FREDDIE MAC WARNS ABOUT SHORT SALE FRAUD PARTICIPATION

Attorneys & Realtors especially need to listen up to this…

For a perfect example of this, here is a story about the Short Sale Kid in Florida who has raised many questions.

What is a short payoff?

A short payoff occurs when a borrower cannot pay the mortgage on his or her property and is permitted to sell the property for less than the total amount due, at a loss to the lender, investor and/or insurer. All parties consent to the mortgage being paid “short,” primarily because the property does not need to go through foreclosure. Please note that many legitimate short payoffs take place in the real estate market.

What is short payoff fraud?

According to a member of Freddie Mac’s Fraud Investigation Unit, a slight variation of our general definition of mortgage fraud also defines short payoff fraud – “Any misrepresentation or deliberate omission of fact that would induce the lender, investor or insurer to agree to the terms of a short payoff that it would not approve had all facts been known.” Misrepresentations in these schemes may include the buyer of the short payoff property, a subsequent transaction at a higher price, and/or the selling borrower’s hardship reason used to qualify for the short payoff. In many instances, the short payoff fraud will involve a “facilitator,” engaged by either the listing agent or the selling borrower, to assist with negotiating the transaction.

How is short payoff fraud committed?

There are many variations of short payoff fraud. The example below is just one way this type of mortgage fraud can occur.

  • A seller (delinquent borrower) owes $100,000 on a property that is worth $80,000.
  • The short payoff facilitator negotiates with the bank to accept a $70,000 offer to purchase the property. In several instances, Freddie Mac has seen that this offer will be made directly by the facilitator or through an entity under his/her control.
  • The lender/investor accepts the offer for $70,000.
  • The facilitator neglects to disclose to the lender/investor that there is an outstanding offer between the facilitator and a second end-buyer for $95,000.
  • Both transactions close on the same day with the net difference being pocketed by the facilitator and increasing the lender/investor’s net losses.

At first glance, this may look like a legitimate short payoff. However, in this example, the fraud is the failure to disclose the second, higher offer. The facilitator is willfully withholding important information the same way a scam artist would, and the lender does not realize they are walking into a premeditated short payoff fraud scheme. Because the facilitator is deliberately withholding the higher offer, Freddie Mac also experiences a larger than necessary loss on this sale.

Short Payoff Fraud Prevention Red Flags

Remain alert to the following flags, which may suggest short payoff fraud:

  • Sudden borrower default, with no prior delinquency history, and the borrower cannot adequately explain the sudden default.
  • The borrower is current on all other obligations.
  • The borrower’s financial information indicates conflicting spending, saving, and credit patterns that do not fit a delinquency profile.
  • The buyer of the property is an entity.
  • The purchase contract has an option clause to resell the property.

Short Payoff Fraud Prevention

The following protective measures are recommended in order to detect and mitigate the severity of short payoff fraud:

  • Review all short payoff documentation carefully, including the sale contract. This helps determine if there is an option clause to resell the property at a higher price without notifying the lender.
  • Draft a short payoff arm’s-length affidavit/disclosure notice for all parties involved in the short payoff to help avoid any hidden contracts, or side agreements. The parties involved should be, but are not limited to: the buyer, seller, listing agent, selling agent, short payoff negotiator(s)/facilitator(s), and closing agent.
  • Solicit information from your borrower.
  • Inquire if the borrower is aware of any other parties involved with the short payoff other than real estate professionals.
  • Is there a short payoff negotiator/facilitator involved?
  • Is the borrower aware of any other purchase contracts on the property?
  • Require an executed and signed IRS Form 4506-T, Request for Transcript of Tax Return,from each borrower and process the form to determine if the borrower’s qualifying income is accurate.
  • Order an interior Broker Price Opinion (BPO) and review all other BPOs that have been ordered on the property (drive-bys and full interiors) to establish a high/low value variance. The BPOs should include a past and present Multiple Listing Service (MLS) listing history, as this will determine if the property was relisted in MLS while the short payoff is being processed.
  • Review the Freddie Mac Exclusionary List to see if the parties to the short payoff are on the list. Seller/Servicers can access the Exclusionary List via the selling system, MIDANET®, MultiSuite®, and Loan Prospector®.
  • Immediately notify Freddie Mac if you are aware of a second purchase contract for a higher price.

Important Freddie Mac fraud prevention resources

Leverage the following resources for more information on dealing with fraud:

Banks Have Recognized 60% of Expected Loan Charge-Offs: Moody’s

Gee, and here I thought that the Federal Reserve bought $1.4-$2 *trillion* of them! Let alone Lehman and its 50 billion in subprime mortgages that it “hid” (and what about all the other TARP/Federal Reserve member banks??)

