Short Sales And Short Payoff Fraud
Short Sale Fraud - Freddie Mac Drops A Huge Bomb On Real Estate Investors
Short Sale Flip Fraud - While not yet a law or an official policy, problems loom on the horizon thanks to a new take on short sales. The news from Freddie Mac on short sales could cause serious legal and practical issues for real estate investors.
Last Friday, April 16, 2010, Freddie Mac posted a new article entitled :Emerging Fraud Trends: Short Payoff Fraud.” The article described a new trend in short sale fraud that happens when a short sale buyer flips a newly acquired property to another buyer and “pockets the difference.” This could mean problems for investors who have been short sale flipping, or negotiating short sales with banks and then selling the properties at a profit.
The rest of the article detailed scenarios and red flags for “short payoff” fraud. The scenario was set up around a short sale negotiator or facilitator that engineered a short sale of an 80,000 dollar home with outstanding debt of 100,000 for 70,000 dollars. The facilitator does not let the bank know that he already has a buyer ready to pay 95,000 for the property. When the transactions close – in this case on the same day – and the facilitator pockets the difference, according to Freddie Mac he has just committed fraud because he withheld information about a higher offer and causes Freddie Mac to take a “larger than necessary” loss on the sale.
The posting encourages buyers, sellers and lenders to look out for short sale fraud red flags. Flags include sudden default without explanation, borrowers current on other debts and buying entities. The article also says that resale options in contracts can be a red flag.
Everyone involved in a short payoff is encouraged by Freddie Mac to report potential short payoff fraud the second they become aware of a second purchase contract for a higher price. It may not be considered breaking the law, but it certainly looks like Freddie Mac wants to make short sales as difficult as possible for real estate investors.