On a daily trip around the Internet, I noticed that the California Association of Realtors® has just updated its legal article on short sale fraud. Fraud stinks. And, if you’ve ever been a victim of some scam, then you become hyper-aware of things (and maybe a little paranoid) because you don’t want to be a victim again.
Question: What is a short sale negotiator?
Answer: A short sale negotiator is generally someone who negotiates and facilitates a short payoff with a seller’s mortgage lender. Because short sales often involve very thick short sale packages and frequent attempts to contact the short sale lender, a legitimate short sale negotiator can facilitate and expedite the short sale process. A short sale negotiator can be the listing agent, someone else in the listing office, or someone in another office.
With full disclosure, among other things, hiring and paying for a short sale negotiator is not an illegal activity. However, certain scam artists impersonate or use short sale negotiators in furtherance of their improper and illegal schemes.
Question: What are some examples of short sale negotiator scams?
Answer: As with any profession, some short sale negotiators are reputable, legitimate, and qualified to negotiate and facilitate short sales, whereas others are not. Scammers may lure homeowners and their agents into their schemes by promising to expedite the short sale process and obtain approval from the short sale lender. What scammers in fact do include putting together and submitting bogus short sale packages to the short sale lenders, performing little or no service, or engaging in other wrongdoing.
Some scams revolve around the payment of the short sale negotiator’s fee. A seller’s short sale lender may disapprove payment to a third-party short sale negotiator, so the scammer makes a secret agreement for the seller, buyer, agent, or someone else to pay that fee, usually outside of escrow. As one variation of the scheme, the purchase agreement may indicate that the seller will give the buyer a credit, but a secret agreement is made for the buyer to use that credit to surreptitiously pay the short sale negotiator fee.
Question: How do I check whether a short sale negotiator is legitimate?
Answer: Factors to consider helping ensure that a short sale negotiator is legitimate include, but are not limited to, the following:
- Whether the negotiator and the negotiator’s employing broker if any are both properly licensed with the DRE or registered and bonded as a foreclosure consultant
- Whether the negotiator is qualified to perform short sale negotiation services.
- Whether the negotiator actually performs services to facilitate and expedite the short sale process.
- Whether the negotiator’s fee is fully disclosed in a meaningful manner to, and approved by, the parties and lenders involved.
- Whether the negotiator’s fee is reasonable, based upon, among other things, the negotiator’s qualifications to conduct short sale negotiations and the fee charged by other negotiators.
- Whether the individual paying for the negotiator’s services voluntarily agrees to pay for those services, and is given an opportunity to consult with a real estate agent, attorney, accountant, or other professional as deemed appropriate.
- Whether the negotiator does not get paid until after the negotiator fully completes each and every service the negotiator promises to perform.
- Whether the negotiator complies with agency laws, RESPA, laws against fraud, and other laws and MLS rules.
The above list is an illustrative, not exhaustive list of factors to consider for a legitimate short sale negotiator. Compliance with all these factors does not guarantee that a short sale negotiator is legitimate or qualified. Similarly, not complying with one or more factor does not necessarily mean, depending on the specific circumstances, that a short sale negotiator is a scam artist, as ultimately decided by a judge, jury, arbitrator, or DRE Commissioner.
Question: Can a seller require that the buyer pay for a short sale negotiator’s fee?
Answer: It depends. As a term of negotiation in the sale of real property, a seller’s requirement for the buyer pay for a short sale negotiator’s fee is, by itself, legal. Of course, the buyer may refuse to pay, and go buy another property instead. However, if in addition to requiring the buyer to pay, the seller also requires the buyer to, for example, help conceal the negotiator’s fee from the short sale lender or pay the negotiator’s fee outside of escrow, the payment may now constitute, among other things, mortgage fraud, common law fraud, and a RESPA violation.