Real Fake Sales

[KYLECODY]

Good detective nose Cindy. Yes those things turn into a rabbit hole don't they? I see similar stuff frequently and if I'm bored enough, follow the trail..

I call them "money games". Flip a to b to c to d over a few days/weeks time frame, shuffling properties from one LLC to another raising the price each time.

Another game that turns up is an actual "listing" on the MLS and it magically goes under contract on day 0 (for well above market value to some LLC, owned by some other random LLC). Another magical, ghost listing appears in the same neighborhood that goes under contract to same LLC on day 0 and now you have two closed sales at $250k while all the other listings and closed sales indicate $200k...Fast forward a few weeks and the next appraiser in there ignores the two latest sales really were shell sales and not exposed to the open market and uses the ghost listings and suddenly the subdivision is 20% above where it was months before (this slips through sometimes even when the market is not that hot).

As an appraiser if I see one sale that sticks out like a sore thumb high or low I don't use it if its in a typical, homogenous neighborhood. I usually throw in a comment that any abnormally high or low sales are not considered but of course that one, high wildcard sale will always come back in a ROV or typical realtor/buyer complaint when the magic number of contract price isn't met. The realtor and homeowners will almost always base their own opinion of value based on the one, atypically high sale in the neighborhood and ignore the remaining 5-10 comparables.. I've spent way too much time as an appraiser in requested/semi required follow up comments in reports trying to politely describe common sense in words a realtor/buyer/seller will accept without being an arse..Its usually a futile effort.

In some small developments one or two realtors/sellers/investors working on the fringes of legality can easily manipulate the entire project or subdivision with a couple grey area transactions..

Money games. Fun if you're on the right side of it but does more harm than good when the music stops playing.

 

[Terrel L. Shields]

And surely most appraisers are smart enough to question these transactions

Ahhh. I would hate to bet the ranch if I don't want to move to town on that premise.

 

[Noreen]

absolutely all cash for for all the ones i looked at, which is very common for these subdivisions. i actually researched my subject condo complex and the last FHA loan in there was 1987, the last conventional loan was 2007 and there were a couple seller financed deals in 2011 and 2012. ALL the other transactions were cash.

Can you say the transfers are not considered arm length as they are repeated transfers within affiliated LLC's? Let's face it, this is bold faced fraud....

 

[CindyR]

Can you say the transfers are not considered arm length as they are repeated transfers within affiliated LLC's? Let's face it, this is bold faced fraud....

Well i am still not sure it is fraud. It is just weird. I don't see them passing the properties back and forth to raise the prices. There were only 2 LLC's that i saw doing the actual buying. One was even named "Asset Buyer LLC", So Asset Buyer finds a tiny little condo and Statutory Agent calls the LLC member and says i can get you this property for $72,000. The rent should be $675 per month and the HOA fee is $200 per month and our management fee is $100 per month so you will net $375 per month. Do you want to proceed? And the foreign investor in New Caledonia says Sure - i'll wire transfer my funds today. And tells all his buddies about how much money he is making in the United States real estate market.

The fact that Asset Buyer acquired the property for only $55,000 is just business in their eyes. I am sure that any contracts or agreements between the parties do not require the disclosure of all those pesky facts. And my concern is just that $72,000 transaction that hits public records and looks like a valid sale but is not in any way a market based or relevant sale transaction. But depending on the relationship between the parties it is also likely not criminal fraud.

 

[Meandering]

Depends on the details if it's fraud.

If the agent contacts foreigner A to buy a property for $50k, the contacts foreigner B to buy the same property for $60k, Foreigner A makes $10k in a short time,

Then the Agent contact foreigner C to buy the property for $70k and foreigner B makes $10k in a short time frame.

And around and around the property goes, until it and others like it drive up prices in the neighborhood, or the market crashes and there is a sell out with the last guy holding the property losing money.

Can we say Bernie Madoff?

.

 

[CindyR]

Depends on the details if it's fraud.

If the agent contacts foreigner A to buy a property for $50k, the contacts foreigner B to buy the same property for $60k, Foreigner A makes $10k in a short time,

Then the Agent contact foreigner C to buy the property for $70k and foreigner B makes $10k in a short time frame.

And around and around the property goes, until it and others like it drive up prices in the neighborhood, or the market crashes and there is a sell out with the last guy holding the property losing money.

Can we say Bernie Madoff?

.

well the agents are not involved in the subsequent transfers so i don't think that is happening. and of the ones i researched that held multiple properties many had them in their portfolio for years so this does not seem to be a selling scheme.

i did some research and looked at all the sales of these tiny low dollar condos in phoenix since january 1. there were about 60 properties; 10 were coop's, 35 were individual named owners and the rest were LLC's. 9 were LLC's who had held them for several weeks so they looked like normal sales. 4 showed the double transfer on the sale date for a much higher price. two did not yet have the second transfer but are held by LLC names i recognize from my earlier research. and when i checked the corporation commission for the double transfer properties they were all new LLC names i had not yet seen but all had the same statutory agent. and the members were all from new caledonia or france.

 

[timd354]

Can you say the transfers are not considered arm length as they are repeated transfers within affiliated LLC's? Let's face it, this is bold faced fraud....

Well there may be something untoward going on, based on the information that you have posted so far, we simply do not know enough information to conclude that there is anything illegal or fraudulent about these transactions. That being said, there is no way that I would use these transactions as comps in a market value appraisal.

 

[Tim The Enchanter]

If it weighs the same as a duck,
It must be made of wood.
And therefore, a witch!
Err, fraud. From France.

 

[Noreen]

Well there may be something untoward going on, based on the information that you have posted so far, we simply do not know enough information to conclude that there is anything illegal or fraudulent about these transactions. That being said, there is no way that I would use these transactions as comps in a market value appraisal.

And I agree 150% ( I worked for the RTC cleaning up the mess at ComFed, Lowell, MA). This exact "process" was one of many schemes uncovered when all was said and done. It is considered to be a very "questionable" process and I would not rely on any of this data either. If there was/were mortgages involved that went into default, they would not get away from a court appearance.

 

[J Grant]

I wonder if some of the "sales" back and forth to LLC's or parties and back to LLC's are money laundering?