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Short Sale Fraud Spiraling Out Of Control, Say Investigators

By Mike Wheatley | July 18, 2011

Investigators say that short sale fraud is running rampant in the US right now, plaguing markets and seriously impacting on mortgage lenders, who are missing out on thousands of dollars due to the problem.


Short sale fraud

Short sale fraud in the US is out of control. Image courtesy of

One of the most common real estate scams in short sales is for investors to make a lowball offer on an underwater home (one where debt on the property is larger than its total value) via a middleman working with the scamming investor. They then ask for the short sale to be completed as quickly as possible.

The opinions of home appraisers and price brokers are then also manipulated, in order to trick desperate homeowners into going through with the short sale. Once the sale goes through however, the investor then immediately resells the property to another party who has made a higher bid, unbeknown to the original homeowner. These transactions are very often carried out on the same day, just hours after purchasing the home.

“Very often, these re-sales often net investors and scam artists a profit of $50,000, they are significantly larger than what the homeowner receives for the property,” says CoreLogic’s Time Grace.


Delinquent homeowners are easily tricked

Delinquent homeowners are easily tricked into accepting a price far lower than the property's actual worth. Image courtesy of Housing Market News

CoreLogic estimate that fraudulent short sales could cost the real estate industry as much as $375 million in 2011, a 20% in the estimated losses to fraud over the previous year.

In 2010, short sale fraud accounted for slightly more than half the total number of fraud investigations conducted by mortgage lenders like Fannie Mae and Freddie Mac, reports CNN Money.


Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected].
  • 25 comments on “Short Sale Fraud Spiraling Out Of Control, Say Investigators”

    1. The first paragraph says it all, "plaguing markets and seriously impacting on mortgage lenders, who are missing out on thousands of dollars due to the problem." Interesting wording.

    2. I have seen offers like these come through for countless properties and I just ignore them. They do in fact exist. How about the association attorneys that bill for over $1000 to the lender for a $20 late fee from five years ago? There is fraud taking place and it seems like we can't stop it.

    3. Interesting that they quote CoreLogic, when they, via there E-apprasier company, falsified thousands of appraisals in NY. and are now being sued.

    4. So I have a better understanding. The true lender who only posted 10% of the original loan amount, used agent banks to fill the securitization pipeline, fraudulently charged huge mark-ups at closing violating RESPA, pooled loans that did not meet the underwriting standards expected by certificate investors or the GSE's,lied to the monoline insurers, wrote swaps and synthetic swaps that extended well beyond the time they loans were on the balance sheet, filed forged documents due to bifurcation, put law firms out of business due to their false claims, and than want to buy the house on a credit bid, again not putting any monies into the process, carry it on the books as non accrual asset with held to maturity marks to further distort discount rates, hire their own appraisers to review short pay offers from arms length investors, and than claim they are being defrauded?

      This whole scenario, so a technology company spun out of one of the largest Title Insurance Companies can sell a product is frightening. Why wasn't core logic writing about the lender fraud that has occurred since the Glass Steagal repeal? Corelogic should immediately terminate the relationship with the individual that provided this story. It is one thing to wear a black-eye for participating in the fraud so you could sell products, it is another separate matter to continue the illusion so you can continue telling the GSE's that your valuation products are accurate, and when they see that your AVM models are deficient, it must be appraiser fraud. Corelogic appears to be the folks creating a fraud to unjustly enrich themselves and protect their inaccurate models.

    5. The short sale scam is orginated with the short sale banks, particularly Bank of America, who has repeatedly mishandled files for 6 months and then, at the 11th hour, responds with price increases, new criteria for the HUD, and with anything they can think of at the 11th hour to terminate the the sale and let the house go to foreclosure. The negotiators are unprofessional, unscrupulous, incompetent and show total disregard for the home owner, the buyer, and the Realtors that work diligently on the transaction for months to meet their unrealistic and repeated requests.

    6. mmm...let me pose this question??? If a investor buys a property at a foreclosure auction , then why would they solicit a shortsale on the same property a week later???? smells fishy too me...any input???

    7. If anyone is negatively affected by flipping a short sale, which you refer to as fraudalant in the article, it is the mortgage holder, not the home owner. The home owner walks away, as the write-off is foregiven by the bank most of the time. The lender, however, has a loss, which, if insured by FHA, is covered by us tax payers. So, lenders are certainly interested in recovering the money an investor or property flipper makes when reselling a short sale quickly.

    8. ...didn't realize this was a website related to Realtors (used Stumbleupon and wound up the article and reacted...)

      All of you on here already know what I just posted.

      Keep up the good work Realtors!!

      Priceless advice at a critical time is exactly what our clients need right now.


    9. Jerry Chau's article is full of mostly crap. For his allegationst to be true, not only the Realtor, but also the Real Estate Board, that puts all of the information on the MLS System, has to be "in on the fraud".

