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High Profile Realtor Caught in the Crosshairs of Cash-Back-at-Closing
According to Realtor Lori Polin, she was totally unaware that what she was involved with consisted of real estate and mortgage fraud. If ignorance of the law was an appropriate defense, she could be off the hook. Unfortunately it’s not. According to a recent story in the St. Petersburg Times entitled “Unsigned letter accuses agent of mortgage fraud” Polin was allegedly involved in classic cash back at closing schemes.
Here’s how a cash back at closing scheme works:
- The buyer pays more for a property than it’s worth, and the seller agrees to kick back the surplus cash to the buyer at the closing.
On its surface, cash back at closing seems to benefit everyone involved. The buyer pockets some extra cash. The seller unloads his house at or near the asking price. The real estate agent gets a bigger commission. The loan officer chalks up another successful loan. And the lender stands to earn more interest over the life of the loan. Everybody wins.
Or so it seems.
Unfortunately, as with most deals that seem too good to be true, cash back at closing schemes are just another way of scamming someone–in this case, the lender, who’s fooled into loaning more money than the collateral used to secure that loan is worth. If the borrower defaults on the loan (which is almost a sure thing in cash back at closing schemes), then the lender can’t recover the money by selling the property.
Cash back at closing also:
- Inflates housing values, making housing less affordable
- Artificially raises property taxes
- Hurts honest real estate agents because they lose business to dishonest agents who offer cash back deals
- Stimulates foreclosure and destroys neighborhoods that begin to buckle when homeowners default on the inflated loans
With cash back at closing, what may have seemed like a win-win situation leaves plenty of losers in its wake.
According to an anonymous letter distributed to the press and many of Polin’s colleagues, Polin artificially inflated the prices of nine homes in Tampa and North Pinellas, so buyers could get larger loans. In most cases, the homes were mortgaged for approximately $100,000 more than their true market value, and if the allegations prove true, then these transactions definitely fall into the category of cash back at closing. The perpetrators need to be brought to justice. The question is, did Lori Polin do anything wrong?
Polin firmly believes she is innocent, because, in her own words, “All these deals were put together by attorneys and title companies and lenders.” All she did was list and sell the homes. Some of the evidence, however, makes it look as though Polin could not possibly be unaware of what was going on.
In the case of Iris Alfonso, for example, Alfonso’s house had been on the market for several months when Polin allegedly asked if she would accept a reduced price of $449,900. Shortly thereafter, Alfonso received a purchase contract offering her $540,000 for her home. Why would any buyer offer a seller $90,100 more than the seller was willing to accept? The only possible answer is cash back at closing.
According to Polin, she simply listed the homes for sale. What the buyer and seller agree to has nothing to do with her, according to Polin. If the reported incidents did occur, a law was clearly broken. As the FBI clearly states (emphasis mine):
“It is illegal for a person to make any false statement regarding income, assets, debt, or matters of identification, or to willfully overvalue any land or property, in a loan and credit application for the purpose of influencing in any way the action of a financial institution.”
Whether or not Polin broke the law and is guilty of conspiring to commit fraud is up to law enforcement and the courts to decide. Whatever the outcome, this case highlights the need for real estate and mortgage fraud training in the real estate and mortgage lending industries. Attorneys and law enforcement agencies could also benefit from such training programs. Time and time again, I hear about professionals who should know better becoming involved in fraudulent transactions. Some are willing accomplices or even ringleaders. Others are unwilling accomplices or victims who are simply abused by savvy con artists. By receiving the proper training, these professionals can help defend themselves, their clients, and the housing industry from those who are committed to destroying the American Dream of homeownership.
To learn more about the dangers associated with cash back at closing and other common and not so common real estate and mortgage fraud scams, pick up a copy of one of my latest books, Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership
Filed under: Cash Back at Closing,FBI,Florida,Realtors
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What makes you think that education will help? These cash back Realtors intentionally try to hide their tracks by doing such things as increasing the true MLS list price of the property to the inflated contract price, or relisting the property at the inflated contract price. The only purpose of increasing the list price is to fool the lender about the true asking price of the property. It allows a crooked appraiser to report the inflated list price to the lender. The appraiser is crooked (or incompetent) because they are suppose to report the listing history of the property. In Lori’s case, the list price changes are date/time stamped in the local MLS and is available for any members to see. Lori continued to close these cash back deals even after all the members of the local Realtor board were warned that these type of cash back deal are illegal.
Comment by Doug — December 4, 2007 @ 11:39 am
I blogged recently about this type of fraud and described a new twist here: http://real-estate.sandiego-mls.com/2007/09/05/scams-scams-and-now-a-new-twist/
Peter Toner
Comment by Peter Toner — December 4, 2007 @ 1:10 pm
I think the education curve will only come in the form of publicized consequences. Education, regulation and more disclosures is not the answer. Some realtors and mortgage originators truly believe there is nothing wrong with this. “If you do the crime you have to do the time”.
Comment by Larry Rubinoff — December 4, 2007 @ 4:10 pm
Inflated Sale price on a home does that mean Inflated commission for Realtors?
Comment by Bob — December 4, 2007 @ 6:40 pm
A listing agent has a duty to present all offers. The seller can accept or reject. Where is the appraiser in all this? If the sales price was inflated, there must have been an appraiser that signed off on the inflated value.
