Short sale fraud is sky rocketing across the country. While law enforcement has made a concentrated effort to go after mortgage fraud schemes, real estate scams that are being perpetuated by real estate agents, law firms and some rogue lenders have been flying below the legal radar of authorities. It is now reaching critical condition as Main Street vultures prey on homeowners and overburdened banks.
A real estate short sale happens when the outstanding loans on a property are greater than how much that particular home can can be sold for. This is a way for homeowners to avoid foreclosure on their homes while still being able to pay off all of their loans through financial settlements with the lender. These have become extremely common over the past couple years as the housing market plummeted and homes values across the nation started to drop a significant amount. Most people who need out of their home now have to resort to a short sale or possible even foreclosure as their last option.
There are a number of ways that you can do in order to avoid being victimized by a short sale fraud. Most people are not aware that some banks may try to commit fraud during this process. Generally, it is the junior or second mortgage holder that commits the scam by extorting extra money from the seller without advising the first mortgage holder of their actions.
This type of scam is not all that common, but it definitely does happen and there has been many reports over the past couple years. All monies paid during the short sale process must be reported on the HUD-1 settlement statement. If a lender collects money from the borrower for this transaction and does not place it on the HUD-1 statement this is considered to be fraud.
Second mortgage holders and short sales:
In the process of a short sale it is usually only the first mortgage lender who is able to collect on the proceeds. For the second lender to agree to the transaction generally the first lender will offer some of their proceeds to settle the debt. This encourages the lender to accept the deal because if the property goes into foreclosure they may get nothing from the sale. That amount, whether it’s $1,000, $5,000, or $10,000, it is up to both lenders to agree on an acceptable pay off.
Short sale fraud and second mortgage holders:
Occasionally second mortgage holders will not agree to the sale and believe that the buyer, seller, or agent should have to contribute cash to the transaction. These lenders may refuse to approve the transaction unless their demands for extra money are met. The second mortgage holders intentions may be to hide the money from the first mortgage holder because they know that the other lender will want a piece of that amount. However, all money paid during this transaction must be disclosed to both mortgage lenders.
Here are a few ways they may go about this:
- Seller may make an extra payment on the seller’s account.
- Have the buyer pay extra after the transaction is complete.
- Or maybe even ask the listing/selling agent to pay the lender directly out of their commission.
This may not sound like a big deal to some, however this money is a part of the transaction and should be listed on the HUD-1. Moreover, if the first lender had knowledge about the extra money being paid they would more than likely want a piece of it, especially if the sale didn’t even cover their balance.
Buyers and sellers often feel pressured by the demands of the lenders and may be willing to do anything for the sale to go through. The seller is looking to get rid of the property to avoid foreclosure, while the buyer is looking to obtain the home at a killer price. Buyers and sellers generally are not aware of the laws that come long with a short sale, but the agent should.
Beware of upfront fees!
You also need to be on the look out for real estate agents or middle men who charge an upfront fee to sell your home. There is absolutely no need to pay anyone upfront fees and we at LoanSafe consider this a scam when someone charges a home seller up front. The commission should only be made if the agent or company actually sells your home and not for just listing it.
Bottom line, DO NOT pay anyone upfront for anything when you are in foreclosure.
You should also obtain 3-4 free consultations from competent lawyers in your state. It is very wise to possibly hire a local real estate attorney when you are facing foreclosure.
If you believe you may have been a victim to short sale fraud or know of a real estate agent or lender who is trying to commit a scam, call legal authorities right away. This should not be tolerated and if you would like to take further action you can make a complaint to your state Attorney Generals office, Department of Real Estate, FTC or even the FBI.
Here are some links,numbers and information to report:
The Federal Bureau of Investigation (FBI)
(202) 324-3000 – National FBI Financial Institution Fraud Unit
The FBI, a branch of the United States Department of Justice, is authorized to investigate and enforce criminal laws of the U.S. The FBI investigates criminal acts involving potential violations of the United States Federal Criminal Code. State authorities investigate criminal acts which are violations of their state’s criminal laws.
In conjunction with the ‘White Collar Crime’ department, the FBI investigates mortgage fraud, which often involves many professionals working in collusion: bank loan officers, realtors, appraisers, accountants, and mortgage brokers. All of these profit through various commissions, fictitious sales and fees – often on loans that aren’t genuine.
To report mortgage fraud with the FBI, contact the Field Division listed under each state.
The Federal Trade Commission (FTC)
http://www.ftc.gov/ and www.consumer.gov/idtheft and
To file complaint
Consumer Response Center
600 Pennsylvania Avenue, N.W.
Washington DC 20580
Toll Free Phone: (877) 438-4338 – Identity Theft Clearinghouse
Consumer Response Center: (877) 382-4357
National Association of Realtors
430 North Michigan Avenue,
Chicago, IL. 60611-4087
500 New Jersey Avenue, NW,
Washington, DC 20001-2020
Phone: (800) 874-6500
Contact them to report suspicious activity of a Realtor.
U.S. Dept. of Housing and Urban Development (HUD)
Office of Consumer and Regulatory Affairs
Director, Interstate land Sales/RESPA Division
451 7th Street S.W.
Washington, DC 20410
Phone: (202) 708-4560
National Hotline: (800) 347-3735