      The process is like this:

      Realtor gets Listing and prepares it for the MLS Service: puts together paperwork for submission to his/her Office and their Real Estate Board. The Real Estate Board goes over all of the paperwork to ensure authenticity (and Addresses have to match up with the "area" shown on the MLS Listing Service, as does everything else) and once approved, puts it up online. If anything is "out of whack" (and there are people whose jobs are only to ensure all the paperwork is filled in accurately prior to going online) it is rejected back to the originating Real Estate Office and needs to be fixed prior to going back through the same process at the Real Estate Board. All of this has to happen within 72 hours of original signing of all documents by the Seller who is listing their property or ALL THE PAPERWORK HAS TO BE REDONE AND RESIGNED AGAIN.

      Then, before the Buyer's Realtor puts together a Offer to Purchase and Sale Agreement, THEY have to go over everything related to the property (go to City Hall to check for any possible land issues, check Title, etc...a TON of stuff) to ensure accuracy and then their Office checks THEIR work, once they have an agreement in place between all parties.

      Finally, once it gets to Escrow, the LAWYERS (or Notaries, whichever the case may be) go over EVERYTHING to make sure it is ALL Accurate.

      Remember, a Realtor only gets paid when the property sells, and their incentive is to get as much from the property as they can for their clients (when Selling) and pay as little for it as the Seller will Accept (when Buying).

      Finally, if the Seller sells their home far below market value at the "insistence of their Realtor", only to discover that a few days later it was resold at a much higher price, they can make a complaint to the Office, the Real Estate Board and the Licencing Board, as well as sue the Realtor. Either of the above can completely ruin the Realtor (Licensing Boards are put in place to protect the public from bad Realtors and NOT the Realtor, as some would think). If "joe public" wins their case against the Realtor, the Errors and Ommissions Insurance will pay out the difference to the client. If the Real Estate Board or the Real Estate Commission rules against the Realtor (and their criteria is much easier to meet than in the Courts), not only the REALTOR, but the MANAGING BROKER of their OFFICE gets fined, suspended, or expelled. If that happens, NO ONE ON THE OFFICE CAN WORK, since they all operate under the Operating licence of the Managing Broker. If the Broker is suspended...everyone working under their license (the whole office) is suspended. NO ONE CAN WORK. Imagine what that could do to the bottom line of the entire office if they (even unknowingly) harboured a Realtor actively engaging in fraudulent activity??

      There is no way an Office would ever risk that. Ever.

    10. Licensed Realtor can find out what a property is listed for, what they are worth in the current market, based on actual sales of like properties in the neighbourhood, what the last guy purchased the property for and WHEN and a myriad of other things that benefit their Buyer or Seller Clients...

      If I knew that the last sale on the property was just 10 hours prior, a quick phone call to the Listing Realtor would let me know what they sold it for...and I would NEVER advise a client to pay $50,000 more for a property that was JUST purchased a mere 10 hours prior. Additionally, I would warn every Realtor in the office that something was wrong with the new Seller trying to offload the property 10 hours after buying it. It screams "something is drastically wrong" (assuming that it isn't an obvious scam, no one sells a property in a mere few hours unless they've discovered something seriously screwed in the property they just purchased, and that sets off serious Red Flags that even a mediocre Realtor should notice and advise their clients about).

      Realtors have a fuduciary duty (like Lawyers do) to their clients to share with them everything they know about the property and if they don't they can be in SERIOUS trouble. No Realtor in their right mind would jeopardize their career for a measly share in a $50,000 lift on a property.

      Use a Realtor. Always. Keep yourself safe in these transactions and NEVER, EVER, do a deal by yourself.

    11. There is NO WAY this happens if Sellers use REPUTABLE Real Estate Firms to sell their homes! Also, no one is forcing the Seller to sell at the price the Seller takes. The person getting "scammed" is the SECOND Buyer who purchases from the person who got the property. For that to happen a few things must FIRST happen: The Second Buyer has to be a complete idiot who either is a "Shut in" in their own property (there's a friggin sign on the front lawn with the Realtor's name and the Firm's Name on it for pete's sakes??!! Drive by and take a bloody look!) or resides out of town and hasn't bothered to do their own homework (This is ALSO a product of not using their OWN Licensed and Reputable Realtor to help with their purchase transaction).

      Real Estate Firms and Licensed Realtors HAVE TO HAVE ERRORS AND OMMISSIONS INSURANCE and are held liable for the things they do. If you have one working for you and they are so crappy that they can't figure out the real value of a piece of property (and it's EASY for Licensed Realtors to do it for the benefit of their clients), YOU CAN SUE THEM AND RECOVER THE LOSSES THROUGH THEIR INSURANCE COMPANY.

      Jeeesuz...people are so friggin stupid. There's a REASON you shouldn't do Real Estate Transactions by yourself, and reasons to ABSOLUTELY ALWAYS USE LICENSED REALTORS to help you. This story is just ONE of many that I could go on about...