Comment by Thomas Johnson — December 4, 2007 @ 11:29 pm
In response to Bob -exactly. If Lori is innocent then she should have only collected commission on the original list price. I’m guessing that she did not, the HUD -1 from these sales will verify her commission. And seriously, nine homes that this happened on, hard to believe that she was duped nine times. I’m sure that the same attorneys, title companies, loan officers and maybe even borrowers were all involved on these deals as well, that’s usually the case. Then they shop the loans to different lenders as to not cause too much suspicion. I’d also bet the deals all took place within the same 45-60 days. That’s another trait, get multiple deals done at the same time and then move on before the lenders become aware of what happened. They’ll figure it out when all these deals have first and second payment defaults.
Comment by Former Underwriter — December 5, 2007 @ 2:01 pm
Simple Fix: Why don’t the investor(s) of these loans hire their own appraisers? Don’t rely on these mortgage brokers to seek out appraisers that are “out to please“.
These investors have solely replied upon mortgage brokers and loan officers to bring them loans in which these people are paid commissions. There would obviously be a motive to “do whatever it takes”. Investors have exhibited negligence.
Comment by Steve — December 7, 2007 @ 1:08 pm
I have a question that it has been difficult to get an answer to:
Is this fraud if the appraisal is legitimate, and not inflated, and the seller just needs money quickly??
Comment by brian — December 11, 2007 @ 11:18 am
To answer Brian:
Cash back at closing is NOT allowed on a purchase when there is a mortgage. All guidelines from lenders, Fannie Mae, Freddie Mac DO NOT allow for this. Guidelines are not law, however as the quote from Ralph’s article above says:
“It is illegal for a person to make any false statement regarding income, assets, debt, or matters of identification, or to willfully overvalue any land or property, in a loan and credit application for the purpose of influencing in any way the action of a financial institution.”
Cash back at or after closing as an inducement by the seller to sell cannot be disclosed anywhere in the mortgage process or it would be declined on that basis. HIDING that fact from the lender by not disclosing it is illegal.
Folks, if the property truly is worth more then you pay for it (unlikely in today’s market) then buy it, close on it and then go out and get an equity loan if there is sufficient equity. Typically you will have to wait however until you have owned the property at least 12 months (6 months is rare but available).
Comment by Larry Rubinoff — December 12, 2007 @ 4:36 am
Steve,
Underwriters typically review the appraisals and if they find that the value is not supported they then have the lenders (not brokers) review appraisers further investigate the appraisals. Most lenders have their own staff appraisers. Values have been cut all the time. If values get cut and the deal does not go throw with THAT lender then the broker just submits to another lender who will take the appraisal and not question it. Eventually the deal gets done or dies or the home is sold for the true value. I have to say with so many lenders going out or now out of business, this shopping around isn’t going to be so easy. And the appraisal standards instituted by lenders has really tightened up, most now require comps less than 3 months old and current listings to support the value.
A reputable realtor is only going to list a home for what they know it will sell for. Let me emphasize this, it is listed for the first time for the MOST it expects to sell for, rarely does a listing go up unless the seller changes realtors. It costs a realtor money to keep a home listed for a long time, eating out of their commission when it eventually does sell. Quick sales maximize profits.
Comment by Former Underwriter — December 15, 2007 @ 7:37 pm
Please read any advice or comment is appreciated: This was discovered on my mothers’ home. I have not heard any response from anyone of the agencies I have contacted.
Days prior to my husband’s death late December 2006, I was approached by Nephew/ *********in regard to selling my home of more than 35years at *********** in St.**.
Immediately after my husbands death *************claimed to have a close friend that was very interested in buying my property. ****** stated that he would be willing to assist me in the sale and as he put it he would “take care of everything”. I, in good faith trusted his word and I was relieved because my husband took care of all of our financial transactions and this would help me at this over whelming time.
********* did not list my home and stated that my home was only worth and the best I would receive was 98, 0000. I have no record of an appraisal to confirm this value. Also, 2 years earlier my husband and I had new siding and a new roof put on and a year prior a new furnace installed.
********** stated that his friend ************ was planning on renovating the property. My home transaction took place in July 2007.
Currently *************now with *** Realty and his Broker ****** who was also involved in my home sale are in litigation with my youngest daughter and her husband. REF: ***** County Court file no. *********. My transaction was recently reviewed and fraudulent activity was discovered.
According to my HUD Document:
1.) My home sold to ***** wife Sharon*******for 131.000
********* offered no explanation to the inflated amount. The only amount I received was 45,917.59.
2.) According to my portion of the HUD on Line 507 -30.000 dollars was paid to *** Development.
I know of no such company nor did I owe any Company this amount with exception of my home pay off amount at that time. My husband and I were on a fixed income and my husband battled terminal Cancer. Paying this Company or paying any Company was not mentioned whatsoever throughout this transaction.
3.) Line 516- 6,000 was paid out with no explanation.
4.) Line 700 – shows no percentage rate and a commission paid out of 2,500.00
5.) I only owed **** the payoff amount on my home Line 504-44,422.01 & Line 505- 50.00
This has been a very upsetting ordeal for me and I would like to know how I can proceed with this. I am a senior and cannot afford representation
:
Comment by Jg — January 15, 2010 @ 11:32 am