Featuring Joseph Maggiore
Phoenix Business Journal, Jan 2010
Investors and real estate agents who want to buy and then flip houses are getting a head start over other buyers when it comes to short sales, and that’s raising red flags among consumers and banks.
Short sales are ripe for the picking because they require substantial paperwork, which gives agents time to talk with investors and others interested in buying properties before they are listed for sale with the Multiple Listing Service. As a result, the first bids can come from investors linked to short-sale agents or their families or business partners.
“There is a lot of paperwork required to start the process, and none of it requires the house to be on MLS. So an agent could have anywhere from a few days to weeks lead time on the listing going into MLS,” said Joseph Maggiore, a Realtor with Realty Executives in Scottsdale.
A Phoenix homeowner who asked not be identified said he became suspicious when he saw one of the first bidders on his short sale was the real estate agent handling the transaction.
“I mentioned this observation to my Realtor, and he said that’s not illegal,” the homeowner said. “Perhaps it’s not illegal, but it seems unethical for Realtors to buy distressed properties and then turn around and sell them to clients at a higher rate, thus making money on both fronts.”
Arizona Department of Real Estate spokeswoman Mary Utley said her agency is seeing a significant uptick in consumer complaints about how real estate agents are handling short sales, though she didn’t have specific numbers.
Jennifer Sanchez, owner of Keller Williams Professional Partners in Surprise, said investors interested in bidding early on short sales have deals with real estate agents so they can the get jump on desirable properties, which they can resell at a profit when the market rebounds.
Sanchez said the profit margin often is not substantial, though there have been some good deals.
Banks have been catching on to some of the shenanigans and are making short-sales agents sign agreements stating they will not sell to family members or investors with whom they have standing relationships, Sanchez said. Lenders also are doing more due diligence.
“The banks have slowly caught on, but people are still finding loopholes,” she said.
Steve Trang, a Realtor with Occasio Realty in Tempe, said having someone waiting in the wings for a short-sale deal is not always bad, because it can expedite the process and keep the home from going into foreclosure. He said lenders always can turn down suspicious offers.
JPMorgan Chase & Co. spokeswoman Mary Jane Rogers said Chase has put short-sale safeguards in place.
“Chase has all parties — seller, buyer and Realtors involved — sign an arm’s-length transaction disclaimer,” Rogers said. “Chase also has an independent evaluation team that determines market value of the properties.”
Egregious cases of agents steering short sales to investors or themselves for low prices could amount to fraud or breach of fiduciary duty, but such allegations are not easy to prove, according to legal and real estate officials. In addition, Arizona does not extensively regulate the mortgage industry, let alone short sales.
Utley said her agency can punish or suspend the licenses of agents conducting unethical sales. She didn’t have details of specific complaints, but she said disciplinary measures could go as far as “cease and desist” orders or agents losing their licenses.
Molly Edwards, press secretary for Arizona Attorney General Terry Goddard, said the AG’s Office is considering statutory changes related to short sales, including who has jurisdiction over such matters.