Real estate:

Flirting with short-sale fraud in Nevada could soon be less risky

Courtesy of Nancy Tucker

A home for sale in Henderson.

When your house plunges in value and you can’t afford the mortgage, it can be tempting to short sell to friends or relatives and just rent from them.

It’s a temptation some Las Vegans act on, even though it can send them to jail. But later this year, a new law could make such arrangements a lot more common.

In a short sale, lenders agree to sell a house for less than what’s owed on the mortgage. Mountains of paperwork are needed to close the deal, including a signed document that says the sale is between people who didn’t know each other before the deal came about and who have no agreement to let the sellers stay as renters or buy back the house.

Banks are not required by law to get that signed promise, known as an “arm’s length” agreement. But they usually do, and if the sellers lie about their connection to the buyers, it’s fraud.

According to two local real estate agents, using a “straw buyer,” or a front man, in short sales does happen in the valley, but they could only guess as to how often.

“I guarantee it exists, absolutely,” said Keith Lynam, of Windermere Prestige Properties.

Beth Ellyn Rosenthal, of eXp Realty, said a married couple in her Henderson neighborhood short sold their home to the wife’s mother. The buyer has a different last name from the couple and is renting it back to them.

“I would imagine, gut feeling, (this) happens a lot, but I don’t think anyone wants to talk about it,” Rosenthal said.

It’s not clear how often people get charged with these schemes in Southern Nevada. Although it appears to be rare, it happened this week.

A federal grand jury on Wednesday indicted 41-year-old Cynthia Hosbrook, a licensed real estate agent, and her husband, 51-year-old Robert Hosbrook, a former licensed real estate agent. Charged with bank fraud and conspiracy to commit bank fraud, the Hosbrooks are accused of short-selling their Henderson house, 2704 Mallard Landing Ave., to a relative whom Cynthia Hosbrook enlisted as a straw buyer.

The Hosbrooks planned to remain in the house and lied on their arm’s length agreement with Wells Fargo Bank, according to the indictment.

If convicted, the Hosbrooks face up to 30 years in prison and up to $1 million in fines on each count, prosecutors said. They have been summoned to appear for an initial hearing and arraignment June 21 before U.S. Magistrate Judge Carl W. Hoffman.

Robert Hosbrook bought the Mallard Landing house for $470,000 in February 2005, during the housing bubble. In July 2010, after the recession hit, he and his wife sold it for $250,000 to a woman named Sarah M. Fuller, according to Clark County property records.

Efforts to reach the Hosbrooks and Fuller by phone were unsuccessful.

Nevertheless, the odds of getting charged with fraud for this kind of arrangement could soon plunge.

Gov. Brian Sandoval this month signed SB321, known as the “Homeowner’s Bill of Rights.” It takes effect Oct. 1, and as part of the law, banks cannot force sellers in a short-sale transaction to sign an arm’s length agreement.

The Nevada Association of Realtors backed the bill. Lynam, the group’s 2013 legislative chairman, said there is no reason to force a family to leave a house that was sold through a short sale, and it shouldn’t matter whether the sellers’ relatives buy the place.

“It’s never made sense to me,” he said.