Crisis yields a new brand of flipping
10/15/2010 © Sarasota Herald-Tribune
Homes that fell into foreclosure during the housing collapse are being marketed as bank-owned, even though the homes have been purchased by private sellers who are flipping the property for a profit.
In its most common form, private sellers -- in some cases the Realtor listing the home -- still state "foreclosure" and "bank-owned" in yard signs, on websites and in the official real estate listings database.
It is unclear precisely how widespread this new brand of flipping is. But Realtors have a name for it -- "fauxclosures" -- because it centers on homes that once were bank-owned.
The phenomenon is so common now because of the huge proportion of distressed sales in the market -- more than 50 percent -- and the hunger for those types of deals among buyers, said Chip Waterman, a Coldwell Banker agent who has sold distressed properties in Southwest Florida for the last 30 years.
"Using the word 'foreclosure' in the lead of your listing or ad indicates to any buyer looking for that great deal that it is the fabulous buy they have been looking for," Waterman said.
Many of the homes involved are the same properties used in questionable deals during the housing boom. They fell into foreclosure in short order because of unsustainable lending terms, and they are coming out of that process often at half the price paid then. Other distressed borrowers now have agreements with lenders to sell their house for less than what it is worth, referred to as a short sale, and flippers also are targeting those properties.
"They are confusing the buyers and the agents out there and muddying the waters with crazy disclosures to make it look and feel like a real foreclosure," Venice-based Realtor Charryl Youman said. "Many of these signs lead you to an agent selling his or her own property that was bought as a foreclosure and is now being flipped."
'Real damage is done'
Many of those involved in "fauxclosures" are reluctant to speak of the problem publicly for fear of professional or personal repercussions, but their stories are similar.
The buyers thought they were getting a deal by purchasing a bank-owned property only to find that after all their time and expense, that was not the case and they scuttle the deal. Others who complete the deal later discover that a middleman has sucked thousands of dollars in equity out of the property.
Todd David of Prudential Florida Realty in Venice and his client were enticed by a for sale sign in the front yard of a tidy home on Gerald Avenue in North Port.
Naples-based United Real Estate sales agent Michael Slovin's name and phone number were on the advertisement, from which hung a smaller yellow sign reading, "Foreclosure."
When David pulled up the sales information from the Mid-Florida Multiple Listing Service at the end of June, the description matched the Bargain-nature tone of the sign:
"Recently bank foreclosed!!" and "The bank's loss is your gain."
The house had been purchased by a three-person investment firm, which includes Slovin, Florida Division of Corporation records show.
The firm, Mortgage Equity Investors LLC, bought the 2,100-square-foot home for $103,001 on April 6 from U.S. Bank. When Slovin listed the property on May 4, the price was $148,200 -- a 44 percent increase.
"This is becoming very prevalent. In the economic climate we are in right now, people are trying to do what they need to do to sell a property and that's fine," David said. "But when you step across the line, not only in your advertising but what is going on behind the scenes, real damage is done."
Mortgage Equity Investors, based in North Port, has been on a buying spree in recent months within the region's bank-owned inventory, according to county property appraiser and civil court records. Florida Division of Corporation records show Slovin's partners Harvey Slovin and Ann Burrell also are officers of Flippers II LLC and Flippers III LLC.
Michael Slovin, who declined to comment for this story, disclosed in the MLS listing for the Gerald Avenue house that he is an owner-agent.
Slovin's broker at United Real Estate is Glenn Vereen, who had 34 properties in the "Featured Listings" on his website last week, 28 of which contained the language "bank foreclosed" and three with "bank foreclosure."
The first "bank foreclosed" property already had been purchased from IndyMac Bank by a Delaware investment group then resold to a Naples couple, according to Collier County property records. The Delaware firm paid $231,000 in May, the Naples couple paid $464,100 last month and Vereen listed it at $480,000.
The first of the properties Vereen had listed as a "bank foreclosure" is a Cape Coral home that also has been privately owned twice since a bank owned it. The home was first purchased from a bank by Vereen's United Equities and Real Estate Group Inc. for $100,000 on Jan. 12 after foreclosure proceedings were completed, property and court records show.
