Short Sale Fraud Schemes
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What is “Short Sale Fraud”?
A short sale occurs where the profit from a property sale is less than the debt owed on the property mortgage. Short sale fraud occurs when a person intentionally misrepresents facts in order to induce a property owner to participate in a short sale. Usually it’s necessary to prove that the homeowner wouldn’t have engaged in the short sale if the misrepresentation did not occur.
Short sale fraud schemes can be aimed at any of the different steps involved in the short sale process, including:
- Finding a real estate agent
- Researching title and mortgage records
- Obtaining a loan
- The actual sale and transfer of the property
As the number of short sales increases due to economic pressures, the risk of short sale fraud also increases. Thus, it’s helpful for homeowners and prospective buyers to be aware of how short sale fraud schemes work.
What are Some Examples of Short Sale Fraud Schemes?
Short sale fraud can come in many different forms. Also, there may be several parties involved in a short sale such as the property owner and various lenders, and fraud schemes can involve more than one party. Some examples of short sale fraud schemes include:
- Undisclosed Payments: Where there is more than one loan on an item of property, a short sale cannot occur without the junior loans being released. In order to speed up the short sale process, a lender may request an undisclosed payment to be made “off the record” or without being disclosed to other lenders. This is illegal, as all parties to the short sale must be informed of important decision such as these. This might even subject the borrower to criminal fraud charges as well.
- Flopping: Flopping is where a buyer convinces a seller that the property is worth much less than its actual market value. For example, a buyer might present the seller with fake documents listing a lower price for the house. The buyer might also prevent the seller from learning of other offers involving higher prices. The buyer then reaps profits by completing the sale and reselling the property at its normal market price. In some cases the person’s own real estate agent may attempt flopping.
- Predatory Short Sale Fraud: This is where a person holds themselves out to be a “short sale negotiator”. They promise to negotiate the short sale for the property holder, and will charge a flat fee or a percentage of the profits. They will then collect the fee up front and never render any services, since they are probably unlicensed. In several states, short sale negotiators need to be licensed by the state.
Part of the difficulty with many short sale fraud schemes is that the fraudster will usually try to disappear after the fraud is accomplished. Thus, be sure that you check for credentials, licenses, and that you verify the person’s contact information. Be wary of any persons who are from out of state or who don’t have any working contact information.
What are the Legal Consequences of Short Sale Fraud?
Short sale fraud is a crime and can be punished by penalties such as fines, suspension of professional licenses, and possibly even jail time. Also, one thing about short sale fraud schemes is that the victim will have to prove that they weren’t a party to the fraud.
That is, a person who is the target of a short sale fraud scheme may also be guilty if they cooperated with the fraudster. This often happens where the home owner is desperate to avoid foreclosure, and is more willing to bend the rules just to complete a sale. As the saying goes, if an arrangement seems too good to be true, it probably is- and it may be illegal as well.
Finally, short sale fraud can result in a lawsuit against the fraudster, who may then have to pay the victim civil damages for any losses caused by their fraud.
Do I Need a Lawyer if I Have Issues With Short Sale Fraud?
If you have any questions or concerns regarding short sale fraud schemes, you may wish to speak with a lawyer immediately. Your attorney can help you recover any losses you may have experienced due to short sale fraud schemes. It’s also worth your while to hire a lawyer well before a sale occurs, so they can help you to recognize and avoid fraudulent arrangements.
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Last Modified: 07-19-2013 12:41 PM PDT
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