This short sale business continues to see fraud according to this blog post from Freddie Mac. The Feds have been trying to crack down on mortgage fraud for the past few years. Apparently there are enough skimmers and fraudsters out there who are crazy enough to do these things.
According to Shelley Poland, VP at Freddie Mac, they are noticing the following trends:
- Falsely indicating on a new short sale listing that there is an offer on a property in order to discourage legitimate offers and protect an accomplice’s planned low bid.
- Manipulating the short sale listing price by making the house look more distressed than it really is (“reverse staging”), inflating repair estimates, or using similar tactics designed to obtain an artificially low home value on the Broker Price Opinion. (Our requirements prohibit the buyer, buyer’s agent, buyer’s attorney, or a third-party short sale negotiator to be the contact point for the agents preparing the BPO.)
- “Flipping” schemes where the fraudster “buys” a house at a short sale without putting down any of his own money and then sells it a few hours (or days) later to a legitimate buyer at a much higher price. These are complex multi-step schemes that use falsified title and/or loan documents to fool a lender into approving the ultimate buyer’s mortgage, which the fraudster uses to settle the earlier closing on the house he “acquired” at the short sale for a much lower price.
- Manipulating the HUD-1 settlement statement so the fraudster can skim away net proceeds from the sale for himself or other parties in the transaction without the seller’s or investor’s knowledge. (The HUD-1 is the document that itemizes all fees, charges, and other funds involved in a home sale.)
In addition, Freddie Mac is requiring that all the parties involved in the transaction sign an affidavit stating that this is an arms length transaction.
Short sales are still a small part of the market, but as they continue to increase, it’s likely that the frequency of fraud is likely to increase unfortunately. I’m glad to see Freddie Mac is on it.
Here’s the latest Twin Cities Short Sales and Foreclosure Report.
- Freddie Mac’s Housing Outlook August 2011 (johnmurphyreports.com)
- The Banks Are Killing the Housing Market with Short Sale Policies (johnmurphyreports.com)
- Fannie Mae and Freddie Mac Own Almost 200000 Foreclosures (axsmithlaw.wordpress.com)
- Short sale fraud plagues the housing market (money.cnn.com)