(OC Register) Short sales, in which properties are legally sold for less than what’s owed on the mortgage as long as the lender agrees, have been on the upswing this year. The DRE says it’s also been alerted to fraud surrounding short sale transactions.
Some Examples:
Multiple lenders and lien holders, and payments outside of escrow:
“Where more than one Lender or lien holder is involved, the negotiations are complicated. Second and other subordinate lien holders often hold up the short sale transaction, and seek to extract the largest possible payment in consideration for releasing their lien. Often times there are monies secretly paid outside of escrow, without the knowledge of the senior lien holder. This is a sure sign of fraud. Such undisclosed payments are likely illegal. The economic substance of and all payments in the short sale transaction should be disclosed on the HUD 1 statement. There should never be dual or multiple contracts, only one of which shows the true purchase price.”
Short Sale flipping by unlicensed people using straw buyers: “In some cases, unlicensed short sale ‘facilitators’ hone in on homes that are on the verge of foreclosure and persuade the lenders to accept lowball purchase offers, often times by using straw buyers, questionable or self-interested broker price opinions or appraisals, and by failing to disclose that a sale at a higher price has previously been put on the table or negotiated.”
On its site, the DRE lays out a case showing how an unnamed company has violated California law by practicing real estate without a license, collecting advance fees in violation of the law and profiting through false pretenses at the expense of a federally insured institution by misrepresenting the value of the home to the lender. “This may constitute federal loan fraud, which is a serious felony offense which is punishable by imprisonment and fines.”
If you suspect fraud in a short sale, contact the DRE’s enforcement section, HERE.