Kozelsky: How the “We buy houses cash” scam really works — and it's definitely not the seller who benefits

TL;DR: (“TL;DR” is an acronym used on the internet to mean a summary of what’s to come. It stands for “Too Long Didn’t Read.”) This is the first-hand account of how I stumbled into details about a new predatory practice that is taking advantage of people all across Martinsville and Henry County – and got out in the nick of time. Apparently, a company that is heavily advertising that it buys houses cash actually just buys the rights to sell them — to someone else who pays way more — and they keep the huge middleman profit.

A little hissy fit I had over a renter I was fed up with landed me smack dab in the middle of a major swindle going on now in the area.

There are a few men taking on high profiles in the community lately, presenting themselves as real estate investors and that all-too-common buzzword of the day, “entrepreneurs.” That word is so misused that I could sell fake fingernails out of a catalog and call myself an entrepreneur for it.

One day in March I was standing in my charming rental house and was disgusted and furious at how it was being treated by renters. In the heat of the moment, feeling cheeky, I called a man who prominently presents himself as (and I quote his business card and Facebook page) a “Real Estate Investor” who buys houses cash.

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I was a real estate agent for 10 years, and I’ve owned houses and knew enough not to take this as a serious option. Calling Facebook Man was just a great way to blow off steam in the moment of pique.

Yet I ended up finding myself at the tip of an iceberg of questionable dealings. There’s a lot going on in the community lately, and I’ve had the feeling it’s not all on the up-and-up. Some posturers seem to be pulling the wool over a lot of people’s eyes; even professionals who head organizations that are supposedly for the betterment of the local area are congratulating these stuffed shirts and repeating their overinflated and quite possibly fraudulent claims in official capacities.

Bad things are going on in various directions lately. This is peek into one of them.

“Cash buyers”

I texted Facebook Man that I had a rental house I was ready to sell. He immediately texted back, “I’m not currently interested but I’ll introduce you to some cash buyers” – and, suddenly, without my authorization, he sent out six matching texts, each to a different man and to me, saying, “Good Morning Holly, I just wanted to introduce you to Xxxx. He is a local real estate investor and might be interested in your property.”

Well, I sure don’t want everybody and his brother knowing my business, and I was suspicious of Facebook Man’s intentions and business practices: How is he being paid? Is he acting like a real estate agent without a license?

Real estate laws and practices are extremely complicated, and they deal with what for many people is the most significant investment of their lives, so agents are required by law to be educated and licensed. Naturally, I reported that interaction (with detailed documentation) to the Virginia Real Estate Board, which is under the Department of Professional and Occupational Regulation.

Their response was the meager “Buyers do not need a license, but anyone selling your property for you does require a Real Estate License” and they did not appear to be interested in the matter, even though this man did appear to be trying to sell my property for me.

That apparent disinterest on the part of the government agency charged with protecting consumers in just this exact matter kicked me off on a detailed investigation of not just this guy but the others about whom I’ve had growing suspicions.

The postcard

A few weeks later, I got a postcard in the mail. It had my name on top and said, “My name is Xxx with Xxx Xxx. We want to buy your property at [address] Call us at [number] AS-IS ALL CASH.”

Feeling like a detective, I called that number. The call started with the notice that it was being recorded. Over the course of 28 minutes, I tried to get the man to send me the paperwork they use while he tried to get me to name my price.

There was no way I was doing that: Too high and I’d lose them, but if I gave a low price they agreed to, they could use the recording to sue me for specific performance.

The bottom line: In a traditional, legitimate real estate deal, the seller would know the probable selling price of the house based by a careful analysis, conducted by a licensed real estate agent or appraiser. The buyer would sign an Offer to Purchase and Contract, giving his or her offered price and a deposit of around $1,000 to $10,000. If the seller agrees, the deposit is kept in escrow until closing; if the seller does not agree, the buyer gets the deposit back.

This fellow said he did not want to look at the house until after we had a deal, and that I had to set the price, and he would bring it to his underwriter for approval, and if it was agreed, they would give a $100 deposit.

That all sounded very fishy.

Sneaky middlemen

While he pushed me to set a price (“a million bucks or $500?,” he prompted, to help get me started), he guided me toward a price that was a third of the price that was told me by a real estate agent who had done a proper study on the property.

