Guilty Plea for "Reverse Staging" to drive down Short Sale Price

11/01/2012 10:09 AM | Anonymous
Guerard Wallace Howard, 63, Melbourne, Florida, pleaded guilty to one count of wire fraud, he faces a maximum penalty of 20 years in federal prison.

According to the plea agreement, between November 2007 and August 2011, Howard operated an illegal real estate short sale flipping business, Provincial Real Estate Administrative Services, Inc. Using Provincial, Howard made properties appear to be in poor condition during appraisals, through a scheme known as reverse staging. Reverse staging is a process wherein someone manipulates the short sale price by intentionally downgrading a property's appearance and falsely representing the condition of a property in advance of bank appraisals.

Reverse staging is done in an effort to acquire the property at below market price. In this case, it included Howard removing receptacle plates and pulling wires from the walls to falsely represent to an appraiser that the house required rewiring; falsely representing that the house needed electrical service upgrades, and repair work. In some instances it also involved spraying the house with a foul-smelling prank product, and falsely representing to an appraiser that the odor was due to mold or other potential biohazard issues that required expensive remediation costs. The reverse staging effectively caused the lender to agree to the below market offer made by Howard through Provincial. The property was then immediately resold at a profit.

While a title agent would not normally be aware of this type of reverse staging, the immediate resale at a profit is a red-flag.

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