Short Sale Scams

By: Timothy McFarlin | Published: May 12th, 2010 | Category: Short Sales

A short sale allows a person to sell their home for less than it’s worth as a way to avoid foreclosure.  The remaining debt is often forgiven by the lender (although this is not always the case).  As this option of foreclosure avoidance has become popular, so has the opportunity for honest borrowers to be scammed out of their money. 

In most states, only a person who is a licensed attorney or broker may negotiate a short sale on behalf of another person.  Short sale scams are born when an “investor”, or other third party person who is not an attorney or broker, offers to negotiate a short sale on behalf of another. 

Third party investors who offer to help homeowners are often no more than weekend entrepreneurs who have read the latest course on “Making a Fortune in Foreclosures”.  These folks will often ask for the title to a piece of property so that they may negotiate the short sale.  In reality, these people are just like the bidders at a bank foreclosure auction, but they are just trying to beat the other bidders to the punch. 

These investors are not usually trained negotiators and have no real interest in helping a homeowner save money or sell their home, they often only seek to line their own pockets.  This can be bad for the homeowner because the investor may make little to no effort to negotiate and may accept the first offer from the lender.  If this is the case, the homeowner could have negotiated with the lender for themselves, and they wouldn’t have to worry about paying the increased cost of an investor’s failed negotiation.  Many short sale scams involve investors who think that if they can work as little as possible over multiple properties, they will eventually earn a profit, while homeowners are forced to pay for the non-existent efforts of these investors through higher short sale limits.  The purpose of a short sale negotiation is to get the lender to agree to as low a price as possible that they will accept for the property, not to accept the first offer from the lender. 

Unless an investor plans on buying the home for personal use, a homeowner should approach these investors with much caution.  If an investor is not able to get the lowest number possible from the lender, a home may sit unsold for who knows how long on the market.  Lower prices, not quick settlements, attract buyers.  A person who is trying to leave their home in the past will be greatly disappointed if the failed attempts of a weekend investor results in little to no sales leads.  The investor doesn’t have to care if a home goes unsold because they have money to play with, but the homeowner waiting for their home to sell may have to make more and more personal sacrifices to adjust to their financial situation and inability to sell their home.  When the sale of a home is the first major step to financial recovery, it would make sense to want to sell the home as quickly as possible.       

Any person considering a short sale is advised to contact a local real estate attorney for assistance.  An attorney is allowed to negotiate with lenders on behalf of their clients and are always held more accountable and to a higher standard than weekend real estate investors.  Attorneys also have negotiation experience that many investors will lack.  The good thing about getting short sale assistance from an attorney is that an attorney will never ask for the deed or title to a person’s home as a requirement to negotiate a short sale.  This means that the homeowner will retain 100% ownership of their property until the property is sold.

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