Fact Check

Short Sale

Account describes women manipulating the short sales of properties?

Published Feb. 7, 2013


Claim:   Account describes women manipulating the short sales of properties.


Example:   [Collected via e-mail, January 2013]

Recently, our good friend Michael (a local realtor) shared his experience with Leisa and I about an "Obama supporter" he encountered while showing homes to a low income, working family in Pontiac, MI. We asked him to please write it down so we could share it with you.

As a Realtor for the past 28 years I thought I’d seen or heard it all. Until now.

I was showing homes in Pontiac, MI. one afternoon recently and showed up at a home at the 4:00 pm time my appointment was scheduled for. After I woke up the homeowner, she let us in and then proceeded to tell my buyers and I that she has already entered into a contract to sell the home on a short-sale. (A short-sale is a sale where the banks accepts less money than is owed on the home). After some chit-chat, she proceeded to tell us that she and her sister (who also lived in the area) were buying each other’s homes via the short-sale process. I mentioned to her that I thought relatives could not be involved in those transactions. She smiled and said "We have two different last names so no one knows the difference".

She went on to tell us that each of them owed over 100K on their homes and were in the process of buying each other’s homes for about 10-15K cash. To top it off, they were each receiving $3,000.00 in government provided relocation assistance at the closing.

My buyers and I were amazed that she was outright admitting to fraud and yet, she continued. She began to tell us that the best part of her scheme was that because they currently were not working that they (both) are now receiving Section 8 Vouchers. I said I thought those were for renters and she said "That’s the best part; me and my sister are going to be renting each other’s homes so we don’t even have to move, and Obama is going to give us each $800.00 a month to pay the rent!" She then picked up a picture she had framed of Obama and did a little happy dance around her living room and while she kissed the picture she was singing "Thank you Obama.... thank you Obama."

So here is the bottom line… Both of these scammers got at least $80,000.00 in debt forgiven, $3,000.00 in cash for relocation (when in fact they did not relocate) and to boot, you and I will now be paying (through our taxes) $1,600.00 in rent for each them each and every month .... perhaps forever!

And I also would not be at all surprised if they are receiving food stamps and whatever other programs are available for anyone who is willing to lie to get assistance.

These women went from working and paying about $900.00 each in mortgage payments to staying home and getting paid $800.00 each per month to live in the same home they had been living in and all they had to do was lie on a few papers. This craziness has to stop! I’m sure this kind of fraud is going on each and every day all across the country and no one wants to touch the subject of entitlements because they might OFFEND someone or lose a vote or two.

By the way ... she had an almost new SUV in the driveway, three flat screen TV's and a very nice computer set up in her living room which was furnished entirely with nice leather furniture.



Origins:   The terms "under water" and "short sale" in reference to home mortgages have entered common parlance in recent years due to a severe downturn in the housing market. The first refers to a mortgage that is greater than the property's current market value: If a home buyer owes $600,000 on a property that he originally bought for $900,000 but that is now valued at only $300,000, his property is described as being under water. The second refers to a process which has been used by some borrowers to keep afloat financially by shedding their under water properties.

When a property owner holds an under water mortgage and can no longer make his mortgage payments, one remedy is for the lienholder to agree to a short sale: that is, to allow the owner to sell the property for less than the amount still owed on the loan. A short sale leaves the lender taking a loss, but it is often preferable to the alternative of the lender's having to foreclose on the property and resell it

themselves (with no guarantee the resale would bring in any more money than the short sale did).

The unpaid balance still owed to a lienholder by the property owner after a short sale is known as a "deficiency." If the owner with the aforementioned $600,000 mortgage short sells his home for $250,000, he has incurred a $350,000 deficiency. A short sale may or may not relieve the borrower of the obligation to repay that deficiency: whether it does depends on the agreement made between the lienholder and the property owner prior to the short sale. (The amount of a deficiency is considered by the IRS to be a benefit which is taxable as income, but the Mortgage Forgiveness Debt Relief Act of 2007 currently allows taxpayers to exclude income from a discharge of debt on their principal residence.)

The January 2013 item reproduced above purportedly tells of two women who are supposedly gaming the system by agreeing to buy each other's homes at short sales (in contravention of the rules), then collect a monthly housing assistance stipend for being renters in the homes they formerly owned. The item contains no verifiable details such as names, dates, or addresses (only the mention of a city or state which changes from version to version), but the scenario described would require a number of implausibilities to all be true:

  • A woman who was engaging in a scheme to defraud multiple lienholders and government programs would openly admit to that scheme and describe it in detail to a stranger.
  • The buyers and sellers involved in short sales are required to provide full financial disclosures and are subject to asset checks,
    making it highly unlikely that this cross-buying scheme could work. A lienholder would almost certainly refuse to proceed with a short sale by an owner who had just bought another property, or to agree to a short sale home purchase by a buyer who herself currently had a property in short sale.
  • The $3,000 in relocation assistance provided to those who short sell their homes under the Home Affordable Foreclosure Alternatives (HAFA) program also requires financial disclosure and is not available to those who have purchased a house within the last 12 months, so neither sister would qualify.
  • Section 8 assistance offered under the Housing Choice Voucher Program (which provides payment of rental housing assistance to private landlords on behalf of low-income renters) is income- and asset-based. Someone who not only owned her own residential property but was also functioning as a Section 8 landlord could not possibly qualify for Section 8 housing assistance. Moreover, in many areas the waiting list for renters seeking to obtain Section 8 funds is years-long.

Also, little of what is referenced here has any direct connection to President Obama. Although the HAFA program which provides $3,000 in relocation assistance was introduced by the Treasury Department under the Obama administration in 2009, the Mortgage Forgiveness Debt Relief Act (which exempts deficiencies in short sales from being considered taxable income) was passed in 2007 during the administration of George W. Bush, and Section 8 housing assistance was established under the Housing Act of 1937 passed during the administration of Franklin D. Roosevelt.

Last updated:   7 February 2013

David Mikkelson founded the site now known as snopes.com back in 1994.

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