Most mortgage fraud takes place in the short sales and REO space, according to Rob Hagberg, associate director of fraud investigations at Freddie Mac. “This area is ripe with fraud,” he said during a webinar hosted by CoreLogic.
While servicers and others in the industry have adapted to some fraud schemes and put measures in place to detect and prevent fraud, schemes continue to evolve as fraudsters find new ways to manipulate sales.
For example, many fraudulent REO and short sale transactions involved the use of a straw buyer who temporarily purchased a home at an undervalued price and then sold it to a third party at a higher price.
These transactions would be immediately suspicious to anyone reviewing property records, which would show a home was sold for one price one day and then almost immediately resold at a higher price. Savvy perpetrators are now eliminating the second buyer. Property records will not reveal a middle buyer, but they will reflect a higher price than the servicer agreed to.
Another growing trend in short sale fraud is what Hagberg calls the “short sale and stay.” This occurs when an underwater homeowner wishes to keep his or her home but wants to lower his or her loan amount.
The homeowner will recruit someone—often a friend or family member—to purchase the home through a short sale, and the original owner will remain in the home.
Sometimes, a wife will use her maiden name to purchase the home from her husband, and the couple will stay in their home.
Both short sale and REO fraud often require fraudsters to convince servicers a home is worth less than it actually is.
To accomplish this, fraudsters have attempted to bribe REO brokers, manipulate MLS data to lower the prices of comparable properties, and have engaged in reverse staging to make a property appear in worse condition than it is.
In cases of reverse staging, Hagberg has seen cabinet doors removed from kitchen cabinets, garbage left lying around the home, and sometimes old fish hidden behind refrigerators to create pungent scents.
Sometimes BPOs include false property stigmas such as high crime rates, and in a few instances Hagberg has seen properties undervalued by as much as $40,000 under inaccurate statements that the home had been a meth lab and would need to be entirely gutted.
http://www.dsnews.com/articles/reo-short-sale-fraud-continue-to-evolve-2013-05-10
This is a very easy problem to solve…
Throw a couple of the Short Sale grifters in jail + invite the local news to the perp-walk.
It would be a welcome relief, and also shock a few people to find out what they are doing is not legal.
Banks could just stop doing short sales too – just say no.
“Banks could just stop doing short sales too – just say no.”
I vote for this Jim! Hopefully by the end of the year the short sales will be over with.
“Reverse Staging” – priceless.
Don’t they mean ‘rife’ rather than ripe?
Ya “rife”. Letting home owners / re agents control the process a terrible idea.
Yes, rife is proper word to use in that sentence – fraud is always ripe.
As for the realtors…..
Income and sales are up for Realtors for the second year in a row follow nine years of decline, according to the 2013 National Association of Realtors latest member profile.
“The median gross income of a Realtor rose 25 percent from $34,900 in 2011 to $43,500 in 2012 is admittedly an attractive stat, and many will jump on the bandwagon, or perhaps return to the bandwagon regardless of any other facts in the report.
NAR reports the typical Realtor has 13 years of experience, is 57 years old, works 40 hours per week, and 57 percent are women. Half have at least a bachelor’s degree, and 90 percent are homeowners. Under two percent are under 30, and only four percent are between 30 and 34. Only six percent of Realtors surveyed were uncertain they would remain in the business for at least two more years.
This is happening all the time. It’s right there in the open, very easy to spot. What’s really aggravating is that people are fed up and are willing to come forward and report it but there is no competent body that they can turn to. Banks and real estate associations simply don’t care.
Definitely fraud is there. But why would banks care, they coupled with the fed are committing even larger hard asset manipulations.