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| Short Sale Fraud On The Rise |
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Short Sale Fraud: Criminal Real
Estate Agents Turn To Scams
Estate Agents Turn To Scams
As if we haven't had enough problems in the housing market, we now have an epidemic
of short sale fraud. Crooked real estate agents and their criminal investors are ripping
off lenders for millions of dollars.
On the surface the scam is very simple. For example, a homeowner owes the bank
$400,000 on his mortgage but his house is worth about $340,000. He decides that
short sale is a way out and the bank agrees. A real estate agent gets a legitimate offer
from an honest buyer for $320,000. The agent holds back the legitimate offer and gives
the bank an offer from his crooked investor for $290,000. The bank accepts the offer.
The crooked investor then resells the house to the honest buyer for $320,000. The
criminals pocket $30,000. In many cases the transactions are completed on the same
day.
The bank takes a beating on deals like this. In this example the bank is short $110,000.
Of this amount about $30,000 can be linked to fraud. According to CoreLogic, losses to
the lenders amounted to over $300 million in 2010. For 2011, the losses are expected
to top $375 million. This issue has the attention of lenders and they are putting
safeguards in place. Some lenders are now saying that the house can not be sold within
60 days of closing. Bank of America wants the purchaser to commit to not selling the
house for more money within 30 days.
A policy where a home buyer has to keep the property for 30 days is not productive.
They are thousands of legitimate investors that want to sell as soon as possible. Every
day costs money. When there is a sale in the neighborhood, the surrounding houses
benefit. Their values go up.
For the scam to work the bank must accept the low bid. So, why would a bank do this?
Sometimes they get a little help from the crooked real estate agent. The agent would
point out all the defects to the appraiser in order to get a lower value. In Wisconsin an
agent left the windows open and the rain damaged the basement. The appraiser was
told that the plumbing had burst and that it would require expensive repairs.
Fraud hurts the homeowner the most.
The impact of short sale fraud reaches beyond the bank. Lender are becoming more
cautious. As a result short sales are taking longer to close. In many cases the
prospective buyer become impatient and walks away from the deal. The house has to
be put on the market again. The longer the house stays on the market, the chances
increase that someone will eventually low-ball the price and get the house. The house
could fetch $10,000 to $20,000 less.
One important point that the homeowner must remember, is that not all debts that are
canceled or forgiven by the lender is non-taxable. Under the Mortgage Forgiveness
Debt Relief Act of 2007 a canceled debt on your principal residence is not taxable
income. In other words if there is a short fall of $50,000 when the short sale is
completed, the bank forgives this amount.
The trouble that homeowners would run into is when they refinance. If the money is spent
on other things, such as a trip around the world, jewelry, and other consumer goods, the
forgiven debt is taxable income. The money from the refinance has to improve, modify,
or add to the principal residence.
Imagine getting a tax bill after losing your house in a short sale. It happens.
of short sale fraud. Crooked real estate agents and their criminal investors are ripping
off lenders for millions of dollars.
On the surface the scam is very simple. For example, a homeowner owes the bank
$400,000 on his mortgage but his house is worth about $340,000. He decides that
short sale is a way out and the bank agrees. A real estate agent gets a legitimate offer
from an honest buyer for $320,000. The agent holds back the legitimate offer and gives
the bank an offer from his crooked investor for $290,000. The bank accepts the offer.
The crooked investor then resells the house to the honest buyer for $320,000. The
criminals pocket $30,000. In many cases the transactions are completed on the same
day.
The bank takes a beating on deals like this. In this example the bank is short $110,000.
Of this amount about $30,000 can be linked to fraud. According to CoreLogic, losses to
the lenders amounted to over $300 million in 2010. For 2011, the losses are expected
to top $375 million. This issue has the attention of lenders and they are putting
safeguards in place. Some lenders are now saying that the house can not be sold within
60 days of closing. Bank of America wants the purchaser to commit to not selling the
house for more money within 30 days.
A policy where a home buyer has to keep the property for 30 days is not productive.
They are thousands of legitimate investors that want to sell as soon as possible. Every
day costs money. When there is a sale in the neighborhood, the surrounding houses
benefit. Their values go up.
For the scam to work the bank must accept the low bid. So, why would a bank do this?
Sometimes they get a little help from the crooked real estate agent. The agent would
point out all the defects to the appraiser in order to get a lower value. In Wisconsin an
agent left the windows open and the rain damaged the basement. The appraiser was
told that the plumbing had burst and that it would require expensive repairs.
Fraud hurts the homeowner the most.
The impact of short sale fraud reaches beyond the bank. Lender are becoming more
cautious. As a result short sales are taking longer to close. In many cases the
prospective buyer become impatient and walks away from the deal. The house has to
be put on the market again. The longer the house stays on the market, the chances
increase that someone will eventually low-ball the price and get the house. The house
could fetch $10,000 to $20,000 less.
One important point that the homeowner must remember, is that not all debts that are
canceled or forgiven by the lender is non-taxable. Under the Mortgage Forgiveness
Debt Relief Act of 2007 a canceled debt on your principal residence is not taxable
income. In other words if there is a short fall of $50,000 when the short sale is
completed, the bank forgives this amount.
The trouble that homeowners would run into is when they refinance. If the money is spent
on other things, such as a trip around the world, jewelry, and other consumer goods, the
forgiven debt is taxable income. The money from the refinance has to improve, modify,
or add to the principal residence.
Imagine getting a tax bill after losing your house in a short sale. It happens.
| Fraud In Mortgage Industry Unless you have been living under a rock for the last 10 years, you haven't heard about fraud in the mortgage industry. There is enough fraud to go around for all the players. There is robosigning among the biggest banks in the nation. There is document fraud by borrowers, with a little help from a loan originator. This type goes beyond inflating you title at work, or boosting you pay a couple thousand a year. Tax returns, paystubs and bank statements are reworked. In my opinion the biggest fraud is renting vacant properties to unsuspecting families. The criminal sees a house that was foreclosed and sitting empty for about a year. He then advertises the property. A family applies and is approved, and they move in. Meanwhile, the crook collects rent every month. The scam skids to a stop when the sheriff knocks on the door with the eviction notice. The poor family shows a contract, but they have no case and are out on the streets. The crook vanishes in thin air. Watch the slideshow. |
