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.
It sure didn’t take long for George Bush to lose the title of worst president in history!!
One term for Obama that socialist prick!!!
And this morning on Meet the Press some jackass is saying how Obama and his methodologies are just those of a moderate liberal. This is all so Marxist it is not funny. We are spoon fed idiotic ideals by so many in the media with the same Nanny state agenda it makes be afraid for our future as a nation.
We are all as a people in extremely serious trouble and action needs to be taken to prevent the complete take over of all aspects of private life by this administration. This is just one more glaring example.
“When they come for you in the morning, they will come for me in the evening.”
Sounds like more Obama bashing Brian…
Where are your facts to uphold your beliefs…
Maybe I’m wrong, but I would much rather see the facts than the he said she said accusations…
Yep, more Obama bashing indeed. I am a capitalist, and Obama is a socialist. Socialism is a bad idea and has no long-term results. So am I bashing him? You bet. No apologies. And if you need “facts”, you should pay more attention – here are all of the facts – most everybody else has reviewed them. Short Sale Fraud. — Bryan Ellis
Date: Friday, April 23, 2010, 1:31 PM
Couldn’t fit the picture but how did the U.S.A. Let somebody dictate to the American People with out Being a legitimate President
Does this mean that all of the laws he passed will be abolished since he became a person in the White House?
Interesting read, if nothing else……………………
Well, here it is………………..What comes next?????
Lolo Soetoro, Stanley Ann Dunham Soetoro, baby Maya Soetoro
and 9 year old Barry Soetoro.
Picture of him was supposed to fit here as a boy.
This registration document, made available on Jan. 24, 2007, by the
Fransiskus Assisi school in Jakarta, Indonesia, shows the registration
of Barack Obama under the name Barry Soetoro, made by his step-father,
Lolo Soetoro.
Name: Barry Soetoro
Religion: Islam
Nationality: Indonesian
How did this little INDONESIAN Muslim child -
Barry Soetoro, (A.K.A. Barack Obama) get around
the issue of nationality to become President of the
United States of America?
PART 2:
In a move certain to fuel the debate over Obama’s qualifications
for the presidency, the group “Americans for Freedom of Information”
has released copies of President Obama’s college transcripts from
Occidental College ..
The transcript indicates that Obama, under the name Barry Soetoro,
received financial aid as a foreign student from Indonesia, while an
undergraduate at the school. The transcript was released by Occidental
College in compliance with a court order in a suit brought by the
group in the Superior Court of California. The transcript shows that
Obama (Soetoro) applied for financial aid and was awarded a fellowship
for foreign students from the Fulbright Foundation Scholarship
program. To qualify for this scholarship, a student must claim foreign
citizenship.
This document provides the smoking gun that many of Obama’s
detractors have been seeking – that he is NOT a natural-born citizen
of the United States – necessary to be President of these United States .
Along with the evidence that he was first born in Kenya, here we
see that there is no record of him ever applying for US citizenship..
Gary Kreep of the United States Justice Foundation has released
the results of their investigation of Obama’s campaign spending.
This study estimates that Obama has spent upwards of $950,000 in
campaign funds in the past year with eleven law firms in 12 states
for legal resources to block disclosure of any of his personal records.
Mr. Kreep indicated that the investigation is still on-going but that
the final report will be provided to the U.S. attorney general, Eric Holder.
Mr. Holder has refused comment on this matter.
LET OTHER FOLKS KNOW THIS NEWS – THE MEDIA Will NOT!
Bryan…
You are right about the issue of our freedoms and liberties being slowly taken away… collectivism, fascisim, socialism… all becoming the order of the day and CORPORATE capitalism is also in that list. So, be careful about even calling yourself a capitalist – that doesn’t always work to get empathy either.
I’m a free-market capitalist…. personally.
What you have said in the past and what you are implying here is that you are a Right Wing Capitalist… a Republican… and that is where your otherwise intelligent rants fall so short. Grouping yourself with those losers is no different than grouping yourself with the liberals… if your eyes were open, you’d see that they are both on the same team. But your bigotry and ignorance just won’t let you see the truth.
