Looking around a bit, I see that short sale fraud is about as common as I thought - a lot of these sites quote a study which had them as 2% of all short sales, but I think it’s a lot more common in cases involving professional real estate investors, such as the people I know (of). (See also Log In ‹ California Real Estate Fraud Report — WordPress)
Assuming it can be proved that you knew what was up.
Didn’t the buyer at some point during this time period, give the seller $20k. When money changes hands, its usually pretty trackable - unless you are distributing suitcases of cash.
If you already know the individual (oh, that wasn’t for the HOUSE, that was for…a vacation we are taking together), than it isn’t an arms length transaction, and you’ve probably committed fraud when you submitted the short sale. I’m pretty sure short sales between friends/relatives are not kosher.
I’d think that in this day and age if you were a professional real estate investor, your chances of facing an audit would be pretty high, and that might drag other professional real estate developers into the investigation.
FWIW, I’m pretty sure that people do in fact hand over suitcases full of cash in these types of transactions. (I’ve heard this in the past about real estate transactions in general, though not about the short sale schemes in particular, though I imagine it happens here as well.)
But to be clear, that’s about what happens in general. We were discussing a case in which a buyer pays with an eminently traceable check, but the agent somehow transfers part or all of this to the seller. EVen if the agent and seller get cought, the buyer will plausibly claim innocence.
A lot of things happen that aren’t kosher. And my impression is that many times the buyer and seller don’t know each other but the agent knows both.
I don’t know about that. There are a lot of professional RE investors.
Despite that, I wouldn’t be surprised to see a lot of prosecutions, eventually. It’s frequently the case that the feds are behind the curve on these things. People go wild scamming right and left, then after a while there are a bunch of prosecutions, possibly in the wake of some media expose, or possibly just after the feds got their act together. By then, most of the scammers are on to different schemes anyway. (As soon as RE starts rising again these short sales will diminish sharply anyway.)
When RE was rising, a lot of people made quick fortunes by getting the banks to give them cash for their supposed equity, and I’ve not seen a lot of people getting prosecuted for it. (Though many of these people eventually lost big time when the market turned and they were overleveraged - some of these same people are now short-selling right and left.)
Well, its risk tolerance, right?
I live in a fairly nice suburb. Firmly middle class. Diverse. The neighbor down the street was 30 years old and retired. Made his living selling drugs, then turned state’s evidence on the gang he was a lieutenant in and fled the state, relocating four houses down.
Guy had a pretty high risk tolerance for getting caught doing something illegal. (And, I suppose, getting killed). And it worked for him. Retired early, nice middle class life. Didn’t work long term - not really sure what happened, but they moved and it didn’t look like it was a voluntary thing.
Me, I try to not drive over the speed limit. Low risk tolerance for getting caught.
I wouldn’t be on any end of this scam (of course, I’ve done financial audit, its really easy to track these things, even cash today isn’t too hard - too many cash drug deals so the banks all watch people who handle a lot of cash. And when financial fraud cases blow up, they often cause a lot of shrapnel - so to me it looks REALLY risky.)
It appears to be completely lost on you that the entire sum of your experience in these matters are (some very questionable) anecdotes related second, third and forth hand to you, and you insist on completely dismissing the experience of people who are actually in this field.
Good luck believing what you want to believe.
I would tend to agree. Interesting thing is that just last night I was speaking to the RE lawyer that I mentioned in post #34, and while he thought the buyer might have a problem with willful ignorance if they came after him, his assessment was that the likelihood of this happening was virtually zero. I myself am not so sure, because once the prosecutors decide to go after one party to a scheme they generally go after everyone, if only to increase the success of their efforts and/or to get cooperating witnesses.
But that’s all neither here nor there. Even if there’s no chance of getting cought, the issue here is more the legal and ethical aspects. Which by all indication are not good.
It appears to be completely lost on you that everything I’m saying is based on “the experience of people who are actually in this field”. I don’t know why you would dismiss this as “(some very questionable) anecdotes related second, third and forth hand” while trumpeting yourself as being actually in the field. Frankly, these are all people who I know in real life and who I know to be very involved in the field and who have actual knowledge and/or participation in these very types of deals, while you’re some anonymous internet poster who - at best - is just unfamiliar with certain aspects of the field and is simply speculating about matters with which he is unfamiliar.
[I also linked to a whole lot of websites that discuss this very issue. You might want to educate yourself a bit, if you’re really in the field.]
Don’t take it so hard.
And what you are describing sounds more like a conspiracy than a mere scheme. If this is one RE Investor selling to another, and then that other selling different underwater property to a third, so you have a group of 20 or 30 or more, most of them playing both buyer and seller in different transactions, that isn’t a scheme - and its no longer “$20k.” Its suddenly millions disappearing from banks in something a bunch of RE investors in NJ are in on, where very few of the parties involved can claim “willful ignorance.”
I’m not describing that case, although that could also be happening as well. The specific situation that the person I know is thinking of buying into is simpler, as follows.
A certain developer who kept ownership of some of the properties in his various developments is now underwater and facing severe financial stress. And the talk is that he is negotiating short sale terms with the banks and that when that is settled, then these properties will be marketed by a certain RE agency to buyers who are willing to pay extra under the table in one form or another. And this guy - who is just an ordinary investor who thinks that now is a good time to invest in RE and has been looking around - has been approached by someone connected to that RE agency with the suggestion that he might be willing to buy one of those properties, and that he would not have to pay directly to the seller but would pay an “enhanced commission” or some other indirect payment - details to be worked out later.
[It’s actually a bit more complicated than that, because I heard from someone else in the field that the developer has already ceded ownership of the properties to some secondary lienholders in exchange for being released from their debt - “deed in lieu of foreclosure” was the term she used, IIRC - and now it’s the secondary lienholders who are going to turn around and try to recoup some of their losses by pulling this scheme over the primary lienholders, i.e. the banks. But I don’t think that changes anything in terms of the issues facing the potential buyer.]
But that’s just the specific situation that triggered my interest. As above, there are a lot of variations of this scheme.
The guy I’ve been discussing actually bought one of the mentioned properties, at a significant discount to market value.
What made it more complicated is that he did not actually participate in a short sale. He bought it from the guy who bought it at the short sale. That seller is assumed to be a front for the original short seller.
IOW Developer sold it to Developer Pal at a short sale, then Developer Pal sold it to Guy I Know as a cash sale with no bank involvement.
That would seem to give him (the GIK) some arm’s length distance from the short sale. What made it slightly more complicated is that the seller (DP) insisted that the sale price be significantly lower than the true price, but that there be additional payments to make up the difference. These payments were listed in the HUD-1 statement as commissions and a contract for construction, and the payments were in fact made to RE agencies and a construction company.
Why this was necessary is unclear, but apparently the ultimate purpose is for the real estate records to show a lower number. I was told that the original seller (D) has other properties that he still needs to clear with the bank, and he can’t afford to have similar properties selling for significantly more than he wants the bank to accept. But it’s also possible that DP can’t afford to have the property sell for significantly more than he paid for it at the short sale such a short time later.
But I would think that GIK is in the clear. He is not defrauding anyone in this sale. And if the sellers insisted on structuring the contract in a weird way, that’s not his problem, I would think. (He actually bought this house in a hurry, without ever seeing it from the inside, so it makes sense for him to have an allowance for possible construction, if necessary.)
FWIW, there’s some more discussion of this issue here