First, let us understand the meaning of the word short sale. A short sale is when the homeowner is unable to meet the mortgage payments and this results in selling the house for a lesser amount than the mortgage itself.
What is a short sale fraud?
A short sale fraud happens when the lender or the bank that has already agreed to a short sale is defrauded of their money. However, it is not only the lender who might be defrauded but any other party involved may fall victim of the same.
Who commits the short sale fraud?
It totally depends on the type of fraud. Real estate agents, lenders, sellers, buyers and even loan modification lawyers can be involved in some kind of fraud. Some commit the fraud willingly while some do not even know that what they are doing is fraudulent
For this reason, it is advisable that before you involve yourself in any short sale activity, know what is allowed and what is not so that you do not fall victim of fraud.
Common short sale frauds
All fees and payments should be disclosed and recorded for transparency. Any payment demanded and made off the books is a fraud. To avoid this fraud, refuse making any payments without documentations and signatures of all the parties involved.
Another common fraud is where investors and buyers or a loan modification specialist manipulates the broker’s price opinion. They approach the lender with the offer of buying the house at a lower price than its real worth, citing false things like repairs and downgrading the worth of the house.
If the seller or the real estate fails to follow the lender’s instructions, like listing the property on MLS then it is considered a crime because the lender expects to get fair market offers.
To avoid fraud, ensure that everything is disclosed and in writing form, desist from BPO manipulation, and ensure that all documents from the lender do not pass through a third party and no one is related to anyone in the transaction.
If you observe these rules carefully, you are sure to have a smooth and fraud-free short sale transaction.