Short Sale Fraud Can Land You in Jail
As the number of short sales has risen, so has the rate of short sale fraud. Short sale fraud is any scheme devised to prevent the bank from netting as much as possible on the deal or that involves keeping pertinent information from the bank which could potentially impact its decision as to whether to approve the short sale of the property.
Common Forms of Short Sale Fraud
Like mortgage fraud, short sale fraud takes many forms. One of the newest forms of short sale fraud is reverse staging. Reverse staging occurs when a homeowner trashes the home in order to negatively impact its fair market value and sells the property to a co-conspirator (for a reduced price) who renovates the home, sells it at a higher price, and splits the profits with the original homeowner.
Another form of short sale fraud involves non-arm's length transactions. An arm's length transaction is a sale between a buyer and seller who do not have an existing personal or business relationship. In a short sale situation, most lender's require that the sale be an arm's length transaction and require the buyer, seller, and their respective agents to sign an affidavit attesting to the fact that the sale is an arm's length transaction. Generally, the sale of the property to a family member or business associate is an effort by the homeowner to remain in the home until he repairs his credit and is able to repurchase the home at a future date. This is not illegal in and of itself; however, the failure to disclose the fact that the sale in not an arm's length transaction is illegal.
The bait and switch is another form of short sale fraud. This scheme involves presenting a low-ball offer to the bank while simultaneously withholding a higher offer. Once the short sale is approved at the lower price, the higher offer is substituted for the low-ball contract at closing. The short sale payoff amount based on the low-ball offer is used to pay off the bank with the difference being distributed to the homeowner.
Avoiding Short Sale Fraud
In a nutshell, the best way to avoid being accused of short sale fraud is to make full disclosure of all facts which typically impact the bank's short sale review process. The penalties for short sale fraud are harsh - up to thirty years in prison and fines of up to $1 million per charge; so, everything should be above board and done with transparency.
For more information on short sales, visit http://GeorgiaShortSaleCentral.com.
Common Forms of Short Sale Fraud
Like mortgage fraud, short sale fraud takes many forms. One of the newest forms of short sale fraud is reverse staging. Reverse staging occurs when a homeowner trashes the home in order to negatively impact its fair market value and sells the property to a co-conspirator (for a reduced price) who renovates the home, sells it at a higher price, and splits the profits with the original homeowner.
Another form of short sale fraud involves non-arm's length transactions. An arm's length transaction is a sale between a buyer and seller who do not have an existing personal or business relationship. In a short sale situation, most lender's require that the sale be an arm's length transaction and require the buyer, seller, and their respective agents to sign an affidavit attesting to the fact that the sale is an arm's length transaction. Generally, the sale of the property to a family member or business associate is an effort by the homeowner to remain in the home until he repairs his credit and is able to repurchase the home at a future date. This is not illegal in and of itself; however, the failure to disclose the fact that the sale in not an arm's length transaction is illegal.
The bait and switch is another form of short sale fraud. This scheme involves presenting a low-ball offer to the bank while simultaneously withholding a higher offer. Once the short sale is approved at the lower price, the higher offer is substituted for the low-ball contract at closing. The short sale payoff amount based on the low-ball offer is used to pay off the bank with the difference being distributed to the homeowner.
Avoiding Short Sale Fraud
In a nutshell, the best way to avoid being accused of short sale fraud is to make full disclosure of all facts which typically impact the bank's short sale review process. The penalties for short sale fraud are harsh - up to thirty years in prison and fines of up to $1 million per charge; so, everything should be above board and done with transparency.
For more information on short sales, visit http://GeorgiaShortSaleCentral.com.
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