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Are You A Fraud Enabler?

APR 11, 2012 3:41pm ET
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Yes, I’m talking to you. I’m talking to everyone who services mortgage loans, really, and I’m asking an important question: are you enabling fraud in your company?

According to the Merriam Webster Student Dictionary, definition of enable: to make able; to make possible, practical or easy; to give legal power or permission to.

I’m not being overly dramatic. It’s a serious question.     

If your Loss Mitigation and REO Departments interact with listing agents in the traditional fashion, then you are enabling fraud. Point-of-sale fraud is being perpetrated every day by listing agents that misrepresent your property, delay offers from being submitted to you, detour other agents from submitting offers and worst of all, don’t submit every offer.  

Significant amounts of money and effort have been spent in the post Sarbanes-Oxley world to ensure that proper controls and protocols are established, yet listing agent actions seem to be outside the reach of compliance efforts. All the data you use and all the quality control measures you create can’t solve this problem.  

So what, exactly, is the problem? The “gatekeeper” listing agent who only lets you know what he or she wants you to know about listing activity and market feedback.
The solution is simple and it doesn’t require therapy: Bring the two most motivated parties together—buyer and seller.

Legacy servicing systems and more recent loss mitigation and REO management systems were never designed to facilitate the sale of property. They were designed to “manage” loans or assets in inventory.

Today’s workflow processes stop with the listing agent, who is not only outside of the corporate umbrella but who is also not trained in the same loss mitigation techniques as your bank’s employees. This individual who holds the keys to your sales functions as an independent contractor, working from the comfort of his home, marketing assets worth millions.

When you look at it that way, don’t you just gape with astonishment? How does governance permit independent contractors to represent the bank with hardly any effective oversight?

Can you imagine a Wall Street trader kicking it around in his sweats, untrained and unsupervised, offering stocks, bonds and other investments with almost no oversight?

Why is the sale of real estate any less important?  

The truth is, the person who’s been engaged to market and sell your assets often has his own agenda. And that agenda is almost never in line with the bank’s.

When you step back to view the situation from afar, it seems so clear: Prevailing systems and business processes were designed and built to specifically exclude the most motivated party in the sale of distressed real estate: the buyer and their agent.

As it stands, there is no role for them in today’s process of selling distressed assets. They have no seat at the table. And that fact alone enables fraud.

It’s like giving an alcoholic the bottle. Or giving pills to a drug addict. You’re a party to their destruction.

Or maybe it’s the other way around.

Comments (9)
I agree with your observations and take it a little further. Have you seen short sale BPOs that are artificially because the agent is conflicted? A buyer working with the same agent, or agency, may be offering $250K on a property with a $300K unpaid principal balance. Yet the BPO comes in at $200K to induce the lender to make the deal. This too is fraud--fraud on the lenders and the sellers who wind up with larger than necessary deficiencies. The question is how to address this. The article and postings suggest that the buyer should have direct access to the seller, in this case the REO Department. Just as the industry had to revamp from collections to loss mitigation, it will have to change how it manages and disposes of REO. The same controls need to be in place with regards to contracts as should be in place in other aspects of the company. Perhaps, getting 3 bids, etc., and having someone who is on staff review all bids before a contract is signed; rather than depending on a 3rd party independent contractor who,does not have the seller's best interests in mind?
Posted by | Saturday, April 14 2012 at 7:06AM ET
I agree with your observations and take it a little further. Have you seen short sale BPOs that are artificially because the agent is conflicted? A buyer working with the same agent, or agency, may be offering $250K on a property with a $300K unpaid principal balance. Yet the BPO comes in at $200K to induce the lender to make the deal. This too is fraud--fraud on the lenders and the sellers who wind up with larger than necessary deficiencies. The question is how to address this. The article and postings suggest that the buyer should have direct access to the seller, in this case the REO Department. Just as the industry had to revamp from collections to loss mitigation, it will have to change how it manages and disposes of REO. The same controls need to be in place with regards to contracts as should be in place in other aspects of the company. Perhaps, getting 3 bids, etc., and having someone who is on staff review all bids before a contract is signed; rather than depending on a 3rd party independent contractor who,does not have the seller's best interests in mind?
Posted by | Saturday, April 14 2012 at 7:07AM ET
Robert- Thanks for the comment, which is right on the money. In fact, that's exactly what our company provides to banks and servicers: technologies that close the gap in the sale process by permitting buyer's agents to submit offers directly to the servicer or asset manager. Aside from robust negotiation tools that mirror a bank's business rules, they provide the increasingly important audit trail and a 360-degree view of market activity in real-time. It is common to see assets receive 20, 30, even 40 bonafide offers in our system. Properties sell for more than the established list price 22% of the time...and while AVMs, BPOs and appraisals have their place, nothing establishes the true market value like allowing the market to speak on its own. In REO it's bad...but in short sales it's worse.
Posted by Ronald J | Saturday, April 14 2012 at 8:03AM ET
Most ironic is the idea that the banks are in any position to judge fraud- lol- and your classification of all reo listing agents as essentially those running around in sweats, ignoring offers, etc. is interesting, too. Your agenda at the expense of hard working people is very clear, and frankly, laughable. Poor banks, having to worry about fraud from real estate brokers listing the houses that GOD KNOWS who really owns- too funny.
Posted by | Monday, April 16 2012 at 2:57PM ET
this article is way off base, I am a real estate agent and have been for 20 years and I haven't had one instance of an offer not being submitted immediately to an owner. I must also ask you to research and get your facts straight about agency because if you are going to criticize someone you should figure out what you are talking about. Who is that you are talking about in sweats, untrained and unsupervised????? We are overly regulated by federal, state and local agencies and in fact all aspects of what we do is scrutinized..banks should get out of the way with their "loss migration" employees who you say are trained but clueless and let real estate agents who are trained sell real estate - that is the way to get the job done...
Posted by | Tuesday, April 17 2012 at 3:29PM ET
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