As well as having my own houses, I also pay attention to the property transaction reports from the county and the city. I’m the one who goes to the courthouse and sees all the deeds and other property documents to write those reports for the Bulletin. Through those, I’ve seen whose properties this company has gotten its claws into.

I’ve given you, Dear Reader, clues too: The reason the Bulletin’s property transfers list shows both actual purchase price and the tax assessed value (when efficiently available to me when I compile them) is to help you notice quickly which of those deals might be the predatory ones. Generally speaking, most houses sell for rather more than their tax assessed value. The houses that have fallen under this scam sell for significantly less than their tax assessed value.

I learned that Martinsville authorities have been investigating. I gave them my copies of all of those texts and my transcripts of the phone calls (and you’d better believe I take thorough notes) to aid them in their efforts.

It appears that as soon as the folks at the Xxx Xxx company get a house they say they’re buying, they actually turn around and find someone else to buy it for even more and earn tens of thousands of dollars in each fell swoop.

In other words, these swindlers are just middlemen; they don’t actually buy the house. Instead, they sell their rights to buy the house to someone else.

Let’s take the hypothetical example of a house that appraises for $60,000. The homeowner might agree with the middleman to sell it for $23,000. The middleman finds a real buyer who will pay $45,000 for it quickly. At closing, the real buyer pays $45,000; the seller gets $23,000, and Xxx Xxx laughs his way to the bank with $22,000 for less than two months’ worth of minimal effort.

If the middleman does not find a buyer for the house, what does he care if he loses his $100 deposit?

Trying to trip up the trickster

The man from the Xxx Xxx “AS-IS ALL CASH” company called me back the next week. During that call, again, he said I had to tell the price so he could tell his underwriter. Remember, they never even looked at the house and yet here they’re saying they would take it.

I said, “Underwriters work for the bank. That card I got said youall paid cash. So you have to get it approved from the bank?”

He said he is an “underwriter for the company, funds we delegate” to purchase “around 15 to 20 houses each month.”

I said, “Oh, I misunderstood, then. The card said [the boss] buys houses cash, but you are [the boss]’s secretary? Maybe I should be speaking with the person who buys the houses.”

He replied, “I am an agent. I’m a home-buying specialist.”

I said, “You are an agent?”

He replied, “We are the buyer. The company is the buyer. I do the transaction with the purchasers.”

“Predators”

I respected the City officials’ need for time to continue investigating before I spilled the beans with what I knew.

This week they gave me the green light; they’ve got what they need.

Back in March I reported this to what appeared to me to be the appropriate channel, but I did not feel that state agency took me seriously.

“DPOR doesn’t have enough investigators to enforce all of the occupations for which they have oversight,” said Martinsville Commissioner of the Revenue Ruth Easley in reference to this matter. “This is part of the reason why regulation by DPOR is complaint driven and requires a ‘victim’ who is willing to testify. Most people who have been swindled just let it go because they don’t want to go to court. This only allows these types of ‘predators’ to continue to operate within a grey area of the law.”

If your property is in the city and you feel that you’ve been taken advantage of or have information that will help authorities get to the bottom of this, contact Easley at 276-403-5131 or reasley@ci.martinsville.va.us; Commonwealth’s Attorney Andy Hall at 276-403-5470 or ahall@ci.martinsville.va.us; Police Chief Eddie Cassady at ecassidy@ci.martinsville.va.us or 276-403-5300; Building Inspector Mark Price at 276-403-5174 or mprice@ci.martinsville.va.us – or the Virginia Real Estate Commission of DPOR at 804-367-8526 or reboard@dpor.virginia.gov.

For owners of county properties who are in the same boat, Easely suggested contacting the corresponding county agencies.

And by the way – that Facebook Man I mentioned at the beginning, who claims to be a “Real Estate Investor”? A complete search of Martinsville and Henry County property records as well as a thorough background check does not show him to own a single piece of property, here or anywhere else.

He apparently lives with his mother (though the background search doesn’t go so far as to say if it’s in the basement).

He’s just trying to get that $500 referral fee that Xxx Xxx Home Buyers advertises on its Facebook page.

He puts those googly eyes emoji and exclamation points as comments under their Facebook posts when they announce it.