Questionable Short Sale Services Alleged By California AG In Recent Suit Against Group Accused Of Squeezing Homeowners For Upfront Fees For Loan Mods

A recent lawsuit brought by the Office of the California Attorney General against a loan modification group lays out how the operation (herein referred to as "Defendants") allegedly screws financially distressed homeowners by entering into agreements with them to modify their loans with their lender in exchange for upfront fees, and then turns around and allegedly sells its "short sale services" to the homeowners' lenders to market the homes, thereby straddling both sides of the deal (see Lawsuit, paragraphs 58-59):

• Consumers retain Defendants to be their negotiator and advisor during the loan modification process. Defendants then use information provided by their customers to market their real estate services to lenders. Defendants advertised to their own customers’ lenders that, on average, it would take eight months before lenders could sell their clients’ homes. This pitch is not meant to advantage the customer; rather, Defendants mean to highlight their "retail auction" services to lenders, whereby Defendants act as the lenders’ agent in a short sale of their customers’ homes. Defendants assure the lenders that Defendants could short sell their customers’ homes in 45 days or less. By exploiting their trusted position with their customers and their inside information about their customers’ financial circumstances, Defendants attempt to use this information for the benefit of themselves and the lenders, and to the extreme detriment of their customers. [...] By offering to be the lenders’ agent to short sale their customers’ homes while purporting to act as their customers’ agent in loan modification, Defendants violated their fiduciary duties to their customers.(1)

For the entire lawsuit, see People v. Home Relief Services LLC, et al.(2)

(1) The California AG's lawsuit does not contain any allegations of the practice, believed to be questionable by some observers, of "short sale flipping," in which a real estate operator (and his/her confederates) conceals the full price of a sale to the ultimate homebuyer/end user from the lender so that he/she can pocket the difference, typically accomplished by using option contracts and back-to-back closings.

(2) Other defendants: The Diener Law Firm, Golden State Funding, Inc., Payment Relief Services, Inc., Christopher L. Diener, Kathleen Marrero-Davis,Terence Green Sr., Stefano Marrero, Maya Burrell Marrero, Ronald C. Specter, Kenneth Buhler. AG Brown seeks $10 million in civil penalties, full restitution for victims, and a permanent injunction).