Short sale fraud turns up in down housing market
In this distressed real estate market, homeowners behind on their mortgage payments may see a short sale as a boon. But these sales — in which banks agree to accept less money than what is owed on the property to get it sold and avoid foreclosure — are now prime territory for fraud.
Two Connecticut real estate agents are scheduled for sentencing this month after pleading guilty to a short sale fraud called flopping — the first prosecution for this type of scheme. Sergio Natera and Anna McElaney convinced lenders to sell a home for less than the balance owed, without telling the bank there was a better offer, according to the criminal indictment. The realtors then sold the home six months later at a higher price for a $30,000 profit. They face up to 30 years in prison and $1 million in restitution.
"Anxious sellers may not realize this scam can hurt them," says National Association of Realtors spokeswoman Michelle Lind. "They could be liable for any illegal tactics after the sale."
While Angie's List Magazine couldn't find any cases of homeowners penalized to date, those victimized have sought legal representation to protect themselves from the potential ramifications of flopping, such as monetary penalties. Lind says the realtor scam is likely to be more prevalent in areas where the rise and fall of the real estate market is evident.
"The home value has to be enough that it's going to make sense for the scammer," she says. "I suspect you're looking at mid- to higher-priced homes."
Mortgage fraud such as this continues to increase nationwide.
"It ruins lives, destroys families and devastates whole communities," says U.S. Attorney General Eric Holder.
The FBI is pursuing more than 3,000 cases of mortgage fraud, which is almost double the number from 2009, according to an FBI report. The California Department of Real Estate and mortgage finance company Freddie Mac also issued warnings about the increasing popularity of such schemes.