You blame Obama as if it would be different with McCain or some other “conservative” in office – and that’s where you are sadly mistaken.
The whole deceipt is that the GOP and the Dem’s are on opposite sides of the coin… the truth is, its the same coin. They are as in bed together as it gets — good cop, bad cop… same company and same goals.
If they weren’t and if the whole thing wasn’t engineered – do you really think that anything would pass legislation?
Bush was equally as bad and actually started much of what Obama is remaining ‘status quo’ on… In fact, the last president that truly understood any of this was likely way before the Federal Reserve Bank in 1913…
Your idea of a new face on the same can of poison is ludricous also… we need a new start and we need to go back to a Constitutional approach to America. It’s too late to fix any of the existing systems and you certainly can’t do it by putting a new captain at the helm of a sinking ship.
Read “A Creature from Jekyl Island” – or head over the http://www.realityzone.com and subscribe to their newsletter to stay on top of the less public truths that are underlying what is happening.
Anyway… your bashing of Obama accomplishes little in the light of your otherwise helpful post that keep us on top of new and potentially harmful legislation to our industry.
Cudo’s the the Realtors lobbyists, the Brokers lobbyists, and the Banking industry for shutting down another viable, lively, working and profitable industry… being a real estate investor. A few more nails in the coffin lid and they will have closed the lid for good — as for me… I’m too afraid to invest in a dog house anymore unless I can pay cash and my lawyers approve all paw prints and all of the paperwork… OH… and some realtor get’s a commission. I mean, heaven forbid some Realtor not be paid for NOT listing the deal, NOT working the transaction, NOT helping wiht the negotiations, NOT marketing the property… etc. I mean, passing the legally approved paperwork around deserves that 6% — right?
Ugh…
Kudos Brian, you are an investor speaking the truth. Obama IS a socialist and not only that, the people of the USofA have elected a President that HATES this country. It’s a pity really…he is doing his very best to destroy this country and the liberals still supporting him are just to ill-informed to see it. IMHO, I think Obama goes beyond socialism to damn near marxism.
2012 can’t get here soon enough. Hopefully we can, at the very least, slow down this train wreck with the 2010 elections.
Steve,
Here is your proof.
http://www.structuredfinancenews.com/news/-205347-1.html
After all the work I do to stop the foreclosure, waive the deficiancy for the seller, and provide a good deal for my buyer AND keep another vacant house off the market, this SOB calls me a criminal.
I’m so angry I don’t know what to do.
Essentially this is no different than any other wholesale, to retail, to consumer transaction that is the basis of all business.
We are in big, big trouble in this country.
Well, Brian, I was in agreement with you until you said:
“This administration, MORE THAN ANY OTHER, (my caps) is using the same tactics against you as individual investors that they use against their political enemies: Mischaracterization and aggressive deceit.”
Wow, the dangerous weapons of mass destruction the Saddam Hussein had, that we should fear and go to war to eliminate? (Nope, never found’em.) Fighting that peksy war in Iraq rather than pursuing Bin Ladin and his minions in Afghanistan and Pakistan? (Ooops…)
About making short sales investors the devil? I agree, pretty stupid. About the rest? Nope, not buying it.
Bryan,
Once again you’re using fearmongering to try to get readers to read your blog. The Freddie Mac memo that came out recently on short sale fraud was put out by one unnamed investigator, and has not been adopted as policy. It is in direct conflict with their recent statement which instructs underwriters how to ferret out fraudulent transactions from legit ones.
This happened before (in ’08) and there were Chicken Little’s running around screaming that it was the death knell for short sale flips. This memo will not have any impact in the end.
You’d have more credibility if you weren’t trying to use every little memo put out by a cubicle hamster to paint the entire Obama administration as being Communist traitors bent on destroying the world.
More of Obama’s BS where he makes the ignorant think he is doing all in his power to help them. Don’t exact ly know how he is spinning this to make it appear that way but bottom line this is something that will likely help his Wall Street buddies and screw investors.
