Feds arrest California real estate agent accused of short-sale fraud

livermoreFederal authorities arrested a California real estate agent accused of helping a homeowner commit fraud in the short-sale of his home. Minerva Sanchez, 47, was arrested at her Fremont home, according to the U.S. attorney’s office in Sacramento. She was later arraigned in San Jose federal court, where she pleaded not guilty to conspiring to commit bank fraud. A federal grand jury in Fresno indicted Sanchez on Dec. 19.

In March 2010, Sanchez represented Agustin Simon, 52, in the sale of his home. The homeowner agreed to sell the home to a person that would assist in letting Simon stay in the home and/or rent it back after the short sale was complete. The prosecutors said Sanchez and Simon falsely claimed that the transaction was “arm’s length,” and that they made false statements about Simon’s assets and ownership of other real estate. Sanchez and Simon knew that Simon was not selling the home to an unrelated party and that the transaction was an attempt to allow Simon to stay in the home as a renter or to allow the later repurchase of the home by Simon. 

With Sanchez’s knowledge, Simon gave the new buyer funds to assist in the purchase of the home in the short sale. As a result of the alleged scheme, the Bank suffered a loss of $247,000 and Freddie Mac lost $107,348. If convicted, Sanchez faces a maximum sentence of 30 years in federal prison and a $1 million fine. 

On June 10, Simon pleaded guilty to conspiring to commit bank fraud in connection with the alleged short-sale scheme. He is scheduled to be sentenced Oct. 6.

You Need A Skilled Realtor and Real Estate Attorney For Your Short Sale

In this tumultuous housing market, you need the services of a skilled Realtor® AND the expertise of a real estate attorney. You can have both and at no cost to you. I am a Realtor® and a practicing real estate attorney. For years, I was legal counsel to the nation’s largest banks. Now, let me give you the inside track on how you can limit your liability and achieve the best possible outcome for your situation.

Call today for a free consultation and get answers that only an attorney can provide:

  • What options do you have once you are in default and facing foreclosure?
  • Is a short sale better for you than a foreclosure?
  • What are the tax, credit and legal consequences?
  • Can the bank sue you for the unpaid balance of the loan after a foreclosure or short sale?
  • Can the IRS go after you if the lender agrees to waive the unpaid balance of your loan?
  • How does foreclosure/eviction work and how long does it take?
  • Can the lender kick you out once you are in default?
  • How does a foreclosure or short sale affect your credit?

Why use an Attorney/Realtor®?

All distressed real estate transactions are fraught with difficult legal issues. The short sale process in particular involves extensive adversarial negotiations and presents complex legal issues related to recourse liability, taxation and forgiveness of debt, foreclosure processing, and the terms and provisions of the settlement and releases of liability. Traditional real estate agents are forbidden by law from dispensing legal advice and therefore cannot offer you a complete understanding of the consequences of your decision. Make sure you are fully protected. Get the answers you need before making any decisions by contacting an Attorney/Realtor®.


Loan modifications have been big news (not all good) over the past few years as the government has fully instituted the Home Affordable Modification Program (HAMP). Although HAMP has thus far been an unmitigated failure, it was originally intended to provide financial incentives for lenders to lower interest rates, extend maturity dates and reduce principal so that financially troubled borrowers could afford their mortgage payments and stay in their homes. What we have seen, however, is that of the very small number of borrowers who actually receive a loan modification, more than 60% re-default within 1 year.

What’s the problem?

Traditional modification methods only focus on interest rate reductions and term extensions while almost completely ignoring principal balance reductions (i.e. lowering the amount owed on the loan). This approach simply fails to address the borrower’s lack of equity or the long term sustainability of the loan modification. Principal reductions are the key to a successful loan modification, but we know that they are going to be the rare exception to the rule.

Why? Three words: Net Present Value.

A common refrain among borrowers facing default and seeking a loan modification is the following: “Why doesn’t my lender just reduce my loan balance to the current market value? They aren’t going to get any more than that at a foreclosure sale.” While it is absolutely true that a lender can only obtain current market value if it forecloses and sells the property (in fact they will probably get LESS), this argument ignores the complex financial analysis that the servicer (that’s the company responsible for collecting payments and reporting to the lender) must complete to make sure they are limiting the loss to the lender. The servicer MUST select the option which provides the highest recovery to the lender by using the NET PRESENT VALUE TEST.

In simple terms, if the lender reduces the loan balance to the current market value, they are stuck with 30 or 40 years of payments based upon that lowered loan balance (and possibly at a much reduced interest rate). However, if they foreclose and sell the home, they get that money (less costs) RIGHT NOW. Lenders understand that receiving a lump sum of money today is far more valuable than receiving that same amount of money over the course of 30 years or more along with the added risk of re-default. In fact, it is possible that a lender could receive LESS THAN current market value through foreclosure but still realize a HIGHER NET PRESENT VALUE by getting that money immediately as compared to taking payments over the life of the mortgage. Therefore, a foreclosure almost always generates a higher NET PRESENT VALUE for the lender as compared to a loan modification with a significant principal reduction.

