Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Not long ago I read an article on a site (not sure if I understood the article completely) that in my understanding, stated that REO agents could not sell the house for more than the fair market value.  In my area I have heard many people who lost their homes to f/c comment on how much their houses were put on the market for.  The sale of these f/c homes are making someone big bucks.  So how can anyone say f/c homes when they are sold for many thousands of dollars more than originally owed are bringing down the neighborhood?  In my case it was $28,XXX more than fair market value.  I just got a 1099-A from Wells Fargo Bank, NA/Fannie Mae stating the fair market value of the property was $389,XXX.  The house was put on the market by REO for $419,XXX and sold for $417,XXX.  Did I misunderstand the article?  Can REO agents sell the houses for whatever they want?  Any input would be appreciated. 

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William A. Roper, Jr.
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mkd said:
Not long ago I read an article on a site (not sure if I understood the article completely) that in my understanding, stated that REO agents could not sell the house for more than the fair market value.  In my area I have heard many people who lost their homes to f/c comment on how much their houses were put on the market for.  The sale of these f/c homes are making someone big bucks.  So how can anyone say f/c homes when they are sold for many thousands of dollars more than originally owed are bringing down the neighborhood?  In my case it was $28,XXX more than fair market value.  I just got a 1099-A from Wells Fargo Bank, NA/Fannie Mae stating the fair market value of the property was $389,XXX.  The house was put on the market by REO for $419,XXX and sold for $417,XXX.  Did I misunderstand the article?  Can REO agents sell the houses for whatever they want?  Any input would be appreciated.


One must distinguish between three types of sales, two involving foreclosure and one involving REO.  And even amongst these, there is also a rather substantial variation due to laws of particular jurisdictions.

The two basic kinds of foreclosure sales are judicial and non-judicial foreclosure sales.  The former are typically pursuant to a court order and are usually conducted by a commissioner, referee, and/or sheriff under the court's supervision.  The latter are privately conducted by a trustee or substitute trustee pursuant to the contractual provisions of a deed of trust, trust deed or other mortgage security instrument containing a private right of sale, together with the laws of a particular jurisdiction constraining and restricting such sales.

In some jurisdictions, a property needs to be appraised prior to a judicial sale.  There may similarly be jurisdictions which require an appraisal prior to non-judicial sale.

Unlike a formal professional appraisal by a licensed real estate appraiser, the appraisal of the subject property may be something much less formal, something more along the lines of "three honest men will appraise the value" of the property prior to sale.  The point of such appraisals would very often be to establish some benchmark value which might be used as a yardstick to ascertain the fairness of the actual auction process.

In the case of a judicial foreclosure, another means of establishing the fairness of the auction price is through a post sale hearing at which a court confirms the sale by judicial order.

Usually, there are fewer price protections built into the non-judicial foreclosure by private sale process.

It should be noted that even where the appraisal process is informal (and even unprofessional), there is nothing which precludes a defendant/borrower/property owner from procuring another appraisal from a licensed real estate appraisal (at his or her own expense), which might be used to challenge the confirmation of sale.  Whether this is useful or advisable depends heavily upon the precise statutes concerning confirmation of sales and the case law interpretting such statutes.

Generally, courts are fairly deferential to prices established at public auction absent some rather stark proof of dishonesty or irregularity in the sales process.  But the appraisals sometimes serve to afford a floor below which sales might not be authorized even absent admissible proof of mischief.

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Faced with a foreclosure sale, distressed borrowers have some very conflicting interests.  On the one hand, there is an impulse to want to STOP the sale and/or to discourage any bidding.  But this may be counterproductive where the sale is actually conducted, as ANY actions which limit awareness of the sale or discourage bidding are very likely to result in a situation where ONLY the mortgage investor will bid.

If the borrower is resigned to the certainty that a sale is going to take place (and resignation is NOT strictly necessary as there ARE some possibly viable means to stop such a sale in certain circumstances, such as Bankruptcy), a borrower might be better off in cooperating with the sale and seeking to encourage the participation of more bidders, etc.

This would be especially true in instances where a borrower might (a) have salvageable equity in the property and/or (b) be subject to a deficiency judgment, especially when bankruptcy isn't a viable option to discharge such deficiency.

Let me put this a different way.  Suppose that YOU were considering bidding on a foreclosed property at a foreclosure sale.  Would you make the same bid under circumstances where (a) you KNEW the owner and were confident that the owner would promptly and peaceably vacate the premises without damaging the property after your purchase, (b) you had been INSIDE the property and were familiar with the condition of the property?