I have 36 years experience in the real estate business. I have seen everything. This is where the fraud comes in: The A investor, facilitates the short sale and it is their goal to establish the “lowest” value in order to get a bigger spread. The fraud is the information is coming from the “A”, not a disinterested party. The FRAUD is that the investor knows that the value is more , otherwise, they would not buy the party. The profit that the investor is taking is not unearned income from appreciation, but the debt that is owed the bank, ie the people, since the people have invested in the banks. The worst case scenario is when the “A” investor, get title prematurely , and has the home owner, the original borrow move out. So if a better offer comes in, the seller never knows it, therefore the bank does know it. I recently sold a house to a buyer, from the bank, BUT, they were willing to buy it before it went into foreclosure. It was the wholesaler that got control of the property, took the sign down, acquired the loyalty of the listing agent who was suppose to represent the seller. Colorado has foreclosure laws that enable the seller to cancel the contract , the seller never knew and had a foreclosure unnessasarily. The wholesaler is actually practicing the real estate business without a license. So “make hay while the sun is shining”, but don’t pretend that your actions are contributing to the recovery of the market, it’s actually making it worse. Wholesaling is fine as long as you’re not rigging the system. If you have to rig it- You know it’s wrong.
It’s continuing to rail against the actions of few that hurt the actions of many that are in it for the long haul.
I still say just go out there and do your thing, do it well, and always have full disclosure as to what you are going to do, whether it’s to the home seller, the investor buyer (if flipping), the agent, etc.
If they don’t like it, either convince them otherwise or move on to another deal. If you’re not going to deals and make money and help people, someone else will.
Meanwhile, the train will just keep chugging along regardless.
It is noteworthy to just keep an eye on things either way. Panic? Not necessarily. But it can avoid being run over by the said train when your back is to it.
Linda,
You obviously don’t understand how a legit ABC flip works. Disclosure is key. As long as everything is disclosed to the lender and all parties involved, no one can claim there is fraud going on.
Also a property can indeed have two different prices in one day, for the following reason. When a property is in a distressed situation its value is inherently lower. Think about why agents and buyers alike will pass up a short sale listing as opposed to a regular listing. There is too much uncertainty involved before the short sale approval is acquired.
After the property is taken out of the distressed situation, it can be sold for retail value because the foreclosure is no longer a threat.
It’s very similar to the way many businesses work in America, Wal Mart being only one of them. When you take a product to the cashier at Wal Mart that product does not belong to Wal Mart yet. As soon as it is scanned it becomes the property of Wal Mart and then within an instant is sold and becomes your property. What did Wal Mart do to justify taking that profit? Put an item on a shelf? Basically, yes.
Arbitrage happens in business in America everyday. Nothing wrong with that. That’s Capitalism.
The short sale investor (technically his negotiator) creates value by taking a property out of foreclosure and solving the banks problem of having a toxic asset on the books. The property is then sold to someone who can really qualify for the home, which stabilizes the neighborhood, and in turn, the nation’s real estate market.
This is the main reason FHA waived their anti-flipping rule. They realize that investors provide a service and are part of the answer to the current crisis.
First off, I looked for information backing Brians claim that the Obama administration is calling real estate investors criminals. Perhaps I didn’t google well enough but I couldn’t find it. Makes me question your real intentions.
Any true real estate investor or for that matter a real business person, investors bend the rules and look for loop holes in order to make more money. Been going on for years. To believe otherwise is very naive. Linda is dead on. In a time like this, the Gov’t is expected to take action just as Bush’s administration did by implementing Sarbanes/Oxley.
Bryan, do yourself a favor and stop wining. Makes you look weak. Man up and focus on the impacts of any proposed legislation and be a man and make the necessary adjustments in your model. Help your students find their way through the changes.
Sounds like you’re another one of the cry babies upset that Obama is president and you’re using this forum to assert your anti-Obama views.
Where were you when Bush was spending away and starting wars. That likely hurt my business more than anything that Obama has done or will do. The clean up is bound to be ugly.