So, if a servicer is obligated to limit the loss to the lender, they are simply unable to offer a loan modification if a foreclosure would generate a higher Net Present Value for the lender. Therefore, the servicer CAN’T offer, and the lender WON’T accept, a loan modification. The home will be forced through foreclosure.

In Part 2 of this article, I will give a detailed explanation of the TWO PART loan modification test and how NET PRESENT VALUE affects whether your loan modification is approved or rejected.


Derik N. Lewis is a California real estate attorney and real estate broker. Derik graduated magna cum laude from Boston University School of Law. He has 20 years of real estate experience and has served as legal counsel for some of the world’s largest lenders. During the current real estate downturn, Derik is applying his knowledge and experience to help homeowners find successful alternatives to foreclosure. Borrowers facing default or foreclosure can get a skilled broker and experienced real estate attorney by contacting


In Part 2 of this article, I explained why the Net Present Value test prevents a loan modification with a principal reduction. In this part, I will give a detailed explanation of the TWO PART loan modification test and how NET PRESENT VALUE affects whether your loan modification is approved or rejected.

What most borrowers don’t understand is that a loan modification is more than just a simple adjustment to the loan which makes the payments affordable; it is a complicated financial analysis for the lender and the servicer. In fact, there is a two-part test that all loan modifications must pass in order to be approved by the lender (and qualify for government incentives). This is complicated and convoluted, but it’s what every borrower needs to know in order to understand why a loan modification might be doomed for failure before the process even commences.

1.     Front-End DTI: First, to qualify for HAMP (the Treasury’s “Home Affordable Modification Program”), the borrower’s current payments for housing debt (i.e. principal, interest, taxes, insurance and association dues) must be “unaffordable” which means that those payments exceed 31% of the borrower’s gross monthly income. This is known as the “Front-End, Debt-to-Income Ratio.” This is usually not a big hurdle because most borrowers in financial trouble are paying well in excess of that 31% threshold. However, some borrowers believe they need to show the lender that they have NO income. In that situation, the loan modification will be rejected immediately because the borrower needs to be able to show that a loan modification will lower the Front-End DTI to at least 31%. If the borrower has no income (or if the borrower artificially decreases his or her income), the lender simply can’t do anything to get the payment to be “affordable” (there are limits to the interest rate reductions and term extensions which prevent unlimited adjustments to reach affordability). Alternatively, some borrowers already pay less than 31% of their gross income toward their housing debt, but have so many other bills that they still can’t afford the mortgage payment. These borrowers also fail the Front-End DTI test because they are already under the 31% threshold (the lender doesn’t care that you are over extended on non-housing debt). So, as you can see, the borrower has a narrow window between making too much money and not making enough money, within which the lender could provide an adjustment to the mortgage (e.g. lower interest rate, extend term or reduce principal) which would transform the loan from unaffordable (i.e. greater than 31% Front-End DTI) to affordable (i.e. equal or less than 31% Front-End DTI). However, the evaluation doesn’t end here. This where the Net Present Value test comes in to kill off the most effective loan modification tool: the principal reduction.

2.     Net Present Value (NPV): Next, the lender must determine whether it will suffer a greater loss by providing a loan modification as compared to simply foreclosing on the home and selling it. The lender must figure out which option (modification vs. foreclosure) provides the highest Net Present Value to the lender. In both a modification and a foreclosure, the lender eventually recoups some of the money that was lent to the borrower. In a loan modification, the lender will receive monthly payments which include principal and interest (albeit, at a lower interest rate than originally contemplated) over a period of 30 or 40 years. An accountant can look at that stream of 360 (or 480) monthly payments and figure out what is it worth in “today’s” dollars (that’s called the “Net Present Value” of a series of payments). Alternatively, in a foreclosure, the lender will end up selling the property either at a public foreclosure auction or as an REO (bank “Real Estate Owned”), and, after paying the foreclosure and sales costs, the lender will have a lump sum of money which it can (hopefully) re-lend to a new borrower at current interest rates. Again, an accountant can figure out how much money the lender will receive as a Net Present Value from the foreclosure and sale. At that point, it becomes a simple mathematical calculation to determine whether the lender receives more money through a loan modification or by foreclosing and selling the property. That’s the Net Present Value Test. Here’s the problem for a borrower: If the lender has to significantly reduce the interest rate, or extend the maturity date of the loan, or even reduce principal, all in an effort to comply with the Front-End DTI test above (to achieve that 31% target), it becomes MORE LIKELY that a foreclosure will provide a greater recovery than a loan modification. If so, the lender cannot approve the loan modification and must foreclose and sell the property. It is this little known NPV Test that kills many loan modifications, and the borrower is not told why they don’t qualify.

    So, as you can see, in situations where the lender must reduce the principal balance of the mortgage to the CURRENT MARKET VALUE to make the loan affordable, it is almost a mathematical certainty that the loan modification will fail the NPV test.