Two days later Vereen's United Equities conveyed ownership through a quit-claim deed for $10 to Grand Slam Realty LLC, based in Bonita Springs. Vereen's website showed the home listed at $159,000.
The circumstances are similar in both cases to what happened at the Gerald Avenue property in North Port.
"It has been bank-foreclosed on, and as a Realtor you have to disclose all of the factors that are germane to the value of the property." Vereen said. "To say we've somehow influenced buyers is preposterous."
Vereen blamed lazy or incompetent Realtors for any misunderstanding caused by a foreclosure sign in the front yard or the words "bank" and "foreclosure" in the MLS listing.
"What is happening is you are having some Realtors not doing their jobs, or doing a disservice to their clients," he said. "If Mr. Uninformed comes into one of our houses we, as Realtors, must inform that individual on everything about it."
Vereen said he and Slovin are like other investors buying and reselling distressed real estate for a profit: "They are all flips -- anytime you have an investor recycling product, cleaning them up and bringing that back to the market. Profit is not a dirty word. It is still America."
The repercussions
There is nothing wrong with buying a distressed property and reselling it quickly for a profit.
When done with full transparency and the proper legal disclosures in an arms-length transaction, savvy real estate investors can make a lot of money. Flipping became a dirty word after the real estate downturn, when questionable deals contributed to the housing and financial crises. A Herald-Tribune investigation into fraudulent flipping published last summer found $10 billion in suspicious deals in Florida alone.
Officials that regulate the real estate industry are well aware of this new effort.
"We want all MLS listings, advertising and signage to be truthful and accurate at all times," said Michael Guju, a Palm Harbor-based real estate attorney and member of the Florida Real Estate Commission. "Misleading advertising is improper and unethical. Buyers and potential buyers are not to be trifled with in this difficult economic environment."
Guju said the arising disciplinary actions can range from license suspension to revocation for a Realtor or anyone else holding a Florida real estate license. Depending on the wording used in questionable listings or signs, they situation be merely ambiguous or blatantly illegal, he said.
"This is stuff that is clearly inappropriate, clearly unethical and clearly dishonest," said Margery Golant, a member of the Florida Bar's Consumer Protection Law Committee. "It's another flipping scam."
'The short-sale game'
Rachel Oberlink placed a full-price offer of $71,000 -- financed -- on a short sale on McCrory Street in North Port. The offer was refused, so Oberlink approached the owner to find out why.
He directed her to call the number on a white sign in the front yard that read, "Approved short sale $80,000." Oberlink said the man who answered would not give her his full name and became "really defensive."
She asked him why her offer had been refused.
"He said, 'I am the owner of the house and I don't know anything about that,'" Oberlink said. "He said he paid cash for the house and if we wanted to buy it we need to just pay him because he does not go through banks, none of which made any sense."
The phone number on the sign is registered to Ronnie Christian Koelling, who is not the home's owner of record, according to Sarasota County property records.
"I have no idea who you are talking about, and it kind of scares me that someone is making up a story like that," Koelling told the Herald-Tribune. "I've never been the owner of that property."
What it appears Koelling is doing is aggressively pre-marketing a short sale he has under contract.
His sign -- he says the current owner let him put it in place -- lists a higher price than he will pay and still reads "short sale" across the top. But when Koelling sells the property, it will be a conventional transaction.
Kay Winefordner, the listing agent for the property with Sarasota-based Realty Executives Solutions, said she completely adheres to strict MLS rules for short sales.
Winefordner confirmed that Koelling has the pending contract, but said she did not know about his for-sale sign. She said a prospective owner placing a sign in the yard is not unheard of in this environment and is allowed so long as it comes with the current owner's permission.
"There seems to be a lot of investors out there playing the short-sale game,"
Winefordner said. "If an investor-buyer goes to contract and is going to close on that, he can market the property in any way he wants.
"We can't stop investors from making money," she said. "That's very un-American."
