Foreclosure? Be Aware!
Bad Investor Tactics
Working with Investors
Keep
in mind that the majority of investors are not licensed and do not have
to follow any standard of service or abide by a code of ethics. This
puts the homeowner in an even more precarious situation than they are
already in. Not all investors use the following tactics however, many do
and they have little if any regard for the homeowner when they do. The
following are a few of the more unscrupulous investor tactics.
Signing the Deed Over to an Investor
This
is a particularly troubling practice that investors engage in typically
referred to as taking over a property 'subject-to' existing financing.
Now, there are very few situations when a homeowner's best option is to
sign over a deed, however, this is not the case with most short sales.
TACTIC:
The
investor convinces the homeowner that the only way out of foreclosure
is for the investor to invest his money and time to stall the process.
The only way he can do this is if the homeowner will sign over his deed
(and sometimes a power of attorney) on the property so that he, the
investor is protected. The homeowner can even stay in the home until the
process is complete.
REALITY:
The
fact is that once the homeowner signs a deed to the investor they no
longer have legal rights to the property, however, the mortgage is still
in their name. At this point the investor will begin negotiations with
the mortgage company using calculations we outlined earlier. The
difference is that the homeowner no longer has any legal right to the
property whatsoever. If the investor's deal does not go through, the
homeowner does not have the option to try another solution.
Signing a Power of Attorney
Very
similar to getting a deed, many investors have homeowners sign a power
of attorney that functions essentially the same. Some homeowners who
have signed a power of attorney and have seen the property change hands
two or three times in the subsequent month as investors try different
tactics.
TACTIC:
The
investor convinces the homeowner that the short sale is going to be so
much trouble that they will need to negotiate on their behalf. They will
need a series of notarized documents including a contract, release of
information and a power of attorney.
REALITY:
In
order to negotiate on someone's behalf all that is necessary is a
release of information. The power of attorney gives the investor the
legal authority to make decisions and sign documents for the homeowner
without their further consent.
'Creating' Issues with a Property
This
is a tactic that actually works, however, it is fraudulent and it is
never encouraged that a homeowner or anyone for that matter engage in
this activity.
TACTIC:
The
investor lets the homeowner know that the worse shape the property is
in the better chance of getting a deal approved. Either the investor of
the homeowner 'creates' issues. It's been told that one investor went as
far as to flood a kitchen in a short sale property to get approval.
REALITY:
The
same way that lighting your house on fire to collect the insurance
money is fraud, this type of activity is fraud. Now, it is not suggested
that if a property is in terrible condition you make repairs prior to
the appraisal, however, we also do not suggest that you ever consider
fabricating issues.
The Impossible Refinance
Don't
be surprised if you speak to a homeowner that you know is upside down
on his property and may have missed payments and he lets you know that
he is going to refinance. This is a common tactic and unfortunately
sometimes the refinance actually goes through.
TACTIC:
An
investor or mortgage broker lets the homeowner know that he has plenty
of equity in his property to refinance and he knows a lender who would
write the loan. That way the homeowner starts over with a clean slate
and no back payments. They might even get a check at closing. You as a
homeowner have looked at the numbers and you know there is absolutely no
equity in the home.
REALITY:
The truth of this situation is
that this is mortgage fraud, plain and simple. The person getting the
homeowner the mortgage is working with an appraiser that will inflate
the value of the property and send the appraisal to a high risk mortgage
company that will write the loan. Some people involved in this scam
actually target neighborhoods with a large range of prices. Think of a
neighborhood you have where there are both view and non-view or
waterfront and non-waterfront or golf course and non-golf course homes.
This allows the appraiser to get creative on a lesser value property.
The homeowner is now even further upside down on his property, has
higher payments and is suspect of mortgage fraud. The appraiser and
mortgage broker can't be found anywhere.
Promise of Seller Cash at Closing
This
tactic is common in almost all regions of the country. Sooner or later
you will meet a homeowner that is upside down on his property, in
foreclosure, and is convinced they are going to get a substantial check
at closing from an investor.
TACTIC:
The
homeowner is told that while he can't get a check from the title
company, the investor can buy his washer and dryer from him for $5,000
and his refrigerator for another $2,000 for all his cooperation with the
short sale.
REALITY:
In
this scenario not only is the investor trying to get his margin out of a
deal, he is trying to pull an additional $7,000 out to give the
homeowner. This makes it even less likely that the homeowner will be
approved for a short sale since the money to the bank will be that much
lower. Also, it needs to be made clear that a homeowner getting cash
back of any kind that is not disclosed on the HUD 1 Closing Statement is
fraud. If an investor thinks they have found a clever way around this
by overpaying for household items, it would be hard to justify that
payment if the deal ever got investigated.
