Freddie Mac Warns Against Participation In Short Sale Fraud
Short Sale Fraud - Freddie Mac Drops A Huge Bomb On Real Estate Investors
Short Sale Flip Fraud - The newest problem in real estate is not yet a law or an official policy, but it is definitely going to create issues in the market. The news from Freddie Mac on short sales could cause serious legal and practical issues for real estate investors.
Last Friday, April 16, 2010, Freddie Mac posted a new article entitled :Emerging Fraud Trends: Short Payoff Fraud.” The article described a new trend in short sale fraud that happens when a short sale buyer flips a newly acquired property to another buyer and “pockets the difference.” This is a serious yellow flag for short sale investors who make their living negotiating good short sale deals with banks, then selling their new properties to other buyers for a profit.
The Freddie Mac poster went on to describe scenarios and red flags for short payoff fraud. The scenario revolved around a short sale facilitator who set up a deal with a lender to purchase a home worth 80K for 70K while the lender took a 30K loss. The facilitator does not disclose that he already has an outstanding offer for $95,000 from a second end-buyer. When the transactions close – in this case on the same day – and the facilitator pockets the difference, according to Freddie Mac he has just committed fraud because he withheld information about a higher offer and causes Freddie Mac to take a “larger than necessary” loss on the sale.
The writer encourages everyone involved in short payoffs to look out for short payoff flags. Flags include sudden default without explanation, borrowers current on other debts and buying entities. Additionally, they encourage people to look for an option clause in their purchase contracts that allow the buyer to resell the property.
Finally, sellers, buyers and lenders are all encouraged to report this short payoff fraud if they are aware of a second purchase contract for a higher price. It may not be considered breaking the law, but it certainly looks like Freddie Mac wants to make short sales as difficult as possible for real estate investors.