    A loan modification is not as clear cut as all those TV and radio commercials make it sound. There are ways to counter the harsh result of the NPV Test. A skilled negotiator can actually make a difference, but more often than not, a modification is SIMPLY NOT GOING TO WORK for the borrower. You must take a very close look at the numbers before you waste time and money attempting a loan modification. Additionally, YOU SHOULD NEVER PAY ANYONE AN UPFRONT FEE FOR A LOAN MODIFICATION (CLICK HERE FOR THE DEPARTMENT OF REAL ESTATE WARNINGS ON LOAN MODIFICATIONS). The failure rate is so high that you are almost certainly throwing money away.

    Please contact us so we can explain the TWO PART loan modification test in more detail and how it applies to you and your mortgage. We do not charge for this consultation.


    Derik N. Lewis is a California real estate attorney and real estate broker. Derik graduated magna cum laude from Boston University School of Law. He has 20 years of real estate experience and has served as legal counsel for some of the world’s largest lenders. During the current real estate downturn, Derik is applying his knowledge and experience to help homeowners find successful alternatives to foreclosure. Borrowers facing default or foreclosure can get a skilled broker and experienced short sale attorney by contacting


    Financially distressed borrowers may think that a foreclosure or a short sale means their mortgage troubles are over. That’s simply not the case.

    The Washington Post reported last week that “over the past year, lenders have become much more aggressive in trying to recoup money lost in foreclosures and other distressed sales [e.g. short sales], creating more grief for people who thought their real estate headaches were far behind.” Also, the Los Angeles Times recently reported that “Fannie Mae gets tough on homeowners” explaining that the government-controlled mortgage company said that it would instruct the companies servicing its loans to recommend when it should sue a defaulting borrower for the unpaid portion of their loan.

    In many circumstances, lenders have the right to pursue collection of the deficiency (the amount left unpaid post foreclosure OR POST SHORT SALE). In California, a lender may have as long as 4 years to commence legal action against the borrower after the original default. This means the borrower is in jeopardy for years after foreclosure or short sale.

    In a typical situation, after the foreclosure or short sale has concluded, the original lender will sell the right to pursue the legal action to a company that buys and collects upon bad debt. It is that collection company that will call the borrower 2 or 3 years after the short sale demanding payment of the outstanding balance on the loan along with default interest, costs of collection and attorney fees. They have the right to sue the borrower for the amount unpaid, and they have an excellent chance of winning the case. At that point, they have a deficiency judgment against the borrower and can start legal collections procedures such as garnishing wages or clearing out bank account balances.

    So what can you do if you are a borrower facing default or foreclosure? Your best option is to explore an alternative to foreclosure which will give you the ability to negotiate the deficiency issue with your lender. Currently, the most successful foreclosure alternative is a short sale. A short sale allows you or your attorney the ability to negotiate with your lenders to have them waive any and all deficiencies.

    If you are pursuing a short sale, make sure you have representation that understands recourse & nonrecourse loans, judicial & non-judicial foreclosures, the California anti-deficiency laws (CCP 580b, CCP 580d, CCP 726) and their application to your loan(s), along with the difference between a simple “release of lien” and a “full satisfaction of debt.” It is not good enough that your lender agrees to release its lien in the short sale, you must get a waiver of the deficiency or have language of full satisfaction in your approval letter. Silence in the approval letter on the issue IS NOT AN OPTION.

    Additionally, contradictory language is not good: An approval letter which “reserves the right to pursue the deficiency” and also contains language that the lender will “issue a 1099-C in the current tax year,” creates a serious legal ambiguity. There are cases on record where lenders successfully argued that the issuance of a 1099-C was a mistake, and the lender was allowed to pursue the deficiency. Thankfully, the Home Affordable Foreclosure Alternatives (HAFA) program directly addresses this issue and provides incentives to the lenders to compete the short sale with a full wavier of deficiencies. In fact, the HAFA program allows a relocation incentive of up to $3,000 to be PAID TO THE BORROWER for participating and cooperating in the short sale. Hopefully, more lenders will follow the lead of the HAFA program even for those loans which do not fall within the HAFA guidelines.

    PLEASE BE AWARE: You only have one chance to negotiate the deficiency issue with your lenders. A short sale provides the best opportunity to address the issue and receive a full waiver of deficiencies. It is also the one time where “new money” is coming into the transaction via the new buyer, which allows for some leverage against the lenders (especially with a second lien holder who would otherwise be very aggressive against a seller post-foreclosure). Homeowners who do not proactively pursue a short sale and who simply wait for a foreclosure to occur are foregoing a significant opportunity to limit their financial burden. As stated in other articles, you must also be aware that a waiver of deficiencies is a cancellation of debt by your lender which can raise serious taxation issues. Please seek tax advice prior to making any decisions on pursuing a short sale.

    For more information, please visit


    Derik N. Lewis is a California real estate broker and a practicing real estate attorney. Derik graduated magna cum laude from Boston University School of Law. He has 20 years of real estate experience and has served as legal counsel for some of the world’s largest lenders. During the current real estate downturn, Derik is applying his knowledge and experience to help homeowners, investors, and developers find alternatives to foreclosure. Borrowers facing default or foreclosure can get a skilled broker and experienced real estate attorney by contacting