We’ve covered this topic in full, but glad to see this article mentioning the specific penalities for short-sale fraud – up to 30 years in prison!  From the latimes.com:

Are banks and distressed home sellers getting rooked on a massive scale in the booming short-sale arena — leaving hundreds of millions of dollars on the table for white-collar criminals?

A comprehensive new study estimates that they will lose more than $375 million this year when they sell undervalued houses to tag teams consisting of realty agents and investors. Worse yet, the trend appears to be growing at the rate of 25% a year.

CoreLogic, a large real estate and mortgage data research firm in Santa Ana, studied 450,000 short-sale transactions across the country during the last two years and offered these examples of how lenders are losing big bucks:

• A house in Kings Beach, Calif., was purchased near the height of the boom in 2005 for $530,000. On Oct. 28, 2009, it was sold for $247,500 to an investment group in a short sale — an arrangement in which the lender allows the delinquent owner to avoid foreclosure by selling to a third party at a price lower than the loan balance. Later that same day, the investors resold the house to a non-investor purchaser for $375,000. This produced a quick $127,500 profit — a 52% gain for the investment group in a matter of hours.

• A house in Gilbert, Ariz., sold for $400,000 in 2006. On March 2, 2010, it was bought in a short sale by investors for $220,000 and resold the same day for $267,500 — a gain of $47,500.

How do investors manage to turn such quick profits? Are they just super-sharp shoppers or is there something else going on? Law enforcement and banking industry experts say it’s frequently fraud, and it works like this: Local real estate agents partner with investor groups. The agent’s job is to spot borrowers in financial distress — usually people who are underwater on their mortgages, meaning they owe more than their homes are worth. They persuade the homeowners to sell to investors in a short sale at a low price. Then they contact the bank with the investors’ short-sale offer.

Meanwhile, the agent finds legitimate buyers who are willing to pay more for the property, but the agent never presents their offers to the bank. To back up the investors’ lowball offer, the realty agent produces an appraisal or a “BPO” — a broker price opinion of the distressed home’s value that confirms the low valuation. The bank then sells to the investment group. After the closing, the investors sell the house to the legitimate purchasers at the higher price, and the realty agent and the investors split the profits.

For example, Connecticut real estate agents Anna McElaney and Sergio Natera are awaiting sentencing hearings in July and October in connection with guilty pleas in federal court to short-sale bank fraud. According to the U.S. attorney’s office in Connecticut, McElaney and Natera participated in a scheme in which Regions Bank, headquartered in Alabama, agreed to a $102,375 short sale on a house it financed in Bridgeport, Conn. The buyer was BOS Asset Management, an investment company controlled by Natera. Unknown to Regions Bank, however, listing agent McElaney had earlier received a signed purchase contract from a private buyer for $132,500. After closing at the lower price, BOS resold the property to the private buyer, yielding Natera and McElaney a fast $30,125 profit.

The original federal charges against the two agents alleged short-sale frauds on three other houses, including properties financed by Wells Fargo Bank and a mortgage unit of the global financial services firm Credit Suisse. The guilty pleas, however, solely involved the Regions Bank house in Bridgeport.

Though banks are the primary victims in short-sale scams, homeowners can be hurt as well. When distressed owners are pressured to sell to investor groups for less than the highest offer available, they can end up deeper in debt to the lender. In the majority of states where banks can pursue borrowers for mortgage balance deficiencies after foreclosure or short sale, homeowners may be subject to debt collection actions by banks. California does not permit lenders to demand payment of deficiencies from borrowers on mortgages used to acquire residences. However, refinancings may not be protected, according to legal experts.

But the bottom line here, as seen in the Connecticut guilty pleas, is that short-sale thievery is federal bank fraud. Realty agents and investors who participate in these schemes risk prison terms of up to 30 years, big fines plus restitution of the funds they stole.

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