Short Sale Fraud on The Rise

by ShelbyW on January 12, 2013

  • Sumo

(US property and criminal law considerations) Short sales are a popular way for people to sell their homes, but it is important for both the buyer and the seller to make sure that they are not unintentionally participating in any fraudulent activity. Although there are definitely instances when a buyer commits fraud purposefully, including lying on their mortgage application, many of the recent cases of short sale fraud have been the result of unscrupulous lenders.

After researching the website of a Maryland lawyer, it’s clear that while many white collar crimes may result in misdemeanors upon conviction, they can also come with some heavy fines and lengthy prison. If you know what to look for, though, you can prevent yourself from being involved in a fraudulent real estate transaction, and you can even report the lending company to the proper authorities to prevent them from continuing to commit fraud.

What is a Short Sale?

In many instances, a short sale is used to allow a homeowner to avoid dealing with a foreclosure. The lending agency also benefits from this type of sale because they are able to recoup some of their money instead of losing everything. Basically, a short sale allows the homeowner to sell their house for less than the outstanding loan amount.

The lender agrees to the terms of the short sale so that they can receive part of the money that is owed to them. In some cases, the homeowner will then be relieved of their duty to pay for the difference, but there are also some short sales that require the homeowner to make payments until the difference between the sale amount and the original loan have been settled.

What is the Primary Cause of Short Sale Fraud?

A lot of homeowners use two different lenders to finance their home. For example, the primary lender might finance 80 percent of the home purchase, and a second lender will cover the remaining 20 percent. When a short sale happens, all of the money that is recovered through the sale will be allocated to the primary lender unless the sale happens to bring in more than the amount that is still owed to them.

In most cases, the primary lender is supposed to provide a payment to the secondary lender, but this is not always what happens. Therefore, the secondary lender might be left without any compensation for the portion of the original home purchase that they covered. In order to make up for this, some secondary lenders have been basically hijacking the short sale process, and most home buyers and sellers are unaware that they are participating in an illegal activity.

How does Short Sale Fraud Work for the Secondary Lender?

During the process of closing on the short sale, the secondary lender might require either the home seller or buyer to make a payment to them before they sign off on the sale. This is done so that the secondary lender receives some compensation, and it does not seem illegal to most people. Unfortunately, though, the secondary lender will also require that this information be kept out of the contract. By doing this, they are hiding the money from HUD, and this is against the law.

If you are involved in a short sale and the secondary lender asks for money that will not be reported during the transaction, you should immediately contact either your state’s Attorney General or the FBI. You might also wish to consider publicly exposing the fraud by posting a blog or contacting your local news.Either way, though, it is important to make sure that you do not move forward with a fraudulent real estate transaction.

Shelby Warden is a researcher who focuses on subjects that can enlighten readers. Whether you are facing a month or a lifetime in jail, being charged with any crime can be stressful and frightening. The Law Firm of Price Benowitz and their aggressive Maryland criminal lawyer team will take every step legally allowable to guarantee the best outcome possible for your case.




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