To be clear, I do not think real estate investors are criminals (as a whole). To the contrary: The involvement of real estate investors is and forever will be a central key to the recovery of our real estate market and the economy as a whole.
That’s why it’s so frustrating that the Obama administration (including his appointees) is so clearly extending their campaign against profits from just big businesses all the way to individual real estate investors like you.
Case in point: Neil Barofsky, Special Inspector General of the TARP fund, recently identified what he characterizes as a “scheme” that will result from recent changes to the “Making Homes Affordable” program: Short sale “flopping”. Flopping refers to the acquisition of a short sale property by using deflated values and involving straw purchasers to facilitate a resale.
Sound familiar? It’s yet another attack on the A-B-C short sale flip strategy, similar to the one that Freddie Mac initiated a few days ago, in which a publication from the mortgage lending giant categorized the traditional A-B-C short sale flip as mortgage fraud.
Do you think you’re committing fraud by performing an A-B-C short sale flip? I certainly don’t. The real estate investor (the “B” party) is providing vital value to the transaction: (1) Negotiating the short sale; (2) Providing funding for the property acquisition; (3) Marketing to find a qualified buyer for the property; (4) Negotiating with the buyer to set a price; and (5) Managing the transaction from end-to-end. This is hardly a “straw buyer” scenario, nor can it be reasonably considered to be criminal or fraudulent.
Yet that’s exactly the stage that the current administration is setting. Simply put: They do not want anyone to be able to profit as a result of any program they create, and they are willing to criminalize or at least perform character assassination by publicly identifying those who do profit as criminals or hucksters. This means that you as an individual real estate investor are clearly in their sites.
It’s a bad thing, and I don’t like it one bit.
If you think I’m being alarmist, consider this: The Treasury Department (a key part of the Obama administration) sent a letter to Barofsky indicating they intend to run a public service campaign to raise public awareness of mortgage fraud. And remember: the Obama administration considers A-B-C short sales to be mortgage fraud, as made clearly evident through the recent statements/publications from Freddie Mac and Neil Barofsky. This means the Treasury Department’s public service campaign will encourage home owners to think of you as criminally fraudulent.
My friends, this is why I spend so much time focused on political issues even though this is a real estate blog. The simple reality is: Our freedoms are being eroded at a blistering pace. Sometimes it comes through direct regulation (such as the attack on owner-financed transactions perpetrated earlier this year and scheduled to take effect on July 1) and sometimes it’s through a public campaign to categorize your efforts as criminal and fraudulent. This administration, more than any other, is using the same tactics against you as individual investors that they use against their political enemies: Mischaracterization and aggressive deceit.
I hope you’ll remember what’s going on now – and what will continue to happen to our industry – when you go to the ballot box in November.
Thank you for reading the Bryan Ellis Real Estate Letter. Your comments are welcomed in the space below. Note – I strongly recommend you consider adjusting your business if you rely heavily on A-B-C short sale flips, and a strategy that I strongly recommend you consider is addressed here.