Unfortunately, wherever there is a crisis, there will be a line of unscrupulous, amoral people waiting in the wings to move in and take advantage of those down on their luck. The housing crisis is absolutely no exception. In fact, according to a recent study by CoreLogic, some sort of fraud occurs in one out of every 53 short sales.
Surprisingly, it isn’t always the homeowner that is the intended target of these short-sale scams – the lender is also often the victim. If you’re one of the millions of Americans who have been forced to move out of their homes at the hands of a bad bank deal, you probably aren’t shedding too many tears for the banks.
Regardless of who the victim is, fraud is fraud. Whether the lender is falling victim to a scam or a homeowner, it all comes back to undermine home sellers – and that could be you. This is especially true in these cases as it is the homeowner that is taxed on the difference between the short-sale price and the balance of the mortgage.
So, what is this short-sale scam moving into the housing market? It’s basically known as “short sale flopping.” The way it works is simple: Realtors hide their affiliations with third parties involved in the transaction and rig the sale for a lower price for a particular buyer. In doing so, the realtor is withholding other, perhaps better, offers to the lender and even the distressed home seller. When the house is sold, the realtor flips the property back onto the market at a considerably higher price.
It is against Federal law for a buyer and seller to have a hidden relationship.
The scam is thriving, which means that it happens enough, but fortunately not too often. This is partly because the Home Affordable Foreclosures Alternatives program, or HAFA, doesn’t allow a property to be resold within 90 days of closing a short sale. This in and of itself prevents some of these scammers from moving too quickly.
But how can we stop this scam from moving even deeper into the housing market? Believe it or not, but neighbors are often the best whistleblowers. A low price on a home will definitely impact upon the value of their own home, so neighbors can (and should) watch for so-called investors moving into the market and buying up homes at a really low price then placing them for sale at a much higher price.
If you happen to have noticed a potential short-sale fraud in your neighborhood, you can make a difference. People like you can report such situations – typically there are hotlines that people can call or email for such tips. So, keep your eyes open and do yourself, your neighbors and even the banks a favor!