New Protection Arising to Prevent Fraudulent Short Sale Activities
Short sale "flopping" is currently just one of several emerging ways the downtrodden real estate market is being exploited. Increases in short sales generally (more than triple since 2008, according to real estate data provider CoreLogic Inc.) have encouraged this particular form of fraud, which happens when a real estate agent:
- Is hired by lender, such as a bank, the Government or other seller to sell a property
- A bidder then submits an offer to the agent
- The agent goes to an investor (not an arms-length investor) showing the first bidder's offer
- The investor submits a bid that is lower than the first bid
- The agent only submits the investor's bid to the lender
- The lender accepts the offer
- The agent then negotiates a sale from the investor to the first bidder, with the agent and investor splitting the profit
CoreLogic also recently reported that fraud occurs an estimated one in every 53 short sales, with an average cost to the lender of $41,500 per short sale fraud.
New Software Avoids Listing Agents
A new business model allows every buying agent to directly bid to the bank, government or other seller through a website on behalf of buyers and investors. This prevents listing agents from holding anything back.
Federal law also prevents the buyer and seller from having a hidden relationship from the lender, and agents withholding bid information from lenders are committing fraud and can be prosecuted. Additionally, if the short sale is done using the Home Affordable Foreclosure Alternatives (HAFA) program, the buyer cannot resell the property within 90 days of closing, Laurie Maggiano, policy director of Homeownership Preservation Office recently told Bloomberg Businessweek. The HAFA program offers up to $1,500 to servicers for processing costs, $2,000 to any investor (up to $6,000 total) and $3,000 in borrower assistance for those able to close short sales.
Speak to a Real Estate Attorney
Fraud is only one of the many concerns all parties to a short sale face. If you wish to enter into short sale negotiations, consult an experienced real estate law firm to help you close the sale. Also, if you have experienced fraud or other real estate disputes, discuss your options with an attorney to determine if a lawsuit is appropriate.