BY: CARRIE BAY 6/3/2010 DSNEWS

n its latest quarterly report on credit conditions of the U.S. banking system, Moody’s Investors Service says banks’ asset quality issues are “past the peak” butcharge-offs and non-performers continue to eat away at profitability and sheer fundamentals.

Based on Moody’s market data, banks’ non-performing loans stood at 5.0 percent of total loan assets at March 31, 2010.

Moody’s says U.S. rated banks have already charged off or written-down $436 billion of loans in 2008, 2009, and the first quarter of 2010. That leaves another $307 billion to reach the rating agency’s full estimate of $744 billion of loan charge-offs from 2008 through 2011.

In aggregate, the banks have recognized 60 percent of Moody’s estimated total charge-offs and 65 percent of estimated residential mortgage losses, but only 45 percent of projected commercial real estate losses.

In the first quarter of this year, the banking industry’s collective annualized net charge-offs came to 3.3 percent of loans, versus 3.6 percent of loans in the fourth quarter

of 2009, Moody’s said. Despite two consecutive quarters of improvement in charge-offs, the ratings agency notes that the figures still remain near historic highs, dating back to the Great Depression.

According to Moody’s analysts, the decline in aggregate charge-offs was driven by commercial real estate improvement, which “we believe is likely to reverse in coming quarters,” they said in the report. A similar commercial real estate decline was experienced in the first quarter of 2009 before charge-offs accelerated through the rest of the year.

“The return to ‘normal’ levels of asset quality will be slow and uneven over the next 12 to 18 months,” said Moody’sSVP Craig Emrick.

But Emrick added that “Although remaining losses are sizable, they are beginning to look manageable in relation to bank’s loan loss allowances and tangible common equity.”

U.S. banks’ allowances for loan losses stood at $221 billion as of March 31, 2010, which is equal to 4.1 percent of loans, Moody’s reported. Although this can be used to offset a sizable portion of remaining charge-offs, banks will still require substantial provisions in 2010, the agency said.

Moody’s says its negative outlook for the U.S. banking system is driven by asset quality concerns and effects on profitability and capital. The agency’s ratings outlook is also influenced by the potential for a worse-than-expected macroeconomic environment, Moody’s said.

“More severe macroeconomic developments, the probability of which we place at 10 percent to 20 percent, would significantly strain U.S. bank fundamental credit quality,” Moody’s analysts wrote in their report.

Tapped Out: When Water Bills Force Foreclosure

Some may recall the post I did about DISTURBING BEHAVIOR in FLORIDA: The $67K Water Lien! Revoked Homestead!

I guess this isn’t that rare. Take a look what a $3,000 unpaid water bill can do if you DO NOT HAVE ANY MORTGAGE.

One raw day in early February, Vicki Valentine stood by helplessly as real estate investors snatched her West Baltimore home over what began with an unpaid city water bill of $362. Valentine lost the property after the city sold her debt to investors through a contentious and byzantine legal process called a tax sale. This little-known type of foreclosure can enrich investors as growing numbers of property owners struggle to pay their bills.

DISTURBING BEHAVIOR in FLORIDA: The $67K Water Lien! Revoked Homestead!

Individual does not want to disclose their name. I have authenticated this to be true.

I have spoke to others and this has happened to them …but without ANY violations.

Could this be the way that the MBA might get around to allow banks to foreclose on “Non-Homestead” properties?? Just CURIOUS?

“DISTURBING BEHAVIOR”

1. Non-Creditor places a Lis Pendens

2. County/City revokes your HOMESTEAD

3. County/City issues code violations

4. County/City places a lien on the subject property

5. County files a Foreclosure Notice for unpaid Code Violations (ie: not getting a $2-3K sewer connected that turns into $67K FASTand growing …while in Lis Pendens)

6. County sends you a letter letting you know that they CANNOT foreclose on a homestead residence.

GUESS WHAT? They revoked it! So now they can foreclose and get in first place of the bank(s) foreclosing… Kick you to the CURB!

Bank now pays the “County/ City” off. It can be any violation…Did you clean your pool? mow the lawn? ANYTHING!

“DISTURBING BEHAVIOR”

But why you ask…

It’s the only property you own!

It’s the only “Primary” residence you have!

It’s the only mortgage in the Country….So why is this not your Homestead property?

Good thing they weren’t working on a “Loan Mod”.

“DISTURBING BEHAVIOR”

Don’t believe me see for yourself…

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National foreclosure auctions go online via LPS: “CAVEAT EMPTOR”

Submitted by Kevin Turner on April 16, 2010 – 4:56pm Market Value

The Duval County Clerk’s Office has offered online bidding for foreclosed properties for some time, and now Jacksonville-based Lender Processing Services is bringing bank-foreclosures all over the U.S. online.

