Could You Be Involved In Short Payoff Fraud? Freddie Mac Thinks “Yes”
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. Freddie Mac’s new short sale opinion – for lack of a better word – could create serious legal and practical issues for real estate investors.
The organization posted a new educational article on April 16, 2010 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 mean problems for investors who have been short sale flipping, or negotiating short sales with banks and then selling the properties at a profit.
The rest of the article detailed scenarios and red flags for “short payoff” fraud. The scenario revolved around a short sale facilitator who set up a deal with a lender to purchase a home worth 80K for 70K while the lender took a 30K loss. The facilitator does not let the bank know that he already has a buyer ready to pay 95,000 for the property. When both transactions close and the facilitator pockets his profit, Freddie Mac considers him to have committed fraud since Freddie Mac has now taken a “larger than necessary” loss on the sale.
The article urges buyers, sellers and lenders to be on the lookout for short payoff fraud red flags. These flags include sudden borrower default, a borrower who is current on other obligations and the buyer of the property being an entity rather than a person. The article also tells readers to keep an eye out for resale options in their purchase agreement.
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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