Today, I got a call from one of the agents at the office who was foaming at the mouth that her San Jose Short Sale was denied by a lender who shall remain nameless here! I started asking the following questions:
1) Does this lender use Equator for processing her San Jose Short Sale?!
She replied that this specific bank does not use Equator. When banks user Equator there are options to escalate the matters to Regional Vp and underwriting to get more clarification.
2) Are her San Jose Short Sale home owner and buyer related?!
The answer was a solid NO which eliminated my suspicion of an non-armed length transaction. If the buyer and seller are related, the Short Sale is considered a fraud.
3) Is the property occupied by the owner?
The answer was NO. The property has been vacated and the this San Jose Short Sale owner has purchased another property. Some banks do not approve HAFA Short Sales on non-owner occupied homes based on their investor guidelines.
4) Are you applying for HAFA Short Sale?!
Yes. She initially said yes, but I was not sure if her client has declined a HAFA Short Sale by writing a hand-written note which is now required by most banks who offer HAFA Short Sale as an option.
5) Does your lender participate in HAFA?!
6) What was the denial reason?!
She stated that stated denial reason was for the value! And that’s when I got suspicious since the difference between the Broker Price Opinion (BPO) by the bank and her offer was only $9,000!! Something smelled fishy. But she was not calm enough for more questions and wanted to rant and rave some more.
Finally, after 15 minutes on the phone she finally admitted that her San Jose Short Sale owners does NOT really have a hardship!! I was like, DUUUUAAAAAAAAAAAAAAA!? Are you kidding me!?
Financial Hardship is one of the main pillars that banks can use to prove a Short Sale. Without a Financial Hardship, the servicing company and the investor Freddie Mac in this case would not survive an audit since the Seller income has been supplied to the bank and they can easily determine that without the hardship, the seller is able to make the payment!
Just because your clients are asking you to submit a Short Sale file to the bank, that does NOT mean you should accept the Short Sale listing!! This can indeed be classified as a Short Sale scam and Short Sale fraud cause the owner has not justification for requesting the bank to take a loss on this loan! And her bank has no reason and justification to tell her the EXACT reason why they are denying her San Jose Short Sale request.
Bottom line, when something walks like a duck and smells like a duck, then it’s a duck! If you suspect Short Sale fraud, as an agent, you should tell your home owners the guidelines that could get you and your broker into serious trouble and you should NOT accept that listing.
In the excitemnet of getting a Short Sale listings, sometime we lose site of the basic smell test where if the seller does NOT have a hardship, then there is no justification for us to accept that Short Sale listing! In fact, it’s case of Fraud!