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How Freddie Mac Is Trying To Kill The Short Sale Business
By Vic Hurlstorm | June 2, 2010
Short Sale Fraud – Freddie Mac Drops A Huge Bomb On Real Estate Investors
Short Sale 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. Freddie Mac’s new short sale opinion – for lack of a better word – could create 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 rest of the article detailed scenarios and red flags for “short payoff” fraud. The scenario involved a facilitator, whose description matched that of a real estate short sale investor, who negotiated a deal with a lender to short sale a home worth $80,000 with a debt of $100,000 for $70,000. In the scenario, the facilitator fails to notify the bank he has a higher offer, 95,000, on the house. 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 article urges buyers, sellers and lenders to be on the lookout for short payoff fraud red flags. Freddie Mac considers entities buying property, borrowers who are suddenly in default and borrowers who have not reneged on all of their loans to be red flags for short payoff fraud. The article also says that resale options in contracts can be a red flag.
Buyers, sellers and lenders all are encouraged to report short sale fraud the second they become aware of or suspect 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.
Topics: Condominiums | Comments Off
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