10/15/2010 © Sarasota Herald-Tribune
Homes that fell into foreclosure during the housing collapse are being marketed as bank-owned, even though the homes have been purchased by private sellers who are flipping the property for a profit.
In its most common form, private sellers -- in some cases the Realtor listing the home -- still state "foreclosure" and "bank-owned" in yard signs, on websites and in the official real estate listings database.
It is unclear precisely how widespread this new brand of flipping is. But Realtors have a name for it -- "fauxclosures" -- because it centers on homes that once were bank-owned.
The phenomenon is so common now because of the huge proportion of distressed sales in the market -- more than 50 percent -- and the hunger for those types of deals among buyers, said Chip Waterman, a Coldwell Banker agent who has sold distressed properties in Southwest Florida for the last 30 years.
"Using the word 'foreclosure' in the lead of your listing or ad indicates to any buyer looking for that great deal that it is the fabulous buy they have been looking for," Waterman said.
Many of the homes involved are the same properties used in questionable deals during the housing boom. They fell into foreclosure in short order because of unsustainable lending terms, and they are coming out of that process often at half the price paid then. Other distressed borrowers now have agreements with lenders to sell their house for less than what it is worth, referred to as a short sale, and flippers also are targeting those properties.
"They are confusing the buyers and the agents out there and muddying the waters with crazy disclosures to make it look and feel like a real foreclosure," Venice-based Realtor Charryl Youman said. "Many of these signs lead you to an agent selling his or her own property that was bought as a foreclosure and is now being flipped."
'Real damage is done'
Many of those involved in "fauxclosures" are reluctant to speak of the problem publicly for fear of professional or personal repercussions, but their stories are similar.
The buyers thought they were getting a deal by purchasing a bank-owned property only to find that after all their time and expense, that was not the case and they scuttle the deal. Others who complete the deal later discover that a middleman has sucked thousands of dollars in equity out of the property.
Todd David of Prudential Florida Realty in Venice and his client were enticed by a for sale sign in the front yard of a tidy home on Gerald Avenue in North Port.
Naples-based United Real Estate sales agent Michael Slovin's name and phone number were on the advertisement, from which hung a smaller yellow sign reading, "Foreclosure."
When David pulled up the sales information from the Mid-Florida Multiple Listing Service at the end of June, the description matched the Bargain-nature tone of the sign:
"Recently bank foreclosed!!" and "The bank's loss is your gain."
The house had been purchased by a three-person investment firm, which includes Slovin, Florida Division of Corporation records show.
The firm, Mortgage Equity Investors LLC, bought the 2,100-square-foot home for $103,001 on April 6 from U.S. Bank. When Slovin listed the property on May 4, the price was $148,200 -- a 44 percent increase.
"This is becoming very prevalent. In the economic climate we are in right now, people are trying to do what they need to do to sell a property and that's fine," David said. "But when you step across the line, not only in your advertising but what is going on behind the scenes, real damage is done."
Mortgage Equity Investors, based in North Port, has been on a buying spree in recent months within the region's bank-owned inventory, according to county property appraiser and civil court records. Florida Division of Corporation records show Slovin's partners Harvey Slovin and Ann Burrell also are officers of Flippers II LLC and Flippers III LLC.
Michael Slovin, who declined to comment for this story, disclosed in the MLS listing for the Gerald Avenue house that he is an owner-agent.
Slovin's broker at United Real Estate is Glenn Vereen, who had 34 properties in the "Featured Listings" on his website last week, 28 of which contained the language "bank foreclosed" and three with "bank foreclosure."
The first "bank foreclosed" property already had been purchased from IndyMac Bank by a Delaware investment group then resold to a Naples couple, according to Collier County property records. The Delaware firm paid $231,000 in May, the Naples couple paid $464,100 last month and Vereen listed it at $480,000.
The first of the properties Vereen had listed as a "bank foreclosure" is a Cape Coral home that also has been privately owned twice since a bank owned it. The home was first purchased from a bank by Vereen's United Equities and Real Estate Group Inc. for $100,000 on Jan. 12 after foreclosure proceedings were completed, property and court records show.
