandise at full price.

Let's consider a real estate example I have watched unfold in one of the more prestigious Sugarhouse neighborhoods of Salt Lake City. Listing agent lists a home in March as "active-short sale" for $254,000, well below the comparable sales price for the neighborhood of $360,000-$380,000. After researching the county records and finding several trust deeds totalling more than $400,000, there were obvious red flags. I called the agent who explained he had NO OFFERS on the property and the $254,000 list price was a starting point (in clear violation of MLS listing rules). Today, that same home is STILL listed as an active short sale, but for $290,500.

Imagine, in this market raising the price on a listing thats been around almost three months. Either this agent was woefully negligent, or diliberately acting on the edge of ethics. Either way, these tactics are PERVASIVE in our market and decieveing customers at a time we need their trust.

I'm not trashing short sales as such, indeed I would buy a home personally through a short sale. In fact, there are good short sale deals out there. I am trashing my fellow realtors who ignore ethics for dollars. Here are some classic giveaways to these shady practices,

-home listed for sale waaaayyy below comparables
-agent tells you they have not started the short sale process(even though its listed as short sale)
-agent admits they have no indication of what bank will accept to retire debt
-home is listed as short sale by one of a handful of shady realtors (ask a realtor)

The rule, if it seems to good to be true it is, is probably the best advice I can give. As an experienced investor and realtor, I've gotten adept at spotting these offers at the outset. I believe my fellow realtors and I have a DUTY to police ourselves, AND our peers who are ethically challenged. We know who the bad apples are who actively bend the rules and ignore ethics. When we as realtors spot these lemons, we should challenge our fellow agents to defend their methods. If your a consumer who's been hoodwinked or a realtor who disagrees with my take, please contact me for a chat!And here is the rest of it.