      *shaking head*

    12. Investigators? Short Sale Fraud out of control? LOL!

      Corelogic is attempting to sell a short sale monitoring service to loan servicers... When Appraisals are performed for a short sale, the agent has nothing to do with the Appraisal, it is ordered up by the loan servicer.

      There are so many ways to get an idea of what a property is worth... the loan servicer has multiple ways of getting an accurate sense of what the market value for a home is.

      Regardless... I've come across FAR many more short sales where the loan servicer wanted more then the property was worth... instead of letting it go for far less.

      Is that also Short Sale Fraud?

      Hardly... The fact of the matter is that there have probably been FAR MANY MORE short sales cancelled / end up going to foreclosure because the loan servicer / bank wanted far more then the buyer was willing to pay then the fraud described.

      Granted... three to four years ago it was easier to pull something as described off...

      However..... I've been doing short sales for over three years and all of this is more fantasy then reality of the actual process involved in today's short sale world.

      It all sounds great though if you are trying to sell a short sale fraud monitoring service...

    13. I have seen investors offer $20k on a house that had been on the MLS for 9+ months at $50k with no offers. The bank takes the offer and during the 2-3 week delay on closing the investor starts marketing the property to his clients. Sometimes he cleans up the place some and hires a professional photographer to come out and take very nice photos instead of using a cheap camera like the bank and Realtor use. The investor gets a higher and better offer before the close and just resells the property on the day of close to his client. This is capitalism. If the banks had properly marked the property at $30k and cleaned it up then thy would have made the money. I don't know why banks do the things they do and I swear that there is no intelligent life at the level the decisions are made. I have turned in offers for $80k on a house and the bank rejected it and 2 weeks later sold it for $30k. I believe that they often have ulterior motives such as some executive about to lose his bonus unless he can eliminate 15% of their inventory fast. Many of these houses are insured by Fannie or Freddy so the bank isn't taking a loss because the insurance company is paying them off.

    14. Many investors will put in bids on properties and have to wait 4-6 months for the bank to take their offer. During this delay the investor finds someone who will pay more for the house. The investor may have put alot of money into marketing the property or shopping the property to his client. This is capitalism and not fraud when it is disclosed to the bank that you are going to sell the property sometime in the future for a profit.
      The amount of time could be a day, week, month, or even an hour later.
      As long as the bank didn't put any restrictions on how long the property must be held then there is no fraud.

    15. Simply buying at one price and reselling at another price is not fraud. Fraud cannot occur when legitimate parties to a transaction disclose properly and do not misrepresent.

      Fraud involves intent to mislead. If a seller and a lender make a decision to move forward on a sale, that is their choice, no one forces them to accept an offer presented by an investor. The investor is able to sell for a higher price due to a larger pool of buyers available who otherwise would not be interested in all the waiting and headaches that go along with getting approval for a short sale.

      When banks learn to remove some of the headaches and long delays associated with buying a short sale, they will see more buyers interested in the same house at higher prices.

      Quite contrary to what the author wants you to believe, the investor is a middle-man providing a valuable service in the marketplace. Just like a vegetable wholesaler is for carrots. No one screams fraud when a grocery store sells a carrot for way more than the farmer got for the very same carrot.

      If the banks stopped restricting the process, stopped whining about someone else making some money and focused more on streamlining the whole process, they would have a greater demand for every short sale house on the market, less overhead involved in manning short sale departments, and homeowners would see stronger recovery of market values in their neighborhoods.

    16. At the end of the Huffington article it lists some of Jerry's info including that he's a former mortgage broker. Since some mortgage brokers convinced inexperienced buyers to purchase homes they couldn't afford can we assume Jerry's in that group of scammers? Of course not. Don't paint investors with that broad brush, either.
      Flipping houses is NOT illegal. Making full disclosure to ALL parties to the transaction of the investor's intention should suffice.

      1. There's nothing wrong with buying foreclosures to sell on for a quick profit in itself, but when it comes to bribing appraisers to back up your low-ball offer, that's not really fair.

    17. As a realtor that has done short sales I believe that short sales are a reality that will help stabilzed the housing market. However, we must avoid those few, that no matter what field their in, will do no good!

    18. I'm not certain I agree with your title statement that "Short Sale Fraud Spiraling Out of Control Say Investigators." There are no investigators quoted or referred to in your article anywhere, just a quote from Tim Grace / CoreLogic. Mr. Grace is not an investigator; he sells a product that claims to detect short sale fraud. And if his numbers are correct - 1 out of 53 short sales involves fraud - 2.3% hardly qualifies as being "out of control."
      Personally, I think there is a lot more short sale fraud than 1 out of 53 and that CoreLogic is working with a very narrow, and not necessarily accurate, definition. But your article provides nothing from a real investigator that backs up the headline.

      1. Thanks for your comments Jerry, we are honoured to have you grace us with your presence 🙂

        Yeah, it does seem that way, there are a few bad eggs we all need to watch out for!

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