Bulletin: IN2010002

Dear Associates:

Economic conditions have resulted in a substantial increase in mortgage defaults and foreclosures in Indiana. As a result, there has been an increase in short sale transactions or "short payoffs" whereby the proceeds received from a sale are less than the outstanding mortgage on the property. We are frequently seeing individuals or companies who purport to rescue homeowners from their circumstances by negotiating a short sale payoff or alternatively, taking title to a homeowner's property. It has become increasingly difficult for us to ascertain the legitimate individuals and companies from the fraudulent ones.

The individuals or companies who assist a homeowner in the negotiation of a short sale payoff or short sale agreement for a fee or take title to the homeowner's property prior to closing may hold themselves out as foreclosure consultants, facilitators, foreclosure rescue specialists or similar. Often, these individuals or companies do not designate themselves by any particular title. For purposes of this bulletin, these individuals or companies, whether or not they hold themselves out to be foreclosure consultants, facilitators or foreclosure rescue specialists will be referred to as "third party negotiators".

The third party negotiator may enter into a purchase agreement with a third party purchaser for the sale of the property for consideration that is substantially more than the short sale payoff. The third party negotiator may then request your office to close on "back-to-back" closings or a "flip" transaction (a simultaneous transfer to a different ultimate buyer). As stated previously in SLS2008005, "if the existing lender is induced to accept a lower payoff than market forces might otherwise indicate, the existing lender may subsequently seek to set aside the short sale transaction and/or ask a court to impose a constructive trust on the property". You may not insure a short sale transaction in which a third party negotiator is involved unless you obtain written approval from an Indiana underwriter to insure.

Some Red Flags to look for:

• Existing loan in default or foreclosure
  
  
• Unrecorded or recorded deed to third party negotiator or land trust
  
  
• Third party negotiator is designated as trustee of the land trust
  
  
• Third party negotiator is designated as beneficiary of land trust or homeowner is initial beneficiary of trust and beneficial interest is subsequently assigned to the third party negotiator
  
  
• Homeowner has executed a power of attorney to third party negotiator to sell and convey the property
  
  
• Third party negotiator provides a purchase agreement between third party negotiator as seller and third party purchaser with sales price that is substantially higher than the amount the outstanding mortgage holder has agreed to accept as a short sale payoff
  
  
• Excessive fees on the HUD to third parties. Example: Fees for property maintenance that substantially diminish the amount the outstanding mortgage holder will receive as part of a short sale payoff
  
  
• Excessive fees to real estate agents for services in addition to any real estate commission

If you have questions related to this bulletin, please contact your local underwriting personnel or Stewart Legal Services.

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