Capitalism and Greed has sent jobs overseas, Has raised interest rates that has turned us all into slaves Has allowed wall street to steal Life savings, Has caused this forclosure horror and still ,instead of acknowledging we need help from the government, you label that help all kinds of words that scare people.It took decades for our country to reach this point of destuction how conveint to label it obama obama obama!!!!! Give me a break.Hate and bigitry makes you Stupid.The system that has almost Destroyed this great nation is still hiding tin the shadows.If one man were powerful enough to stop it it would have been done long ago.Its clear obama is trying to help the american people.Where were you when bush was bumbling threw the presidentcy.OH thats right he wasnt the wrong color so everything he did was AOK!!!!!!!!!!!!!
Bryan,
Please tell me more or give me a reference, regarding the regualtion on owner financing that you said would take effect on July 1st.
Thanks.
Jeff,
There’s no way in hell anybody’s going to tell me that every ABC closing in this country has been perpetuated in a legal and ethical manor…
That would only be done with full disclosure of all parties…
The problem with this country is if you have a few bad apples in the bunch, it tends to spoil it for all the rest who had good intentions…
Reason being Obama’s trying to protect the banks and the sellers who are left getting screwed…
Brian,
Capitalist, socialist, you’ve all got your flaws…
Another reason being this country’s in the mess its in today…
Its the banks running this country in the ground, along with all the politicians that support them… Republican and democrat, capitalist and socialist alike.
Jay:
Thank you for correcting Linda. She may have “36 years in the business” but obviously is not well versed in ABC transactions. As an analogy, I can say I’ve played piano for 20 years; yet I only sit down 1 hour per month and only practice the same 1 tune. Compare that to someone who has only been playing 6 months… but practices INTENTLY for 5 hours/day everyday. To wit: she says “the A investor”. Since she does not even know the most basic distinctions of these transactions (the seller in distress is “A”, the investor is “B”), how can she intelligently comment on the rest?
Yes, the investor “knows that the value is more”, POSSIBLY, AFTER the property’s distress is “rehabbed”. A property that is in imminent default with foreclosing loans, outstanding liens, and over-encumbered title is NOT a retail value, turn-key property that can be delivered to a retail buyer (esp a 1st time homebuyer).
The rest of her post makes practically NO sense; very poorly written and unclear:
- “investor, get [sic] title prematurely” – how does one get title “prematurely”? Prematurely to what? A contract is entered, a CoE date is established, deal closes, deed is conveyed. What is premature? I think what she’s trying to say is when a distressed seller signs over their deed without realizing or without the investor heeding the statutory requirements of cancellation periods before any conveyance can occur. This is a valid point, but the way she expressed it is very poor and unclear. And deed fraud is NOT part of the legitimate ABC model.
- “I recently sold a house to a buyer, from the bank, BUT, they were willing to buy it before it went into foreclosure.” WHAT??? This makes NO sense at all. 36 years in the business? If the house was not yet in foreclosure, how did the bank sell it? Bank is not owner of record until the moment the trustee sale is cried and property reverts to beneficiary (lender). If it is not yet a completed foreclosure, the bank is NOT the owner, the seller is still owner of record. If a short sale, the bank needs to approve of the sale but the contract is not between the bank and the buyer. It is between the buyer and the actual owner of record (seller in distress). On the other hand, if what she is saying is that she was the buyer’s agent for an REO but her buyer was willing to buy it before foreclosure, then this makes more sense. However just because her buyer was “willing” to purchase as a short sale, doesn’t mean it would actually HAPPEN. Her chances successfully closing once property is REO are actually much higher since many of the problems have been cured by the foreclosure. Had she entered with her buyers into a short sale contract, it had a high likelihood of NOT closing. How else can a 75%+ FAIL rate of listed short sales be explained? Obviously there is a problem with the traditional model of trying to match up distressed, upside down sellers directly with retail buyers.
