Add mortgage lenders to the long list of people who are falling victim to real estate scams. Short sale fraud by unscrupulous real estate agents is estimated to cost lenders $375 million this year alone.
The scam begins when the realtor receives two bids on a home, one low and one high bid. The realtor takes the lower bid to the current lender and goes through the short sale process, paying far less for the home than the current mortgage is worth. With short sales in abundance, many lenders don’t raise too many questions.
Once the short sale process is complete, the realtor then sells the house to the higher bidder, pocketing the difference in price, which really should have gone to the previous lender who approved the short sale.
Two real estate agents in Bridgeport, CT were arrested and plead guilty to this type of scam and are awaiting sentencing.
Some scammers will also bribe appraisers and brokers to undervalue the house. Some have even gone so far as to lie about the location of the property, all in effort to lower the value and deceive the banks.
One realtor in Wisconsin opened the windows during a heavy rainstorm and purposely flooded the basement then told the appraiser there was a plumbing problem. When it comes to plumbing, electric or roofing problems, appraisers can’t tell if they’re being deceived.
Short sale fraud hurts not only the lenders but also the homeowners by forcing them into foreclosure. Many banks are now taking even longer to move through the short sale process in an effort to avoid being ripped off.