Through its LPSAuctions.com Web site, LPS is to open bidding on single-family homes, condominiums and town homes from Coral Springs to Tacoma, Wash. The bid deadline for the homes listed in the “Spring Clearance” auction on the site is May 10.

So now it’s official they have they’re hands in all Real Estate! My question is how…why would any state permit them to sell anything if they are under the scope of the FEDS?? Take a look below.

RELATED ARTICLES:

AGENTS BEWARE! HERE COME THE HAFA VENDORS aka LPS AFTER YOUR COMMISSION

LPS Asset Management Launches Short-Sale Service: “CAVEAT EMPTOR”

LENDER PROCESSING SERVICES (LPS) Hits Local NEWS!

After ongoing INVESTIGATIONS: Lender Processing Services (LPS) closed the offices of its subsidiary, Docx, LLC, in Alpharetta, Georgia

EXTRA! EXTRA! Read All about the misconduct of Lender Processing Services f/k/a FIDELITY a/k/a LPS

U.S. Probing LPS Unit Docx LLC: Report REUTERS

U.S. Probes Foreclosure-Data Provider:Lender Processing Services Unit Draws Inquiry Over the Steps That Led to Faulty Bank Paperwork (LPS VIDEOS)

Feds Investigating LPS Subsidiary DOCX: Jacksonville Business Journal

Fidelity’s LPS Secret Deals With Mortgage Companies and Law Firms

TOPAKO LOVE; LAURA HESCOTT; CHRISTINA ALLEN; ERIC TATE …Officers of way, way too many banks Part Deux “The Twilight Zone”

Stopping A Defective Title Wave With A Coupla Outstretched Helping Hands

BOGUS ASSIGNMENTS 2…I’m LOVING this!! LPS DOCx ADMISSIONS SEC 10K ROOFTOP SHOUT OUT!

 

Glenn Beck on The Goldman Sachs Connection

So what does this ‘FRAUD” mean and the AIG bailout they received?

 

Mortgage Banking – The MERS Alternative to Vacant-Property Registration Ordinances

Wouldn’t it just be easier to work with the homeowner than go this route?  Does this make any sense at all? I mean you foreclose and try to sell the property for less than half in many instances when not sold you leave it “vacant”…I mean really M&M? Do any of you smell a SCAM?

Wednesday, 09 September 2009

Robert Klein, CEO of Safeguard Properties, contributed an article to Mortgage Banking magazine about the impact that the Mortgage Electronic Registration System (MERS) is having on the management of REO and bank-owned vacant properties across the country. 

The MERS Alternative to Vacant-Property Registration Ordinances

The hopeful news of 2009 is that many indicators point to the likelihood that the U.S. economy may finally have scraped bottom and could be heading upward.

The stock market has seen fairly steady gains since it hit its early-March low. The Wall Street Journal reported that the number of workers filing state unemployment claims at the beginning of June fell by its largest amount since November 2001. And RealtyTrac Inc., Irvine, California, reported that in May, foreclosure filings decreased by 6 percent from the previous month.

Now for the more sobering news. The Wall Street Journal reported that new jobless claims increased slightly from May to June. In June, Standard & Poor’s (S&P), New York, downgraded ratings for 22 banks nationwide, expecting loan losses to worsen before they improve. And the Mortgage Bankers Association (MBA) reported in late May that the level of foreclosures started in the first quarter of 2009 hit a record high.

What does this all mean? Even though the economy is showing some glimmers of recovery, high rates of default and foreclosure are likely to continue for the foreseeable future. As a result, cities around the country will continue to struggle with the challenges that vacant properties pose in their communities.

A proliferation of vacant-property registration ordinances

To address the problems associated with vacant properties — from vandalism and crime to safety and maintenance issues — cities across the country have been considering or enacting vacant-property registration ordinances.

From the municipality’s perspective, the goal in enacting ordinances is to have the ability to track down a contact to serve notice when code violations occur and to hold that party responsible when violations go unresolved for periods of time.

In part, registration ordinances attempt to fix a problem with property records across the country. In many cases those records are not up-to-date, and usually they don’t identify a property-preservation contact within the lender or servicer organization responsible for a vacant property. As a result, when cities issue code-violation notices based on public records, the notices go unheeded for long periods of time because they either fail to reach the right person or take a long time getting there.

From a servicer’s perspective, the basic notion of vacant-property registration ordinances is positive — by registering vacant properties, lenders and servicers are more likely to receive prompt notification when issues arise with properties. This allows them to address problems quickly, preserve the value of their collateral asset, and avoid both negative community backlash and potentially expensive fines for failure to comply with code requirements.

