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Short Sale Fraud Spiraling Out Of Control, Say Investigators

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 in the US is out of control. Image courtesy of Shortsaledailynews.com

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 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

Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at mike@realtybiznews.com.

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