In the world of real estate, there's always something new under the sun. There also seem to be new types of fraud and scams developed with each change in the market. Now the scam artists have discovered short sales and foreclosures.
If you’re thinking about working with a financially distressed seller and the house he wants to sell is trashed, make sure he didn’t trash it himself. One of the types of short sale fraud that Fannie Mae is seeing these days is “reverse staged” houses. In these cases, owners trash their house to knock down the property value. There are photographs on broker price opinions that actually show cupboard doors missing, appliances pulled out, and graffiti or trash on the counter tops. Because there are actually websites where you can get repair bids, they can submit false repair bids for the work that needs to be done. A buyer with whom the owner is colluding then comes in with a low-ball offer, buys it and fixes it back up, then flips it for its real market value. That seems like a brazen scheme, but mortgage fraud by its nature is a brazen activity.
Kim Ellison is a Fannie Mae senior industry relations manager for the mortgage fraud program. She also sees a lot of illegal flipping and non-arm’s-length transactions. The non-arm’s-length space is a smaller percentage, roughly 9 percent. Usually the delinquent home owner is selling the property to a family member or a business partner without disclosing the relationship. It’s really an effort for the owner to stay in the home. Instead of making payments to the mortgage company they’re making payments to the family member, as rent. They’re hoping to clean up their credit and reapply for a mortgage down the road.
Selling to a related party isn’t illegal. It’s just the lack of disclosure. The loan servicer may waive the non-arm’s-length requirement, but there have to be compensating factors, and story has to make sense.
These are just a couple of the fraudulent schemes out there. No wonder Fannie Mae is in trouble.
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