Saturday
November 22, 2014

Agent Found Liable for Short Sale Fraud

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Agent Found Liable for Short Sale Fraud

The U.S. Bankruptcy Court for the District of Utah determined that a real estate agent and investment group misled a client in a short sale transaction.

In re Fabbro, the U.S. Bankruptcy Court for the District of Utah found a Utah real estate agent guilty of fraud for steering his client into a short sale with a phony buyer and then later flipping the property for profit.

The client had a $380,000 mortgage on her house and listed it for sale but couldn’t find a buyer at her $399,000 asking price. Her tax adviser referred her to a real estate agent with short-sale experience, who brought in an investment group. The agent didn’t disclose that he was also a member of the group.

A representative of the investment group met with the client and obtained her signature to list the property for $344,900. The wife of that representative—without disclosing her relationship with him or her involvement with the group—came forward with an offer to buy the property for the asking price, even though she lacked the financial means to actually buy it.

The investor group presented the $344,900 offer to the lender, which countered that it wouldn’t take less than $352,000, the appraised value. The representative’s wife upped the offer to that amount; the lender agreed. The real estate agent subsequently changed the listing status from contract pending to active to attract a buyer.

Eventually the property attracted an offer for $441,111. The investors used $352,000 of the proceeds to complete the short sale and shared the remaining profit.

The client then filed for bankruptcy. As part of the bankruptcy process, the Chapter 7 trustee filed an action against the investors and sought to void their purchase. The agent and the representative were accused of fraud, breach of contract, and other violations.

The U.S. Bankruptcy Court for the District of Utah found, among other things, that the agent and the investor representative misled the client in multiple ways. The court ruled that the bankruptcy trustee could void the investment group’s purchase, and that the agent and investor representative may be liable for punitive damages. The court scheduled a hearing to receive further evidence.

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