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Reverse Staging: A new trick in short sale fraud
Staging a home for sale has become big business. Real estate agents know that presenting the home to appeal to the most buyers possible makes a huge difference in how quickly it will sell and can directly result in a higher sales price.
There are professional "stagers" who offer a range of services from simply rearranging what you already have to bringing in entirely new pieces of furniture and accessories so buyers feel more at home.
And most experts say it's worth it. One website says "staged" homes sell in half the time, and for 17 percent more money.
But a new trend in staging has emerged with an entirely different goal.
Reverse staging is designed to make a house look less valuable than it actually is. The goal is to accentuate the negative features of a home in order to change the perceived value of the property.
It involves a short sale where a Broker Price Opinion (BPO) is all that is required to determine the value of a property. 
It is often done by real estate agents or investors who are in collusion with a buyer who plans to then flip the house for a much higher price, said Ann Fulmer, Vice President of Industry Relations at Interthinx. Fulmer, an attorney, has represented lenders in mortgage fraud cases and prosecuted mortgage fraud as an assistant district attorney during her career.
It can involve anything from simply not fixing broken windows, or not taking care of the grass, to actually breaking things, or punching holes in the walls. She says there are real estate "gurus" all over the Internet who offer advice on how to do this.
"The worst case I've heard about is someone who went out and bought possum urine and spread it all over the house and turned on the heat and let it marinate for a few days," Fulmer said.
"It looked like a Hazmat situation it was so foul," she said. "Certainly, if you walk in there and it smells like that, it's going to have a negative effect on your opinion of value."
Short sales occur when lenders allow homeowners to sell their properties for less than what they owe the bank. It is often done to avoid foreclosure which can cost both the lender and the homeowner additional fees. A BPO is ordered by the lender in a short sale to determine how much they should expect to recoup from the sale of the property.
"That's part of the problem," Fulmer said. "With BPOs it can literally be a drive by, or even just looking at MLS listings. One of the problems with a BPO is you don't have USPAP and you'd don't have appraisers who have been trained in how to develop a market opinion. It's just their best guess for a fire sale price. The BPOs pay so little. It's supposed to be a Broker's opinion, but a lot of times that's not what is happening because it just doesn't pay."
Is reverse staging illegal? "I don't know that by itself it's illegal, but it could be," Fulmer said. "These are criminal entrepeneurs. They take advantage of whatever is in the market and right now, short sales are one way to make money," she said.
The days of flipping a house in the boom market are over, so the only way to make easy money flipping is to convince the bank the house isn't worth that much. The cheaper you can buy the house, the more money you can make on flipping, she said.
According to a recent article in REALTOR Magazine, Fannie Mae is aware of reverse staging and wants to know about suspicious cases.
"We're seeing efforts to drive the price down on the short sale by using reverse staging," said Kim Ellison, Fannie Mae senior industry relations manager. "We're seeing photographs on broker price opinions that actually show cupboard doors missing, appliances pulled out, and graffiti or trash on the counter-tops. There are actually website where you can get repair bids, so you can submit false repair bids for the work that needs to be done. But we might have photos that were taken months or weeks earlier that show the kitchen in perfectly fine condition."
How does Fannie Mae identify fraud?
"We conduct post-closing reviews and do proactive database searches looking for patterns and trends by pulling in MLS data and public records and looking at listing information compared to what we've been told. But the majority of the information comes from tips. We have a tip line - (800) 7FANNIE and email - mortgagefraud_tips@fanniemae.com.
Are real estate agents getting caught up in this scheme without knowing it?
“On reverse staging, most times the agent’s been in the property multiple times and they can see that something’s amiss when they go in,” Ellison said. “If they do, they can always pick up the phone and ask the services whether they have any information in their records about the property condition. The servicer might be able to go back to a previous valuation and say 'No, our valuations show this and we have pictures that show the property’s fine.' The servicer’s going to have the most information."
"We acknowledge that real estate agents are in a difficult position, because a lot of times good agents have to do some creative things to get the transaction to closing," Ellison added. "There’s a point though, where a line might be crossed, where something’s concealed or intentionally omitted. If an agent suspects something’s going on, they can always use their local association as a sounding board…or if they have a strong hunch something’s going on they can contact us or the lender, because the lenders have been trained as well.”
Comments
BPO's and fake short sale staging
Hey so what's new? Cheaters will always be cheaters. Lenders have no one to blame but themselves. They go the cheap route and you get what you pay for. Also, as an appraiser, my job is to look at a property and describe what I see and report that data. If the realtors have reversed staged the property...not my problem...if the place is a piece of junk after they're done with their little scam, not my problem...it's the lender's who allow BPO's as the only point of value--and after and then allow that agent who did the BPO to take care of "staging" it for sale....their problem, they're idiots. They obviously need some checks and balances in this process.
