According to the commissioner of the State Of California Department Of Real Estate (DRE), Short Sale fraud is on the rise. In a recently issued letter the DRE reached out to local mortgage lenders to advise them of the problem, as well as for help. Even though there are many ways short sale’s can be used for fraud they specifically outlined the most common ploys. Namely “short sale flipping” where real estate agents and other, non-licensed individuals, defraud lenders as to the value of a listed short sale property, withholding higher offers that came in from prospective buyers and then selling the property to a straw buyer working with the Realtor, only to sell the property at a profit the day after buying the property. Not only are these agents making a killing doing this (they make a profit on the sale as well as a LARGE commission on BOTH transactions) it is hurting well intentioned buyer in the process.
There are a number of other methods being used for this fraud but that is the most prominent. This is not only bad for the lenders – something the public is probably apathetic to – but to you and me every day. As it usually does, greed always has a victim, even if it’s not easily noticed. If you’ve been out there trying to get into your first home for months with no luck, only to see a home you made an offer on for sale again a month or two later, there’s a good chance you are victim to this fraud, albeit indirectly. I’m sure you can see the problem this can cause.
What can we do about this? The DRE asks that we (Realtors, mortgage professionals, and you) report possible fraud directly to them. Especially unlicensed induviduals perpetrating this fraud, something that is extreemely damaging to the consumer and the industry alike. Is it worth the time? I say yes. In a time that ethics is SOOOO imporant in real estate and lending we need to do all we can to stop fraud. It’s important to all of us, even if we don’t think about it every day.