A purchaser of a property at a foreclosure sale may very often be purchasing a property without ever inspecting the interior.  And the purchaser is probably going to be responsible for obtaining an ejectment order if the prior owner fails to surrender the property peaceably upon conclusion of the sale.

So there are certain risks associated with buying under these circumstances and these risks are going to be factored into the sales price.

It is also true that the price which can be commanded at a distress sale is going to almost always be at a substantial discount from what can be obtained through a deliberate sale of the same property, even when risks are otherwise mininmal and uncertainties few.

This is true because most purchasers are NOT looking to move into a new property immediately and most are going to require financing for the transaction.  The timing of a purchase will often be arranged to coincide with the sale of another property by the buyer, the termination of lease, a relocation, the completion of training or education, a marriage, etc.  These events will usually NOT nicely coincide with the schedule imposed by the urgency of a distress sale.

So under the very best of circumstances, one would expect that the fair price for a property sold at a well attended auction in a distress setting is going to be at a discount of what the property would fetch after a reasonable exposure to market during a standard marketing period where prospective buyers are able to ascertain first hand the condition of the property.

In sort of a limiting case, imagine that an angry homebuyer posts handbills throughout the town threatneing to destroy the property or do injury to a buyer who bids at auction.  Under such circumstances, one might not find it altogether unsurprising that there would be no other bidders at all!

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The simple fact of the matter is that in most markets today the alleged mortgage investor will be the ONLY bidder at an auction.  And under these circumstances, the auction sales price is inherently suspect

Where it is not possible for the mortgage investor to obtain or enforce a deficiency judgment, the mortgage investor will typically bid the mortgage amount plus costs for a property.

When a property is subject to more than one mortgage and the value of the property actually EXCEEDS the first mortgage amount, the second mortgage holder may send a representative to the auction to also bid.

If the first mortgage holder bids his mortgage balance plus foreclosure costs, the property can be obtained extinguishing the interest of the second mortgage holder.  When the second mortgage holder is confident that there is value in excess of that first mortgage amount, the second mortgage holder should also bid, up to, but usually NOT EXCEEDING the amount of the first plus the second mortgage balance plus costs.  Any bid that exceeds this amount makes both of the mortgagee whole and they will usually allow others to out bid them, should such a situation arise.

If either mortgagee bids MORE than would cover the outstanding balances, the mortgagee is speculating about the ultimate value. 

Where a borrower believes that there is substantial equity in a property in excess of the mortgage balance plus foreclosure costs, the borrower probably OUGHT to seek a buyer for the property during the foreclosure period and try to arrange an agreed sale of the premises.  If the lender doesn't cooperate, then the borrower would do well to bring a bidder to the auction (with the liquid resources to purchase) who is willing to bid closer to the perceived true value of the property.

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By contrast, where the borrower believes that the mortgage is deeply underwater/upside down, the borrower has little interest in getting the price up EXCEPT where the borrower may have significant exposure to a deficiency judgment. 

When there is no danger of a deficiency judgment, and the value is well below the outstanding balance, the borrower has very little incentive to cooperate and help get the price up.

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More directly to your question, REO sales are those sales taking place AFTER the original foreclosure sale when the mortgage investor ends up buying the property at the foreclosure sale.

Typically, in this case, the mortgage investor has obtained what they believe is a good title, through a substitute trustee's deed (in the case of non-judicial foreclosure) or a court confirmed foreclosure deed executed by the commissioner, referee and/or sheriff.  The mortgage investor is then the owner of the property and owes no further accounting for the REO sales proceeds to anyone.

The REO property might sell for well bellow or well in excess of the foreclosure sales price.  It would usually only be sold for well below that price when there is some substantial damage or vandalism to the property, but there also might be unknown normal/routine defects.  To the extent that the mortgage investor bought the property at an ill attended auction for the stated mortgage balance plus costs, it would usually be the case in a normal market that the ultimate sales price for a deliberate sale would be HIGHER.  But this is certainly NOT the case where prices have collapsed.

You did NOT indicate the total amount of the outstanding balance plus foreclosure costs.  What we have instead is the estimate of market value, you you indicate was $389,xxx, together with the asking price which was $419,xxx.  It is NOT at all unusual in normal markets for properties to be listed for asking prices at some premium to what the owner believes the property is actually worth.  The seller often EXPECTS that the buyer will bid LESS THAN the asking price.  So the asking price is therefore often padded.

