Lenders are losing out on thousands of dollars–sometimes within just mere hours–due to short sale fraud, which is skyrocketing and plaguing the housing market, investigators say.
In one of the most common short sale scams, an investor submits a low offer on a home that is underwater, in which the borrower owes more on the mortgage than the home is currently worth. Scam artists, working with the investor, present the lowball offer to the lender, asking for a short sale to be completed. Appraisals or broker price opinions may be manipulated to help persuade lenders to do the short sale (one common method: Misstating the home’s location so that the home is compared to lower cost homes).
The lender agrees to the short sale, but is unaware that there is really a higher bid on the home from a legitimate buyer. Once the lender approves the short sale, the scammer then resells the home to the higher, legitimate bidder–often on the same day.
“These same-day resales are on average nearly $50,000 greater than the lender agreed upon short-sale price,” said Tim Grace, senior vice president of product management and analytics at CoreLogic. Short sale fraud is expected to cost lenders more than $375 million this year, which is an increase of more than 20 percent from last year, according to CoreLogic.
Last year, fraud associated with short sales comprised half of all fraud investigations for mortgage companies like Freddie Mac, said Robert Hagberg, an investigator for Freddie Mac.
Source: “Short Sale Fraud Plagues the Housing Market,” CNNMoney (July 14, 2011)
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