Short sale fraud is a loose term for describing fraud, deceit, or trickery in connection with a short sale transaction. As background, a short sale is a sales transaction where: (1) the sales price is less than the seller’s existing mortgage loan balance, other liens, and costs; and (2) the existing creditors agree to a payoff of less than what’s owed. Short sales help homeowners to avoid the stress and stigma of foreclosure. Short sales also help mortgage lenders by avoiding the costs of foreclosure, including the burden of maintaining and reselling properties acquired through the foreclosure process.
Red flags to look for in short sale-related scams REALTORS® and their clients contemplating or engaging in short sale transactions should be aware of the different types of scams. In addition, they should be wary when dealing with someone who does any of the following:
Makes an offer that sounds too good to be true;
Gives an unqualified promise, such as to obtain short sale approval, stop foreclosure, or other assurances;
Is unconcerned about the sales price, possession of the property, and other significant terms of sale;
Is unconcerned about the short sale seller’s financial situation;
Is involved in a sales transaction where the seller is not the current owner of the property;
Is involved in a sales transaction where a notice of default has been filed against the property;
Is involved in a sales transaction under the Home Equity Sales Contract law;
Is involved in a sales transaction where the property owner has purportedly given someone an option to purchase;
Represents that the buyer is an entity (such as a trust or LLC), rather than an individual person;
Creates more than one sales contract for the same property;
Asks for the payment of money upfront before providing any service;
Asks for payment only in the form of cash, cashier’s check, or wire transfer;
Asks for something to be done immediately without delay;
Asks for a power of attorney;
Asks for a transfer of title or an interest in the property outside of escrow;
Asks for signatures on a grant deed or deed of trust;
Asks for signatures without giving a lot of time to review the documents;
Asks for signatures on a document that has lines left blank;
Fails to provide copies of documents signed;
Refuses or fails to provide written confirmation of an oral promise;
Instructs the seller, listing agent, escrow officer, or someone else not to contact the short sale lender;
Instructs a client not to discuss his or her situation with a housing counselor, banker, accountant, attorney, family, friends, or others;
Has an answer for everything; and
Engages in “shop talk” that sounds glib, but doesn’t in fact make sense.
How a short sale scam works Short sale transactions are highly susceptible to scams. A typical short sale is complicated, difficult, and can drag on for many months. Yet, short sale sellers are often too financially strained to hire experts to advise them on the complicated financial, legal, tax, credit, and other issues raised by their situations. Sellers are also likely to be anxious to finalize their short sales quickly to avoid the possibility of losing their homes through foreclosure. On top of the stress and stigma of a looming foreclosure, short sale sellers may be dealing with other financial and emotional hardships, such as job loss, death of a loved one, divorce, or illness. Given these circumstances, the sellers can easily succumb to a scam artist’s lure of a guaranteed quick fix. As one victim of a foreclosure rescue scam said, “When you’re down and out you’ll believe anything.”
How homeowners can protect themselves against a short sale scam The basic rule is "if it sounds too good to be true, it probably is." In addition to watching out for the red flags, affirmative measure to take to protect against scams include, but are not limited to, the following:
Before doing business with someone, check the legitimacy and qualifications of both the individual person and business entity. Check whether the individual person and business entity are properly licensed . Ask for references and check out those references. Also check someone's background, credentials, and reputation. Search the Internet and check public records and trade group memberships. Remember, however, that even if someone has the proper credentials or comes highly recommended, the risk of a scam is less, but is not eliminated entirely.
Do not panic. Do not make any rash decisions. It’s precisely when your chips are down that you must keep a clear head.
Before entering into an agreement or arrangement, understand every aspect of what it entails. Read documents carefully and thoroughly before signing. If you do not understand a document or the consequences of a document, seek the advice of an attorney, accountant, or other professional as appropriate. If you do not speak the same language as the person you’re negotiating with, don’t use that person’s interpreter or translator -- bring your own instead.
Do not sign your name to any false statements or documents with spaces left blank, especially if you’re told that signing will be harmless or inconsequential.
Get as much information as you possibly can before making a decision. Ask questions. Conduct as much research and investigation as you can upfront. Look into different options and their financial, legal, tax, and other ramifications. Ask for advice and help from trusted family, friends, and professionals if appropriate.
Always try to stay a step ahead of scam artists. As society comes to know one type of scam, con artists will attempt to catch their victims off guard by devising new schemes. For example, with greater public awareness not to pay upfront for a short sale negotiator’s fee, scam artists may shift to structuring a short sale to include a buyer’s credit to pay the fee.
Where to report a short sale scam The following is a list of government enforcement agencies and other organizations for reporting fraud activities. Some of these agencies and organizations are also excellent resources for obtaining more information about short sale fraud.
Federal Bureau of Investigation (FBI) Headquarters Or contact your local FBI field office (202) 324-3000 https://tips.fbi.gov/
Department of Housing and Urban Development (HUD) Headquarters HUD Office of Inspector General Hotline (GFI) (800) 347-3735 Or contact your local HUD field office http://www.hud.gov/offices/oig/hotline/