BPOs are illegal if a Broker gets paid in NC
Brokers can do BPOs all day long for free. If they get paid in NC then they must have some expectation of getting the listing. There was legislation proposed that all Fannie Mae transactions would require an "APPRAISAL". What ever happened to that? Truth be told, the government needs to know that Fannie Mae is allowing homes to be sold without an appraisal. The Consumer Protection Agency is one avenue to file a complaint. It hurts the owner of the home that is short sold because they are usually on the hook for the difference in the mortgage and the sale price. Many homes are being short sold in our market that are appraising higher than the contract price. I havent seen any "short sales" that were "reversed staged" because mostly, short sales have people living in them. The trashed homes are usually foreclosures.
B.P.O.s and Reverse Staging
This is what you get when you go the "cheap" route. Serves Fannie, Freddie and the banks right.
Opinion of Value
Well since the "...Broker Price Opinion (BPO) is all that is required to determine the value of a property. It is often done by real estate agents..." then the real estate agent and their affiliates should be prosecuted for under valued and over valued homes since they are putting thier license on the line for their expert opinion of value as a professional. WAIT, applying an Opinion of Value should be done by a State Licensed Professional APPRAISER who is unbiased to the transaction for a creditable valuation. If a Realtor values a home then they are assuming the role as an Appraiser and doing so unlicensed or against state and federal laws?!!
Hey Ann, Govt is the problem.
The Government can't do anything well. If they got out of mortgages and stopped bailing out the banks and buying up or otherwise insuring loans then lenders would of course look after their own best interests. Poor performance would mean money lost or even going out of business altogether. Housing would be much cheaper for everyone, no artificial booms or busts. Govt. involvement with public education, college education and health care has led to the same inflated prices, poor performance, fraud and waste. That's the Giant Pink Elephant in the middle of the room that nobody wants to talk about. Anything else is just moving furniture around on the Titanic.
Banks - Cheap & Dumb
The banks are being ripped off by their own RE agents and are too stupid to even know it. Just ran across such a property – a duplex located .25 miles from the beach that was mac-daddied out during the boom – new tile, apps, granite, etc. While most short sales and REO’s are coming in at one-half the sale price from 2005/2006, this one short sold for one-fourth the last sale price in 2005 – a true steal that should have brought much more in an open market scenario (especially based on rental income) - purchased by the REALTOR. So, when the Realtors whine and cry about low appraisals/values – they have only themselves and their greed (once again) to blame.
Go you real estate brokers
not all...but next to lawyers and used car salesman and politicians, sleaziest sub humans on the face of the earth!!
Hahahahahahahhaha!
"According to a recent article in REALTOR Magazine, Fannie Mae is aware of reverse staging and wants to know about suspicious cases.""We conduct post-closing reviews and do proactive database searches looking for patterns and trends by pulling in MLS data and public records and looking at listing information compared to what we've been told."You're killin' me, Smalls! FNMA doesn't want to do anything but sit in their nice big air-conditioned buildings and do nothing.The entire problem is BPO's, fraudsters and FNMA's actual lack of interest in any meaningful reform. By definition, a real estate "agent", (get it? "agent" having to do with fiduciary relationship {even though they really just represent themselves}) cannot do an impartial value estimate. Has this somehow just slipped by those with inquiring minds?
Stop being cheap and pay for independent appraisals
BPO's should be illegal. Realtors will stick up for other Realtors. Realtors do not know how to calculate adjustments for differences in gross living area, updating, cost to cure items, excess/suprplus land etc... so why are they performing valuations. The banks and the GSE's have such as Fannie Mae have a fiduciary responsibility to their shareholders. So why are you ordering $50 BPO's to lose tens of thousands if not hundered of thounsands on EACH property. Absolutely ABSURD!
MLS Reports
So would these be the same Realtors and MLS reports that most Appraisers take and report as fact? How do you tell which SALESPERSON is actual telling the truth? If you look at the publics perception, Realtors are rated right below or above car salesman. MLS reports are the most un-relabile source of information, but you would have to talk to real estate agents to know this.
Reverse staging
Almost all of the oversight is a joke. A nearby appraiser was called by the state about some files he had worked on. The first words out of his mouth to the investigator "if I surrender my license, will you promise not to prosecute me". Ultimately a mortgage broker went to jail but a number of other participants were never even questioned in any detail and should have gone to jail. The risk has to be greater than the reward to stop these things. If more were investigated and prosecuted then it would slow it way down (nothing ever completely stops crime). In our area the dumping of foreclosures at ridiculous prices is killing our neighborhoods. "Investors" snap them up and put in substandard tenants (more street crime, prostitution, and drugs) and the cycle continues. The government should hold accountable the lenders for the destroying of neighborhoods as well. (Won't happen though)
Nothing new
I had a real estate investor brad laughingly to me that they would shake up a cola drink and spray it on the ceiling. It leaves the same stain as a roof leak. It's pretty clear that without an appraisal this practice will only grow. It's amazing how low the short sale prices are here, much lower than reo. Lenders may figure this out and just stop processing short sales altogether, and I wouldn't blame them one bit.