The rest of her post is just as unclear. It sounds as if she ran across a wholesaler who didn’t know what they were doing and caused a homeowner to go into foreclosure unnecessarily. However, sometimes the banks get stuck on an unrealistic value that no one can satisfy: wholesaler or retail buyer. Sometimes the lenders just want to push a property into the REO pipeline even though they will net less and have more liability. It’s baffling, but happens all the time.
Please, Linda, educate yourself more on the specifics before making charges that legitimate wholesaling efforts are “actually making the market worse”. What do you propose? Foreclose everybody and sell everything REO? Or how about letting all these folks’ free rides (live in house, make no payments) go on indefinitely so that we “save” “homeowners”?
And other posters here: please look up the definitions of the labels you so loosely toss about. Socialism and fascism are completely different. Pick a pejorative that at least makes some sense and is based on some facts.
If Obama is a socialist, then g w bush had a brain. And we have too much evidence to know that isn’t true.
While all this venom is directed at Obama, corporate welfare and military spending black holes are conveniently ignored.
How much in income taxes did Exxon pay last year?
Why do we spend more than the next 15 countries COMBINED on an over-bloated military apparatus?
When I bashed bush (over legitimate, fact-based grievances) I was called “unamerican”. Now these same fools bash our current President? Are you not now “unamerican”? Typical, nonsensical convservatard double standard. Want to dish it out, but can’t take it.
Okay I’ll try this again – Brian can you referance the article about the attack on owner – financed transactions.
Linda “I have 36 years experience in the real estate business” is obviously a Realtor who has never done an honest (full-disclosure) short sale, or even witnessed one that was done by someone else. And, of course, buying or selling real estate without a license (or a Realtor getting paid 6%) is clearly illegal – or should be. (That last part was sarcasm.)
As a full-time RE investor, I find it almost impossible to locate Realtors who know how to do short sales. (I think there’s only one in my town,) All I hear from Realtors is “that’s illegal” or “you can’t do that”– even though RE attorneys say it’s not. My advice: listen to the attorneys and ignore the Realtors, since few have had any real short sale training by experienced legal experts.
In a short sale transaction, there is no fraud as long as the buyer discloses upfront that he intends to resell for a profit. That language should ALWAYS be in the Purchase & Sale Agreement. If the lender objects to the buyer reselling for a profit, the lender should kill the deal immediately. That disclosure also puts the lender on notice that the buyer intends to “buy low, sell high” — again, no fraud since it was all disclosed in the beginning. Regarding BPOs and values, the lender is supposed to do their own research. If they rely on buyers for values, they are incompetent and should be fired.
The Gold Guy,
Still using that pathetic arguement? Let me educate you a bit.
“One way or the other, we are determined to deny Iraq the capacity to develop weapons of mass destruction and the missiles to deliver them. That is your bottom line.” – BILL CLINTON Feb 4, 1998.
“If Saddam rejects peace and we have to use force, our purpose is clear. We want to seriously diminish the threat posed by Iraq’s weapons of mass destruction program.” -BILL CLINTON Feb 17, 1998
“We must stop Saddam from ever again jeopardizing the stability and security of his neighbors with weapons of mass destruction.” – MADELINE ALBRIGHT Feb 1, 1998
“He will use those weapons of mass destruction again, as he has ten times since1983.” – SANDY BERGER, Clinton National Security Advisor, Feb 18, 1998
“We urge you, after consulting with congress, and consistant with the U.S. Constitution and laws, to take necessary actions (including, if appropriate, air and missile strikes on suspect Iraqi sites) to respond effectively to the threat posed by Iraq’s refusal to end its weapons of mass destruction programs.” SENATORS CARL LEVIN, TOM ASCHLE, JOHN KERRY Oct 9, 1998
“Saddam Hussein has been engaged in the development of weapons of mass destruction technology which is a threat to countries in the region and he has made a mockery of the weapons inspection process.” – NANCY PELOSI Dec 16,1998
“Hussein has… chosen to spend his money on building weapons of mass destruction and palaces for his cronies.” – MADELINE ALBRIGHT, Clinton Secretary of State, Nov 10, 1999.
I’ve got plenty more… stop being a media echo and do a little research.