The concern with vacant-property ordinances among ser-vicers is the administrative challenge of complying with potentially thousands of different municipal ordinances around the country. The more ordinances — and more individual nuances — the more resources will be needed and the greater the risk of fees and penalties for failing to comply.

Finding common ground

Municipalities and servicers share common interests with regard to vacant properties. Both have an interest in ensuring that properties are well maintained, safe and secure. Both benefit when cities have accurate and updated contact infor-mation to serve notice when issues arise.

A few years ago, MBA took an important first step in providing contact information to cities when it posted property-preservation contacts for major mortgage servicers on its Web site for code-enforcement officials to access. While that was helpful, not enough cities were aware of the resource, and both city code-enforcement officials and servicers recognized a need to do more.

In 2008, MBA convened a Vacant Property Registration (VPR) Committee, comprised of lenders, mortgage servicers and the field servicers who represent them. The committee met by phone on a weekly basis for nearly a year, and also met with mayors and other officials in cities that were considering vacant-property legislation.

The committee listened carefully to the cities’ concerns, and offered insights regarding the challenges they face to inspect, secure and maintain growing numbers of vacant properties throughout the country.

In 2008, representatives from MBA and the VPR Committee were invited to address the U.S. Conference of Mayors, describing the challenges of securing and maintaining vacant properties in cities across the country, and listening to the feedback of mayors.

At the June 2009 U.S. Conference of Mayors’ Annual Meeting, MBA and VPR Committee representatives were again invited and had the opportunity to update mayors on their efforts.

The mayors received a briefing on the committee’s solution — now referred to as “The MERS Initiative.” This initiative is a collaboration between MBA and the Mortgage Electronic Registration System (MERS), Reston, Virginia. Working with MBA, MERS developed a process by which government entities across the country can have access to the MERS system, which contains information on more than 60 million loans through more than 2,500 lenders that use the system. The MERS system was enhanced to store property-preservation contact information for the properties registered on the system.

MERS implementation under way nationally

In the fall of 2008, the committee enlisted five municipalities to serve as pilots for the program: Chula Vista, Sacramento County and Stockton in California; Boston; and St. Louis.

Code-enforcement officials who used the system reported that they were impressed with quality and quantity of data available to them. The pilot was deemed a success and the MERS Initiative was officially launched in late spring. To date, hundreds of cities have signed on to the program.

In many cases, the cities signing on are utilizing the MERS system and their vacant-property registration ordinances in tandem. Those cities will consider a loan servicer compliant with their vacant-property ordinances if their properties are registered on the MERS system. The vacant-property ordinances remain in place for properties that are not registered on the system — primarily those in the hands of property “flippers” and non-responsive property owners who fail to act responsibly.

Even though a majority of loan servicers are members of MERS, not all of their loans are currently on the system. To motivate servicers to register all of their loans, MERS has developed special registration products and incentives for servicers to register their full portfolios on the system.

A valuable resource for cities

The MERS system is proving to be a valuable tool for resource-challenged cities, especially those with the highest volumes of vacant and abandoned properties.

With access to MERS, cities don’t have to create a registration system from the ground up. They have free access to an existing system and receive free training for their users. They have a system that is proven and uniform across the country. That uniformity helps to ensure that servicers can more readily comply with registration requirements. And the system reduces administration and paperwork, because cities can exempt the vast majority of MERS-registered lenders and servicers from additional registration requirements and target their resources to address the most challenging issues.

Those familiar with the Pareto principle recognize that 20 percent of an organization’s most challenging needs consume 80 percent of its resources, while the other 80 percent require only 20 percent of its resources. This is the advantage of resource allocation that the MERS system provides to cities.

No one expects the MERS system alone will address all of the challenges regarding vacant and abandoned properties for municipalities and servicers. But the initiative is a tremendous example of what can be accomplished when interested parties come together in a spirit of collaboration to solve a problem.

In this case, success was built on three proven strategies:

  • Engaging in dialogue and identifying mutual interests. MBA took the initiative to form a Vacant Property Registration Committee that reached out to cities and code-enforcement officials to understand their concerns. In turn, the cities were open to better understanding the challenges faced by servicers.
  • Building on proven success. Instead of building individual registration processes from the ground up, cities have immediate and free access to a proven system that will allow them to address vacant-property issues more immediately and effectively.
  • Maximizing limited resources. By offering cities an efficient process to track properties that are being managed responsibly, code-enforcement officials can focus their attention on the properties that are the most challenging to them.

No one knows when the current housing crisis will subside, but until it does, municipalities and servicers have demonstrated their willingness and commitment to face the challenges together. As an industry, we are especially grateful to the code-enforcement community for its partnership and collaboration in producing the MERS initiative.