There are a few ways that fraud might be committed with a short sale. Be careful. Follow the rules. Work with a trusted professional.
Here’s a few examples of how fraud might be committed:
Valuation Manipulation. What’s that? Regarding securities, Investopedia says, “Market manipulation refers to artificially inflating or deflating the price of a security or otherwise influencing the behavior of the market for personal gain.”
In a short sale a real estate agent, buyer, or seller might try to convince the Lender (note holder) that the property is worth less than it actually is. This would be defrauding the lender.
Less than “arm’s length” transaction. Realtor.com says, “In real estate, an arm’s length transaction is when the buyer and seller each act in their own self-interest to try to get the best deal they can. In most sales, a seller is trying to make a large profit, while the buyer is trying to pay the least amount of money possible.”
With a short sale, the lender is not going to allow a seller to sell the property to a relative. They will also require a signed affidavit. “An arm’s–length affidavit is a document created by a short sale lender in an attempt to prevent sellers from selling to a relative. It’s designed to curb mortgage fraud. The reason the bank does not want a seller to transfer title to a relative in a short sale is that sellers can’t profit from a short sale.” – TheBalance
Short-Sale Flipping. Fannie Mae describes property flipping as, “the process of purchasing existing properties with the intention of immediately reselling the properties for profit.” The Fraud takes place when the second buyer is already in place and often times that buyer provides the money to buy the short sale property. Here’s a good article. Confusion: short sale fraud, flipping, flopping, and the legality of it all!!
Strategic Default. Wikipedia says, “A strategic default is the decision by a borrower to stop making payments (i.e., to default) on a debt, despite having the financial ability to make the payments.”
I’ll repeat. Work with a trustworthy professional and follow the rules. Don’t commit fraud.