Cola Spray to "damage" a house
We had a condo short sale that had brown stuff sprayed all over the equipment room. The hotwater heater and AC mechanicals were in this room We couldn't tell if the brown stuff sprayed all over was caused by a leak of some sort. Boy was the lender mad with the Broker when we had to call for inspections and repainting. It took us three visits to get the Broker and repair people to completely paint or clean all the brown stuff off. The Broker kept pretending that there was nothing there and we kept taking pictures of it and sending it to the lender. The Broker was saying stuff like, "the buyer doesn't care, he isn't concerned, why are you making a big deal of it?" LOL, I bet she doesn't do that trick again.
Rebuttals on Short sale fraud
I have been appraising for 15 years and came across something similar. I received an assignment for a purchase of a property. The property was previously on the market as a short sale for over 120 days for $350,000, and sold for $340,000. 2 days after closing, this same property went back on the market for $410,000 reflecting "standard sale" on the MLS, and received a full price offer the same. Obviously it was not worth $410,000, and I appraised it for $340,000 as it was the most recent sale in the complex, and had 3 other sales in the immediate complex to support this. The agent's involved tried to rebut my appraisal stating that the property is a now a standard sale, not a short sale, and provided several comparables outside the complex, superior in age, gross living area, and superior in condition. These agents added additional comments stating this was a One of Kind deal and that the appraiser (me) was not competent of my area. As a qualified and very competent appraiser, I did my best to not be defensive in my rebuttal, reviewed all 17 additional comparables that the agents were trying to say supported the higher value, and in the end added comments within my rebuttal that this did not appear to be an arms length transaction. The additional time spent on this rebuttal was over 2 hours analyzing each comparable and explaining why no consideration was given to each of the 17 sales. I was very frustrated to have to waste so much time proving that my appraisal and comparables chosen were the best available. As an appraiser, we are the eyes and ears, as well as the educated of the immediate neighborhoods. What can appraisers do in situations like this? Can we reference that perhaps is "reverse staging" and explain in our report to eliminate additional work for the future rebuttals? Or should I just have called the toll free number to report it?
I think these "rubuttals"
I think these "rubuttals" that I all of a sudden keep getting are rediculous and am now charging $50 for these as I'm spending at least 1-2 hours of my time re-examining my appraisal, then looking at their comps, then having to write a letter as to why these Realtors are morons with their so called "better comparables" is a huge waste of time. I have never in the last 6 months of receiving these "rebuttals" ever seen a viable comp or viable reason to revisit the appraisal. I now charge for this. I hope other appraisers are also. My time is worth money, especially to to more professional work.
more work no pay
and you are actually getting the extra fee? If I pulled this stunt with a lender or AMC, they most likely would stop feeding me work. Appraising is no longer a profession, it is slave labor with below min. wage fees and all for the privilege of jumping through hoops just to stay licensed! Today you have to go and get your head examined for being an appraiser! Good luck on keeping up with your mortgage payments my fellow appraisers! We should all quit or go on strike!!!
more work, less pay
It looks like the Real Estate Agents are doing Appraisers work and getting away with it. Why cant we the appraisers do Real Estate work, selling properties, etc. Its a wonder, Real Estate Licenses are so much of a lesser fee than Appraisers License. No matter which way you look, it appears that there are so very few honest people left in this world. Too much greed, jealousy, etc. We should all be helping and supporting one another knowing that after we leave this world we cant take anything with us!
short sale fraud
It's the same old game with a new twist. As an appraiser I've had several realtors use the same old tactics in an attempt to deflate the property value. Sending a few of these characters to prison would be a good lesson.
Reverse Staging
Not much different from what has gone on in the auto repo business for decades. I knew of a situation in the Dallas area in the mid-1980's, where a man at CHASE would ask a friend to submit bogus bids on repo cars, so as to low-ball the sales to the friend, who would then flip them.The FBI caught the low-ball buyer, involved in a scheme to steal luxury cars, and wash the serial numbers as though the stolen cars were imported "Gray Market" vehicles.
"BPO's"
This article talks about BPO's in several places. What is the AIstand on BPO's.... and what have they done about it?
Opossum?
One can actually purchase Opossum pi$$??!!! S.M.H...
Possum Urine
Apparentlly so! Googled it and got 313,00 hits!!! Most talk about the smell, how to get rid of it, and the health hazards, but if you keep looking, I'm sure you will find people who sell it. And why not? Lenders pay for BPOs!!!D.W.W.
Reverse appraisals
Nothing. The ai should do a class action lawsuit on behalf of all appraisers against all agent produced bpo's. Due for damages against all banks and brokers who accepted these valuations on behalf of their shareholders.
Yeah, someone ought to tell the Appraisal Instit.
I'd like to know what they have done lately about what has gone on in our industry. How many state attorney generals have they contacted. Where is the AI's impact ?
That is why I am not a member
That is why I am not a member of AI. I see no reason. They don't do anything and only 1 out of 100 lenders would care about a few more letters behind my name. They have no lobby power at all. I think they are basicly in existence to sell USPAP and other appraisal courses, books, etc.
AI is a bunch of crap
I agree.