Following the financial and housing crisis of 2008, scammers began to target those trying to complete a short sale on their homes and properties as a way of minimizing financial trouble. While there were less than 100,000 homes that were involved in a short sale during 2014, a significant reduction from 2013 (265,000 homes), those looking to complete a short sale are still at risk of being victims.
The IRS has posted numerous investigations into fraudulent activities by financial institutions during 2016. Reviewing the cases can help understand the types of scams that have been used to defraud owners. A short sale attorney can provide assistance in navigating the potential risks and problems associated with a short sale.
Undisclosed Payment Fraud
This type of scam can be perpetrated by any of the parties involved in the short sale. If the payments are to be made outside of the established escrow or off of the settlement statement. It is required that all payments and fees associated with the short sale transaction be disclosed on the closing documentation. If a payment or fee is not included in the documentation, it is likely a scam.
Flipping or Wholesaling Fraud
Sellers and lenders are the victims of this type of scam. If the buyer or investor intends to buy the house in a short sale, then turn around and sell it for more than they paid, this is considered a fraudulent transaction. The buyer or investor must disclose if they already have a third-party lined up to purchase the property once the short sale is complete.
Sellers and buyers are the victims of these types of scams, and it is the reason why those selling their property under a short sale should always ensure that any negotiator used is licensed. The person perpetrating the scam will charge fees to negotiate the sale, but will do little to nothing to facilitate it. This is what it is important to contact the state agency to understand licensing requirements for the state where the sale will occur. For those considering using a negotiator, always read and understand the documentation before signing.
People who have opted to short sale a property are already under considerable stress, which makes them more vulnerable to scams. A short sale attorney can help during this difficult time to ensure that nothing fraudulent occurs during the process.