Tuesday, June 7, 2011

Short Sale Fraud

If you have been looking for any length of time I'm sure you've seem plenty of suspicious short sales. I know I have. The FBI seriously needs to set up a hotline so people can report this crap.

Anyway here is an article from the PE

In the wake of failed attempts at loan modifications, delinquent homeowners increasingly are taking what many consider the next best step to avoid foreclosure: a short sale.

The trend, while also potentially beneficial for lenders, has increased the risk of abuse and fraud, according to real estate experts.

A national report released last week said the red flag is when houses sold short -- for less than enough to cover the mortgage -- are quickly resold for much more, meaning that the original lender probably received less than fair market price.

The potential threat to lenders is increasing with the popularity of short sales. Short sales enable the homeowner to continue to occupy and maintain the home, preserving its value for the lender. By contrast, homes sold in foreclosure are frequently abandoned and exposed to vandalism.

Nationally, the number of short sales in the market has nearly tripled between the second quarter of 2008 and the second quarter of 2010, CoreLogic reports.

The same mushrooming of short sales has occurred in Inland Southern California.

"Two or three years ago, 90 percent of our sales in southwest Riverside County were bank-owned properties, and today about 55 percent are short sales, while bank owned homes are down to about 25 percent," said Gene Wunderlich, government affairs director for the Southwest Riverside County Association of Realtors.

CoreLogic, which issued a report last week about the risk of short sales to the lending industry, described "suspicious transactions" as when a house sold short is resold less than a month later for a price that's at least 10 percent higher or resold less than three months later at a price that's at least 20 percent higher or resold less than six months later at a price that's at least 40 percent higher.

California, with the largest volume of short sales of any state, also has the largest percentage of suspicious transactions in the nation at 34.5 percent, CoreLogic reports.

Wunderlich said there are investor groups active in Southern California that seem to be organized to milk short sales. "Some are negotiating the resale before they close escrow (on the short sale)," he said.

There is nothing wrong if an investor buys a short sale home, fixes it up and then sells it for a solid gain, the report said.

But in analyzing sales by investors, CoreLogic found that "nearly one in six suspicious short sales is resold on the same day, making legitimate increases in value doubtful."

"Lenders are incurring tremendous unnecessary losses in these situations," said CoreLogic. "Short sales that are resold on the same day have an average of 34 percent ($56,947) gain between sale prices."

John Giardinelli, general counsel to eight real estate boards, including four with members in Riverside and San Bernardino Counties, said the boards are educating brokers about how to avoid becoming an instrument of fraud in these situations.

The key, he said, is to make sure all the appraisals and other documents provided to the bank seller of a house are "absolutely accurate" and that all financial arrangements are disclosed in the closing escrow papers.

In some cases, Giardinelli said, investment companies have offered brokers two commissions on the same house, one when the bank-repossessed house is sold to the investors and another when it is flipped to a pre-arranged buyer.


I'm Not POTUS said...

The only reason there is any fraud at all is because there is a deliberate attempt to limit the number of properties for sale.

These crooks aren't given an opportunity to earn an honest wage flipping homes at the true mark to market values.

It's not there fault they gotta put food on the table. If the banksters continue to hold hostage the glut of homes, what else can they do. Have a heart.

cottasofia said...

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Pia's blog said...

Interesting! Wish you can share us some pics of this "Short Sale Fraud". Anyway, thanks for sharing. Looking forward for your next post.

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Martin Burtin said...

The other day I watched Riverside County Code Enforcement pin a fine on a foreclosed home. They are looking for eighteen counts of building without a permit and one count of grading without a permit, for $500 each violation, $9500 in total. That does not begin to solve the issues or pay for new permits, it's just the fines.

There are some obvious things that probably should be remedied, but there is much to like about some of the other improvements on the property. How is this home going to find a buyer with a stinking aura of Code Enforcement encumbrance? Is a neighborhood or City better off with vacant homes, or occupied, tax paying, proud hard working, home owning Citizens? Do we want government to give us permission for every detail of improvement to our property? Would not the new owner of such a property, who did his due diligence, be aware that there were some issues that need fixing, and would he not endeavor to fix his property on his own, to a high standard of health, safety, and appearance, as befits the neighborhood and the investment that his property represents?

Most reasonable people would rehab the property very nicely, and they should have the chance to do so with minimal government interference, imho. Get out of our way, we can fix this country if you let us.

BTW, if you are going to make an offer on a house, check the status of violations that may be in process, or you could get a nasty surprise. Some people are reporting things on homes just to mess with the former owner, the bank, or just for the hell of it because they enjoy being a butt.

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Jacoblrishly said...

The trend, while aswell potentially benign for lenders, has added the accident of corruption and fraud, according to absolute acreage experts.

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This property is a potential seller to provide certain information about the need to compile a set of documents means.

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Harry Christen said...

The pattern, while aswell possibly harmless for financial institutions, has added the incident of data corruption and scams, according to utter property experts.

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