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The new guy named Jeremy wandered into the discussion about short-sale fraud the other day, and found that long-time readers here don’t take kindly to scams – and scammers.  But we’ve seen how short-sale fraud has run unabated, and that it has practically become a badge of honor among realtors. Nobody in the industry is motivated to stop it either.

Here are a few examples:

  1. At the top of the last article, Jeremy’s friends were filing notices that mortgages were paid off when they weren’t, which is outright fraud. But the second half of the article mentioned the typical example of short-sale fraud, where a straw buyer purchases the property at a below-market price, and then spoons it to a waiting buyer who pays retail. The banks who got shorted on the first sale might have caught the fraud with better appraisals, or if they just had a strict policy. I’ll never forget the one case where the perpetrator caught wind of his own story here on the blog and left a his comment. He said they included in their contract to flip the house immediately to the shorted bank.  They then flipped their short-sale buy on the SAME DAY to a retail buyer for a $100,000+ profit.  If the banks have knowledge and turn their head, then it’s on them.
  2. A short-sale that’s fully furnished. The seller makes the furniture sale mandatory so he can squeeze some cash out of the deal – he sells the ‘furniture’ to the buyer for $50,000 to $100,000 outside of escrow, in exchange to agreeing to a low-ish sales price for the house.  Usually these are cash sales only.
  3.  Listing agent twists seller’s arm to take his buyer, rather than one of the two higher cash offers.  I turned this one into VP of Fraud at the Bank of America, who said that because the lower price was still within their acceptable range, he’d let it go.
  4.  There were the investors who approached naive listing agents and insisted on negotiating their own deal with the bank.  If they could get the price approved low enough to flip immediately, they’d complete the purchase.
  5.  Both short sale and REO investors engage in ‘reverse staging’ to make a property appear in worse condition than it is, including the removal of kitchen-cabinet doors, garbage left lying around the home, and sometimes old fish hidden behind refrigerators to create pungent scents.  Sometimes BPOs include false property stigmas such as high crime rates, or claim the home was a meth lab that would need to be entirely gutted.
  6.  Parents buying their child’s over-encumbered house as a short-sale.  A favorite among realtors themselves.

Thankfully most of these are in the rear-view mirror!

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