Wednesday, July 30, 2014
PLACERVILLE, CALIFORNIA
99 CENTS

Be alert for games people play

By
September 20, 2011 |

Ken Calhoon

The offer was short of the listing price by $10,000 but the purchase contract contained a clause that was very attractive to my seller. It said, “Buyer is purchasing property in as is condition.” That was important. My client was a single working mom, with barely enough equity in her home to pay selling expenses. The home wasn’t in poor condition but it had some deferred maintenance. It was important the home be sold quickly without the time and expense of making the repairs that would likely show up on a whole house inspection. She took the offer.

Three weeks later I was reviewing an extensive list of repairs the buyer was requesting the seller make to her property.

“What is this?” I asked the selling agent when he finally returned my call. “We would never have accepted your lower offer without the “as is” clause. Now you’re changing the contract three weeks before closing.”

The selling agent explained what I already knew. Once in escrow, the buyer has an allotted time to inspect the property. Then the purchase contract gets renegotiated. Typically, the buyer submits to the seller a “Request for Repairs” of items that were discovered during the inspection period. If no agreement is reached between the buyer and seller regarding the repairs, the buyer has the opportunity of cancelling the contract with a full refund of their earnest money deposit. In our current market, the negotiating advantage lies with the buyer, who now was re-negotiating his original “as is” offer by requesting repairs, cash credits at closing or a lower price. We had been duped.

Neither the pest report nor the whole house inspection revealed any significant problems. I suspected the buyer was playing out his hand to see what concessions he could extract from my client. Another seller might have conceded simply to expedite the closing but my client was equity poor and could go no lower in price or afford to make the repairs. The risk we took by rejecting the buyer’s requests was losing the buyer entirely. Without many options, my client held firm. Surprisingly, after threatening to walk, the buyer agreed to close. After closing, his agent told me he had played the same game with other purchase contracts.

Sherry, an agent in El Dorado Hills, was sharing with me her story that happened recently while representing buyers in a short sale transaction. After waiting three months in escrow, her clients finally received an acceptance from the seller’s lender to proceed to closing. During the next 45 days Sherry’s buyer performed all the typical inspections and went through the process of qualifying for a loan. Everything was proceeding as planned, until the sellers decided to file bankruptcy, cancelling the escrow. Later Sherry discovered that the sellers had listed their property as a ploy to prevent the lender from foreclosing. Their real intent was to stay in the property as long as possible. Sherry and her buyers were not only out four months of escrow but the costs of the property inspections and appraisal fee.

Short sales are ripe for abuse and fraud. “Reverse staging” is an example. The owners trash their house to knock down the property value. A buyer, with whom the owner is colluding, then comes in with a low-ball offer, buys it, fixes it back up and then flips it for its real market value.

Illegal flipping and non-arm’s-length transactions happens on short sales when the delinquent homeowner attempts to sell the property to a family member or friend without disclosing the relationship to the lender approving the short payoff. It’s often an effort for the owner to stay in the home and then buy it back at a lower price. Instead of making payments to the mortgage company they’re making payments to the family member, as rent.

Secret undisclosed profits happen when the short sale seller accepts a low price from a related undisclosed party in order to receive a kick back after closing.

Agents representing lenders selling their REO properties have their challenges. The listing agents are often over-worked and under-compensated. They often deal with stressful situations and a variety of selling agents with different skill levels. A few agents have discovered ways to manipulate offers to their advantage.

REO listing agents have advance knowledge of the foreclosed property, its condition, probable listing price and unlimited access. Prior to placing the listing in the MLS, most REO agents will put out the For Sale sign with their personal phone number. Any property inquiries are passed along to their exclusive selling agents or team members. Questions regarding the property by other agents are delayed and any offers from “non- team” members get held back while the seller considers only the “in house” offers. After closing, the selling agent kicks back a portion of the commission to the REO listing agent. There are many variations of this illegal kickback scheme.

Taking advantage of lenders is viewed by many as a triumphant accomplishment. After all, weren’t they responsible for this mess? During stressful economic times, poor behavior is often rationalized and occasionally celebrated.

In any game there are rules. Some games played during negotiations to gain an advantage are acceptable. Defrauding a lender is not. It is important that we all know the difference.

Ken Calhoon is a real estate broker in El Dorado County. He can be reached through his website at kencalhoon.com and via e-mail at ken@kencalhoon.com.

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