“Flopping” Short Sale Properties – Agent faces 30 years in Prison

June 13, 2010 - PRLog -- In the short sale process, a house is sold and a settlement of the mortgage debt is for less than the amount that is owed to the lender.

With the high level of foreclosure filings every month there are plenty of people out there promising homeowner's solutions that sound too good to be true. There is no lack of dishonest con artists willing to take advantage of desperate homeowners.

This particular fraud case involved a scheme called “flopping”. The flopping of short sale properties usually has a real estate agent or a short sale negotiator involved in the scheme. In order to make the illegal flip work one of them will misrepresent the true market value of the property to the lender and or will fail to forward all offers to the bank reflecting the true market value.

They then buy it themselves through the use of “straw buyers”, which many use, a limited liability company. They will use fraudulent broker price opinions or appraisals to support a depressed valuation. Once the dishonest agent or a short sale negotiator has the bank agree to a sale using the false value, they have their straw buyer purchase the property and immediately flip it at the true market value, too buyers who had submitted a legitimate offer.

Short sale fraud is now recognized by the FBI as real estate fraud, and more people involved will be prosecuted for this type of fraud. Unfortunately some real estate agents believe they are being creative or that it is not illegal, although the fact that they devised a scheme that includes “misrepresentation or omission” is fraud.  

Sergio Natera, a Connecticut, a licensed real estate agent, pleaded guilty before United States Magistrate Judge Holly B. Fitzsimmons to one count of bank fraud stemming from his involvement in a "short sale" mortgage fraud scheme.

According to court documents and statements made in court, Natera worked with another real estate agent to defraud Regions Bank, which held two mortgages on a residential property in Connecticut.

The other real estate agent, who was a listing agent for the property, received an offer to purchase the property for a price of $132,500. However, Natera subsequently communicated to Regions Bank that the highest offer to purchase the property was for $102,375 by BOS Asset Management, LLC, and an entity that Natera controlled.

The bank agreed to a short sale of the property for the lower price, and released its mortgages on the property. Then Natera, through BOS Asset Management, sold the property for $132,500 to the original bidder on the property.

Natera is scheduled to be sentenced by at which time he faces a maximum term of imprisonment of 30 years, a fine of up to $1 million, and an order of restitution.

Nora R. Dannehy, United States Attorney for the District of Connecticut, announced the guilty plea. This matter is being investigated by the Federal Bureau of Investigation and is being prosecuted by Assistant United States Attorney Ann M. Nevins.

“Flopping” occurs in more than 1 percent of short sales and may cost lenders $50 million this year, according to estimates from CoreLogic Inc., a real estate data and research company in Santa Ana, California. About 12 percent of existing home sales, or almost 622,000 houses, were short sales in the 12 months through April, data from the National Association of Realtors show. “Many experts consider this is an extremely conservative estimate.

Everyone needs to remember that in any real estate transaction fraud is committed by “misrepresentation or omission” of facts that unduly influence the decision of any other party.

In some of these cases people have “Willful blindness” which is a legal term that skirts the boundary between neglect and culpability. The concept of willful blindness, which at its heart expresses the contention that the industry exhibited "willful blindness" to an obvious fraud through ignoring it for so long, in so many cases, at the hands of so many fraudsters.

Once a white-collar criminal gets away with fraud, the process quickly becomes addictive. Success breeds more success, and before long such crafters of fraudulent scheme clearly begin feeling that not only are they above the law but in fact, they are not doing anything wrong in the first place.

There is nothing prohibitive about flipping properties as long as you do not engage in the fraudulent activities, you disclose in writing, and structure your transaction so that every document you submit is legitimate.

It is important to know that not all short-sale flips are fraudulent as there are many real estate professionals out there closing back to back transactions in a perfectly legitimate way.

“Short sales are an important tool that can help both the bank and the borrower,” said Morgan McCarty, executive vice president for mortgage servicing at Birmingham, Alabama-based Regions Bank, which lost money in the Connecticut case. “It’s just that criminals are always trying to find ways of profiting.”

The real estate industry cannot turn a blind eye to fraud anymore. Not only does this make us an unknowing accessory but also it is the very reason fraud remains so rampant. Those who would commit fraud know that few will report the fraud if they are discovered.

You need to inform a lot of people about your knowledge of any possible fraud in process and be sure to write down the details of the transaction and individuals involved.

If you suspect fraud a few places where you can report those that try to commit the fraud are to the senior management of the Real Estate or Mortgage Company, your state, county or city Attorney General's office, The F.B.I., The media -- newspapers, television, radio, Internet bloggers / columnists.

The only way to stop such a widespread, global problem is to look ourselves squarely in the mirror and promise to fight fraud wherever, and whenever, we can, one transaction at a time.

Michael S. Richardson
Director/Chief Quality Officer
Author of "An American Epidemic, Mortgage Fraud a Serious Business"
www.preventmortgagefraud.com

Follow me on Twitter @ FocusonFraud

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