If you currently engage in that newly-demonized yet highly-productive, profitable and essential-to-market-recovery practice of buying properties via short sale and then (gasp) selling them off for a profit, then get ready for some more bad press. In Connecticut, two real estate agents are going to be sentenced in federal court in the next two months for fraud.
The fraud in question? Negotiating short sales with lenders without disclosing all offers on the property to the lenders. Once the properties were sold, the agents then flipped the houses quickly for a profit.
As real estate agents, these two parties absolutely could be argued have additional obligations to the lenders to disclose offers. After all, they are the agents and part of being an agent on a property is to disclose “all relevant, known information.” However, it is unclear for whom the agents were working – in this case, it looks like they were representing themselves as buyers rather than working for the bank. This makes things far grayer for real estate investors, who may be aware that they can sell a property with the proper repairs, marketing and time involved for a higher price than a lender can, but may not feel that it is necessary, appropriate or even demonstrative of any type of business acumen whatsoever to basically outline their action plan to the competition.
For now, if you flip – or flop – short sales, be very sure that you understand each and every aspect of your role in the deal. Whether you are negotiator, buyer, seller or all three, you must be able to demonstrate that you disclosed the increasingly high volume of information that you are legally required to disclose in any given geographic area before you did the deal and ultimately generated some type of wealth or profit.
Are you steering clear of short sale flipping, or have you figured out how to deal with these new issues?
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