All too often in real estate we focus on the sensational stories and neglect the most obvious abuses of mortgage fraud. Since fraud is involves stealing something that's not yours there are many ways to take something that you are not entitled to. It starts with deception, and ends with the possession of ill gained goods. Since short sales en-masse are so new, everyone assumes the process is transparent and legal. I am taking the position it isn't, and it is mired in deception and fraud.
Real Estate has always been know for change - it is our only constant. Right now in real estate the current item we are now dealing with in most of our markets is short sales. All of a sudden everyone is an expert and a negotiator. Just a few years ago short sales were the oddity and seldom seen even by the most experienced agent. They were not worth the time to deal with in our every day business. Today short sales have become a house hold word - they are trite. "Short sales" are the new buzz word in real estate.
In the past agents that normally would not get involved in a short sale because there was no guarantee of a commission or that the deal would even close. It is already identified at the beginning of the listing here is no money even to pay them a commission if the home could be sold at full list price. So a really bad taste is left in your mouth when the deal closes and it is anticlimactic. For those agents that devoted months of their life concentrating there efforts in a high anxiety game and then find out their reward was only a fraction of a commission - it's depressing. It was not worth the effort given the odds of successfully closing a short sale were only less than 1-in-20 after the lender made your life unbearable for 7-8 months. Such an event would not be repeated by most agents.
OK here is where the crime begins. Many agents thinking they are creative, but in fact they are actually criminal - devised a way around this. Enter the agent that contacts you on your listing and asks if your seller would mind giving their buyer / investor an option on short selling your listed property. The pitch is that they will take your short sale, and negotiate directly with the bank and negotiate the short sale. After all they are already skilled at negotiating short sales. Sounds OK so far? OK here's where it gets interesting.
Your seller owes more than the home is worth. They owe 150K on a home that worth 120K - 140K. The investor / buyer negotiates with the bank to accept 100K and explain they have a buyer. The buyer is ready to go and will pay them 100K. What the investor / buyer neglects to tell the banks and the owner is that they are in a position to buy the home for 100K and sell it immediately to the buyer they have for 145K. This fraud contains a lack of proper disclosure issue. There is willful holding back of pertinent information the same way a con man would do it. The lender does not realize they are being set up for a pre-meditated fraud. Short sale fraud is now on a list of growing mortgage fraud for the FBI. When you think of it...this type of fraud is no different than a real estate agent telling a buyer client that they have a great property for them, and the price is 500K. As a buyer you show up to your real estate closing early and find out your agent has just finished purchasing the property for 250K and is going to flip it to you within the next hour for 500K. This fraud is punishable for a loss of licenses in most if not all jurisdictions. There is not difference except that a Federally insured banks is not give all the details.
Many of the new fraud cases regard tweaking old cons and repackaging them to fit the times. These are old schemes with new twists and combinations of fraud that include property flipping, builder-bailouts, short sales, and foreclosure rescues. They prey on those in dire need, yet still target the lender that is not in a position to take on more losses. Short sale fraud is now recognized by the FBI as real estate fraud, and persons involved will soon be prosecuted for this type of fraud and the willful taking advantage of others. They have cheated the banks and the current owner by failure to disclose their true interests and intentions. Nothing is more heinous than taking advantage of those in our society that are under pressure and unduly stressed out.
Many agents are participating in this fraud and just because they do not understand their role maybe in for a very unpleasant surprise shortly. Ignorance of the law is not bliss when you are breaking the law and defrauding banks.
"Short-Sale Schemes:Short-sale schemes are desirable to mortgage fraud perpetrators because they do not have to competitively bid on the properties they purchase, as they do for foreclosure sales. Perpetrators also use short sales to recycle properties for future mortgage fraud schemes. Short-sale fraud schemes are difficult to detect since the lender agrees to the transaction, and the incident is not reported to internal bank investigators or the authorities. As such, the extent of short sale fraud nationwide is unknown. A real estate short sale is a type of pre-foreclosure sale in which the lender agrees to sell a property for less than the mortgage owed. In a typical short sale scheme, the perpetrator uses a straw buyer to purchase a home for the purpose of defaulting on the mortgage. The mortgage is secured with fraudulent documentation and information regarding the straw buyer. Payments are not made on the property loan causing the mortgage to default. Prior to the foreclosure sale, the perpetrator offers to purchase the property from the lender in a short-sale agreement. The lender agrees without knowing that the short sale was premeditated. The mortgage owed on the property often equals or exceeds 100 percent of the property's equity."