Could You Be Committing Short Sale Fraud? Freddie Mac Thinks So
Short Sale Fraud – Freddie Mac Drops A Huge Bomb On Real Estate Investors
Short Sale Fraud – It’s not a law; nor is it an official policy, but it’s definitely going to be a problem regardless. The latest opinion released from Freddie Mac on short sales presents legal and practical issues for short sale investors.
On Friday, April 16, 2010, the organization posted an educational article titled “Emerging Fraud Trends: Short Payoff Fraud.” Essentially, the article stated that a short payoff or a short sale can be considered fraudulent if the lender agrees to a short sale that already has a third-party buyer in place that is paying a higher amount than the agreed-upon loan payoff amount. This could spell trouble for investors who have been short-sale flipping, which means negotiating a short sale with the bank, then selling the property immediately to another buyer for a profit of a few thousand to tens of thousands of dollars.
The article described scenarios and red flags for short sale 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. The second the facilitator puts his profits in his pocket, Freddie Mac considers him guilty of fraud because his negotiations caused Freddie Mac to ultimately take a “larger than necessary” loss on the sale of the property.
The writer encourages everyone involved in short payoffs to look out for short payoff 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. Additionally, they encourage people to look for an option clause in their purchase contracts that allow the buyer to resell the property.
Everyone involved in a short payoff is encouraged by Freddie Mac to report potential short payoff fraud the second they become aware of a second purchase contract for a higher price. This may not yet be a law, but the signs are not good when Freddie Mac has posted such a direct attack on short sale investors.
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