Short Sale Fraud On The Rise
According to CoreLogic, a financial analytics company based in Santa Ana, Calif., short sales fraud cost lenders more than $375 million this year, up more than 20% from 2010.
This means that not only do homeowners have to worry about the consequences of short selling (e.g. effect on credit score) but they also have to worry about whether they’re falling victims to a scam.
The states that are hit by short sale fraud the most are California and Florida but this type of fraud can happen anywhere. For instance, an article published on CCNMoney last Thursday, talked about a property in Malibu, Calif. that was sold at $200,000 during a short sale and then it was sold at $1 million soon after. The reason why the bank didn’t question the short sale price was because the appraisal said the property was located in Riverside, Calif. not Malibu – big difference in home prices.
Sometimes the homeowner is involved in the scam, but it is usually the a real estate agent, an investor or even sometimes the appraiser who are involved in the scam.
How Does A Short Sale Scam Work?
Since homeowners are desperate to sell their home, they usually trust the real estate agent with the entire process. However, there are many ways that homeowners can become victims of short sale fraud. In the article “Short Sale Fraud Plagues The Housing Market”, CNNMoney shows several scenarios of short sale fraud.
One way is the example above; the appraiser gives the bank the wrong location in order to drop the price even more.
Another scam is when the agent does everything to make sure the appraiser sees every single defect or even cause damage on the home, to ensure the home is valued at a lower price. One case in Wisconsin involved an agent who had purposely left the windows open during rain season, which flooded the basement. The agent said that the plumbing burst and the cost of repair would be high, when in reality, only a pump was needed.
Another scenario is when the agent presents the lower offer to the lender without saying that there were higher bids on the home. Then, soon after the short sale goes through, the scamming agent sells the home to the higher bidder.
Scammers also use investors as part of their scam. Real estate agents fail to present offers on a short sale to the bank and let the property go into foreclosure so they can let an investor purchase the same property for thousands of dollars less than the short sale price.
Short Sales Are Becoming More Popular
It’s not surprising to hear real estate agents saying that short sales are taking up most of their time. Government incentives, as well as less strict short sale regulations, have allowed homeowners to get some relief from their financial troubles.
If you’re considering selling your house as a short sale, make sure you do plenty of research before you choose your real estate agent. Try to stay away from those that charge you a “processing fee” or any other fee, since banks process short sales the same way regardless of whether you paid your agent a fee or not.
Also, before you sign a listing agreement, make sure you find out whether there will be any penalties for switching agents, in the case you feel like your agent is not being honest. Laws regarding Listing Agreement termination are different in each state. Some states allow you to cancel the agreement at any time, while other states may prevent you from terminating your contract without any penalties. This is very important since it will give you the option of switching agents in the case that your gut feeling tells you that something shady is going on with your agent.
Short sales are not fun. They’re time consuming and affect the credit of the seller. But, they can also be a relief for those that have been struggling to make ends meet. If you decide to do a short sale, make sure you speak with your mortgage lender first in order to lean more about their short sale process is or if there’s any paperwork you need to fill out. Also interview as many real estate agents as you can, in order to choose the most qualified and trustworthy agent to represent you during this complicated process.
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About Gabriela Islas
Gabriela is addicted to travelling, learning about new cultures and the color pink. Her hidden talent is that she burns everything when cooking- even water. If you ever want to find out what Ricky Ricardo said to Lucy when he was mad, she’s your girl. When she’s not laughing at things her four year-old says, Gabriela loves writing anything about personal finance, economics and international trends.
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