The Bani Group Inc.

  Orange County Register

Short sale fraud “heating up,” expert says:

A panel of short sale experts presenting at CALIFORNIA REALTOR® EXPO 2012 in Anaheim last week said that “fraud is heating up like a wildfire right now ...” and “we’ve got to be aware that this fraud is changing directions, jumping containment lines.”

Making sense of the story

• Short sales involve the selling of a home for less than is owed on its mortgage.
  
   
• Among the most common forms of fraud are: Flopping, non-arm’s length transaction, side agreements, and false information.
  
   
• Flopping: Scammers arrange to buy a home at an artificially deflated price intending to flip it immediately at its actual value.
  
   
• Non-arm’s length transactions: The buyer in a short sale is related to the seller by blood, marriage, or some type of business or personal affiliation.  This istypically arranged by an underwater borrower to regain ownership of the property free from the mortgage debt.
  
   
• Side agreements: In addition to payments included in a lender’s “approval letter,” the buyer and seller have side agreements to pay off junior liens, short sale negotiators’ fees, or other third-party fees.
  
   

False information: The transaction includes phony details in the closing settlement statement, or HUD-1, to hide buried costs and fees.