Two days later Vereen's United Equities conveyed ownership through a quit-claim deed for $10 to Grand Slam Realty LLC, based in Bonita Springs. Vereen's website showed the home listed at $159,000.
The circumstances are similar in both cases to what happened at the Gerald Avenue property in North Port.
"It has been bank-foreclosed on, and as a Realtor you have to disclose all of the factors that are germane to the value of the property." Vereen said. "To say we've somehow influenced buyers is preposterous."
Vereen blamed lazy or incompetent Realtors for any misunderstanding caused by a foreclosure sign in the front yard or the words "bank" and "foreclosure" in the MLS listing.
"What is happening is you are having some Realtors not doing their jobs, or doing a disservice to their clients," he said. "If Mr. Uninformed comes into one of our houses we, as Realtors, must inform that individual on everything about it."
Vereen said he and Slovin are like other investors buying and reselling distressed real estate for a profit: "They are all flips -- anytime you have an investor recycling product, cleaning them up and bringing that back to the market. Profit is not a dirty word. It is still America."
The repercussions
There is nothing wrong with buying a distressed property and reselling it quickly for a profit.
When done with full transparency and the proper legal disclosures in an arms-length transaction, savvy real estate investors can make a lot of money. Flipping became a dirty word after the real estate downturn, when questionable deals contributed to the housing and financial crises. A Herald-Tribune investigation into fraudulent flipping published last summer found $10 billion in suspicious deals in Florida alone.
Officials that regulate the real estate industry are well aware of this new effort.
"We want all MLS listings, advertising and signage to be truthful and accurate at all times," said Michael Guju, a Palm Harbor-based real estate attorney and member of the Florida Real Estate Commission. "Misleading advertising is improper and unethical. Buyers and potential buyers are not to be trifled with in this difficult economic environment."
Guju said the arising disciplinary actions can range from license suspension to revocation for a Realtor or anyone else holding a Florida real estate license. Depending on the wording used in questionable listings or signs, they situation be merely ambiguous or blatantly illegal, he said.
"This is stuff that is clearly inappropriate, clearly unethical and clearly dishonest," said Margery Golant, a member of the Florida Bar's Consumer Protection Law Committee. "It's another flipping scam."
'The short-sale game'
Rachel Oberlink placed a full-price offer of $71,000 -- financed -- on a short sale on McCrory Street in North Port. The offer was refused, so Oberlink approached the owner to find out why.
He directed her to call the number on a white sign in the front yard that read, "Approved short sale $80,000." Oberlink said the man who answered would not give her his full name and became "really defensive."
She asked him why her offer had been refused.
"He said, 'I am the owner of the house and I don't know anything about that,'" Oberlink said. "He said he paid cash for the house and if we wanted to buy it we need to just pay him because he does not go through banks, none of which made any sense."
The phone number on the sign is registered to Ronnie Christian Koelling, who is not the home's owner of record, according to Sarasota County property records.
"I have no idea who you are talking about, and it kind of scares me that someone is making up a story like that," Koelling told the Herald-Tribune. "I've never been the owner of that property."
What it appears Koelling is doing is aggressively pre-marketing a short sale he has under contract.
His sign -- he says the current owner let him put it in place -- lists a higher price than he will pay and still reads "short sale" across the top. But when Koelling sells the property, it will be a conventional transaction.
Kay Winefordner, the listing agent for the property with Sarasota-based Realty Executives Solutions, said she completely adheres to strict MLS rules for short sales.
Winefordner confirmed that Koelling has the pending contract, but said she did not know about his for-sale sign. She said a prospective owner placing a sign in the yard is not unheard of in this environment and is allowed so long as it comes with the current owner's permission.
"There seems to be a lot of investors out there playing the short-sale game,"
Winefordner said. "If an investor-buyer goes to contract and is going to close on that, he can market the property in any way he wants.
"We can't stop investors from making money," she said. "That's very un-American."
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