The ABC transaction.  I had an encounter with one the other day.  Here’s the scoop on this.

My buyer saw one of those home-made signs in his neighborhood that says something along the lines of “bank owned $50K, buy now!”  I search on the MLS for the property but I can’t find it so I call the little yellow sign.  The little yellow sign never calls me back.  Until one day, the little yellow sign’s home is in the MLS.  Alright! I can show this property to my buyer and we can move forward with a purchase.

This is a HUD owned home and when going to their website to place an offer, one of the addendum’s states that it must be “owner occupied.”  No investors welcome!  I let my buyer know (since he’s an investor) and that’s the end of that.  My buyer calls the little yellow sign to which that person who answers says it can be an investor purchase…and that it’s no problem for my buyer to make an offer.  Problem is, I just read the HUD addendum that says if we defraud HUD, it’s a $250K fine and jail time.  Thanks for the vote of confidence little yellow sign, but no thank you.

Being the detective sleuth Realtor that I am…I give the little yellow sign a call one more time.  Lights, camera, action…the plot thickens.

The little yellow sign disclosed a wealth of information during our phone conversation…the little yellow sign works for a company who buys bank owned homes.  The little yellow sign disclosed to me that he has a contract with HUD to purchase the home and his company sells the home at closing to investors who purchase the home cash, (since this type of transaction wouldn’t be allowed with any financing).  The little yellow sign has acted as the seller and enlisted “ABC Realty” to market the home for sale (which is not allowed since the little yellow sign does not own this property).  The little yellow sign’s goal is to flip the home at the closing table.  

Now let’s get the A-B-C players clear.

  • “A” is The little yellow sign and considered Buyer “A”, under contract with “B”…
  • “B” is HUD and is the owner and rightful seller of the property.
  • The little yellow sign starts acting as “B” and is now selling the property to “C” 
  • “C” is my  buyer, who would like to be under contract with “A” 

There’s a problem with this scenario:

#1) The little yellow sign does not own the property and therefore can’t put it up for sale.

#2) If “ABC Realty” has done this knowingly, they are in violation of MLS rules.

#3) If The little yellow sign has a contract with HUD, that contract must have in the agreement that the contract is assignable.  If it is, and if HUD has given buyer A the authority to market the home and make a profit at the closing table, and all of this is disclosed…we are OK, but that’s not what’s happening, and I sincerely doubt HUD would give the thumbs up.  Think about it, a government agency not getting all the money they could…exactly!

#4) And, as a Realtor, I still have to follow HUD guidelines since the home is being marketed as a HUD property and is owned by HUD.  HUD is directing me to go online to make an offer, which has the “do not pass go, do not collect $200 go straight to jail” addendum if you’re an investor posing as an owner occupied buyer.  

In my opinion, this is dangerously close to fraud if it isn’t already considered fraud.  I’m not sure how the little yellow sign can have a contract with HUD, and then market it for sale when the little yellow sign does not own it.  I would really hate to see how HUD would deal with someone like this, especially since HUD wanted me and my buyer to sign an affidavit with such a steep penalties to confirm the home would be owner occupied.  

It’s just amazing how far someone will go for a buck.  I’m convinced this is wrong, illegal and totally unethical…But, if I’m way off base and someone reading this does it for a living or would like to provide some insight…I’m certainly interested in hearing the feedback.   

This article is not to be construed as legal advice, legal counsel or as a guide to take legal action.