Sunday, July 10, 2011

MORE on Flipping, Flopping and Fraud

We have had great dialog regarding fraud and disclosure and I wanted to follow up on this based upon the GREAT comments that we are entering. This is what Active rain should be....professional dialogue to vet issues and voice opinions (naturally networking is huge too).
Much of the discussion relating to fraud has been based on disclosure. Disclosure is a HUGE issue today because the short sale process has escalated the importance of disclosure. This is not only on what TO disclose, but also what NOT to disclose in a short sale transaction.
Many have expressed that as long as you disclose, there is no fraud. This is generally a good starting point, but it is not dispositive of the issue. Disclosure alone will not prevent fraud if the other underlying elements of fraud exist. The challenge in a short sale is that there is frequently an extra buyer – the “end” buyer. The presence of this additional party has complicated the disclosure topic.
Fraud has more to do with intentionally deceiving someone in the purchase and sale process. Misrepresenting on a HIGH level the facts or issues. Obtaining a BPO or appraisal by intentionally mis-stating aspects of the home MIGHT rise to fraud.
In these transactions, we must all stay within our lanes. By this I mean, realize who are client is, and appreciate what are duties are relative to that client. This applies to EVERYONE – agents, brokers, attorneys, buyers, sellers, title agents, mortgage brokers, and the lender. Rarely does anyone in the transaction have a duty to the lender (unless it is a listing agent and their client is the bank such as a REO). The lender has its own protections and staff. Whenever listing agents or the buyer’s agent discloses something to the lender, they probably have just violated their duty to their CLIENT! Not a good plan!!
Lenders have embarked on creating the duty by asking buyers, listing and buyer’s agents to sign various forms of addenda or disclosures that CREATE the duty to inform lenders of other offers, etc. THIS PROVES MY POINT!!! THE DUTY DOES NOT EXIST AND LENDERS ARE TRYING TO CREATE THE DUTY! DO NOT sign these addenda!!! You do not have to!! I also frequently see the reference to a “fiduciary” duty in such addenda. It is NOT a “fiduciary” duty. Perhaps use that as the reason to not sign the addendum.
Tell the lender that your attorney, broker, client, or barnyard animal of choice has instructed you to not sign this. Tell them that there is no privity of contract to sign this; no legal consideration to sign this, etc. More often than not, they will back down!!!

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