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Short Sales: The New Target of Scam Artists

(9/16/10)

As far as real estate scams go, the short sale seems to be the next big thing. Short sale scams have garnered their own new terminology and the name being applied is "flopping" (not to be confused with flipping). The same group of usual suspects who were involved in the flipping process are now engaged in flopping: including mortgage brokers, real estate agents, escrow officers, appraisers and attorneys. In an effort to avoid a prolonged and costly foreclosure process whereby a property may deteriorate slowly due to abandonment and owner neglect, the lender would rather consent to quickly resolve the matter through a short sale and cut their loses. With the now infamous flip, a scammer worked to artificially raise the price of a property in an effort to secure financing at a value higher than the property was worth in order to pocket the difference and when employing the new flop it is the exact opposite scenario which occurs. The value of the property is artificially reduced by those involved in the scam so that the lender will agree to sell the property for less than it is actually worth. Then to complete the scam the new buyer in turn immediately sells the property for the true (presumably higher) market value and pockets the difference. This becomes a lose-lose situation for both the lender and the seller because they have both been defrauded of real dollars lost in an illegitimate sale. It has been reported that an average of over $41K is lost in approximately 2% of short sales transactions where fraud is involved costing lenders collectively close to $310 million in annual loses.

 

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