Boise Real Estate Home > Boise Mortgage Fraud > Short-Sale Scams

Mortgage Fraud Alert – Short Sale Scams

Perpetrators of mortgage fraud are fans of short-sales schemes because they don’t have to competitively bid on the properties they purchase, as they do for foreclosure sales. Scam artists also use short sales to recycle properties for future mortgage fraud schemes. One of theshort sales scam challenges with preventing short-sale schemes is that they are difficult to detect since the lender agrees to the transaction, and the incident is not reported to internal bank investigators or other authorities.

A real estate short sale is a type of pre-foreclosure sale in which the lender agrees to sell a property for less than the mortgage owed. In a typical short sale scheme, the perpetrator uses a straw buyer to purchase a home for the purpose of defaulting on the mortgage. The mortgage is secured with fraudulent documentation and information regarding the straw buyer. The home loan defaults because payments are not made which begins the foreclosure process. Prior to the foreclosure sale, the perpetrator offers to purchase the property from the lender in a short sale agreement. The lender agrees without knowing the short sale was all part of the scam.

For example:

  1. Perpetrator recruits a straw buyer to purchase a property.

  2. The straw buyer secures a home loan for 100% of the properties value, usually based off of false documentation.

  3. No payments are made on the home so the mortgage defaults.

  4. The straw buyer informs the lender that the home will foreclose and recommends the perpetrator as a potential buyer in a short sale transaction.

  5. Perpetrator approaches the bank lender just before foreclosure and offers to pay less for the home than would otherwise be received in a competitive foreclosure sale.

  6. Lender agrees to the short sale unaware that the mortgage payments were not paid purposely to create this short sale opportunity.

  7. Perpetrator sells the property at actual value for a profit, or has the property artificially inflated to conduct an illegal property flip.

Previous Page