When a seller is in some distress or "motivated" to use the classic real estate term, the seller might set the asking price at near or below perceived market value.

In setting the price at $419,xxx, the asking price was only 7.7% above the estimated value.  The seller probably expected that a prospective buyer would bid somewhat lower than that.

The ultimate sales price at $417,xxx was 99.5% of the asking price.  Perhaps this reflects that the estimate and the asking price were two low.  It might reflect two or more bidding on the property and getting the price up.  But it also may be that the buyer OVERPAID for the property.  That is, the seller MIGHT have been willing to sell at $389,xxx and might have very well been surprised to get an offer that high!

Also, bear in mind that sellers may very often have to invest a few dollars in fixing up a property prior to a deliberate sale.  Some lenders will balk at financing properties which have certain sorts of defects, particularly defects which would impair habitability.  So if there was known to be a leaky roof or serious code compliance problems with plumbing or electrical, these might have to be repaired IN ADVANCE OF SALE.  Many imporvements will NOT bring a $ for $ increase in sales prices while other $ improvements may add value in excess of the amounts expended.  It is UNCLEAR from your example whether the property was improved in any way between the date of the estimate and the ultimate sale.

Finally, bear in mind that PRICES CHANGE over time, both from year to year and seasonally.  Last year, prices FIRMED during the tax credit period and then collapsed thereafter.  But prices moved in different directions in some markets.

Overall, I would tell you that the deviation in prices you describe is VERY SMALL in both total and percentage terms and there are so many factors that could explain such a price difference that I would NOT conclude that this reflects any dishonesty whatsoever.  This is NOT to say that I am stating that the price estimate was correct OR that the sales price was fair.  But rather only that they couldn't be reasonably ASSUMED to be unfair simply because they were different.
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William A. Roper, Jr.
Quote:
mkd said:
". . . stated that REO agents could not sell the house for more than the fair market value."


In respect of this paraphrased statement, I would observe that there is a difference between saying:
"REO agents are NOT PERMITTED to sell a house for more than the fair market value"

and
"REO agents are NOT ABLE to sell a house for more than the fair market value (because no one will pay more than value)."

I am aware of no prohibition which would preclude someone from selling the REO property for MORE than its fair market value, but I am similarly aware of no buyers that would willingly pay an amount which they thought EXCEEDED the value of the property.

So the statement "REO agents could not sell the house for more than the fair market value" might be TRUE even though this reflected an impossibility as to finding buyers rather than a prohibition.

It might then be less confusing to simply say that "sellers are unable to sell a house for more than the fair market value", though the prior real estate bubble demonstrated that this too was untrue!
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mkd wrote:

Not long ago I read an article on a site (not sure if I understood the article completely) that in my understanding, stated that REO agents could not sell the house for more than the fair market value.  In my area I have heard many people who lost their homes to f/c comment on how much their houses were put on the market for.  The sale of these f/c homes are making someone big bucks.  So how can anyone say f/c homes when they are sold for many thousands of dollars more than originally owed are bringing down the neighborhood?  In my case it was $28,XXX more than fair market value.  I just got a 1099-A from Wells Fargo Bank, NA/Fannie Mae stating the fair market value of the property was $389,XXX.  The house was put on the market by REO for $419,XXX and sold for $417,XXX.  Did I misunderstand the article?  Can REO agents sell the houses for whatever they want?  Any input would be appreciated. 



Please understand Wells Fargo is little more than a crime syndicate. FACT: Much of what they say and document is fraudulent. Lies are a way of life at Wells Fargo and their partner in crime: Balboa Insurance.

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mkd I'm not a lawyer but I doubt if you understood that correctly. As far as I know agents can sell for more than market value as they will get their share of below market sales.

~ ~ As for the 1099 if it came from Wells Fargo it is likely fraudulent  - -  WF has been in serious trouble with inflated 1099s and inflated insurance costs multiple times and faced large judgments for same. You can challenge their 1099 because of their consistent reputation for fraud in that area. Unfortunately in your situation the sales price came in higher than the 1099 gap so I doubt your particular case is encouraging. Nonetheless if it's a 1099 from Wells Fargo it's likely deceitful in their favor.

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Ed Cage  |  ecagetx@gmail.com
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