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Pay Attention to Consumers. Fraud Leads to Foreclosure. When ‘Cash Back’ is OK.

“Learn to Talk the Talk of Consumers”,
February 5, 2008

Just Listen

This article is brilliant! I couldn’t agree more with the statements and philosophy of Scott Einbinder. I can only hope that more agents will print this out and reread it at least twice a week. Ask the consumer what they are looking for, pay attention to the question, and answer it. As Scott says in the last line of the article, “focus on making a difference, and your needs and desire for a higher income will follow right behind.” But, that’s just too easy for people to think that would actually work!

Tim Judge
The Real Estate Network
Greenwich, Connecticut

“Walking the Fine Line: How Not to Stimulate Real Estate Sales”,
February 7, 2008

Record Foreclosures. No Surprise

I read with great interest Ralph Roberts’ article on cash-back transactions. As a real estate attorney, I have dealt with this issue on a daily basis for at least five years. Unfortunately, the practice is still commonplace. Some participants truly do not understand why this is fraud, while others know but don’t care. In either case, the result is the same-a transaction that has a greater chance of ultimately going into default and a “market price” that creates the illusion that housing values are higher than they really are. Given the significant number of transactions that have used the “cash-back” model, is it any wonder that we have record foreclosures and that housing values are falling?

The fact is that housing values were never really as high as we thought, since our appraisals were based on these fraudulent values. Past fraudulent transactions support current fraudulent values. As lenders take back properties and, in turn, sell them for their true value, I think we will be shocked to see what the real property values are. It’s not that values have fallen so much but, instead, that the values never were really as high as we thought they were. We built a house of cards.

While lenders had a big part in what has happened to our real estate market, mortgage fraud tolerated and/or supported by the real estate industry and the government is just as much at fault. I am glad to finally see an article that clearly states that these cash-back deals constitute fraud. Don’t let your seller fall into this trap; don’t let your buyer think that “this is OK, everyone else is doing it,” and don’t get involved in a cash-back deal unless you are prepared to deal with the consequences: unhappy clients when the deal goes bad, and the possibility that you will be facing a criminal prosecution.

Stephen J. Nash
Andover, Minnesota

In Some Situations, Cash Back is OK

When in the situation of a multiple sale or relocation-match client, I will, on occasion, give back part of my commission at closing on the HUD. Every lending institution we have dealt with has required my funds be used toward closing costs only. No cash back for more than the amount of earnest money or down payment may be used for cash back at closing. Sometimes the funds are in excess of the closing costs on a first-time buyer program, and we can end up with funds that we can’t use at closing, which we don’t want to do. I know some agents are not aware of that, as I learned this through experience. Thanks. I appreciate your helpful

Brenda Kelso
Colorado Springs, Colorado