Short Sale Scams and Real Estate Broker Frauds

There are many types of problems a client may discover he or she suffers from when hiring a real estate broker to include short sales, loan fraud and other real estate fraud scams that a broker may engage in to steal from the individual. Avoiding and preventing the complication is often possible with foreknowledge and caution.

When the client requires money or is having issues with a mortgage, he or she may consider a short sale. When the person seeking a broker needs the short sale to occur, he or she wants the property to sell quickly. The balance of the mortgage is not fully covered by the sale, but this may provide sufficient profit to catch up in the amount he or she is behind in with the mortgage company. However, if the broker who engages in fraud performs certain services for the client, he or she could bank more money from the deal that is legitimate and valid for the short sale.

The Undisclosed Payments

Real estate brokers may engage in a short sale scam through fraudulent behavior and activities that the seller and buyer are both not aware of in these situations. The lending financial institution may also suffer harm through the broker’s actions. Some of the signs are payments that occur outside of the necessary and mandatory escrow period or if there is a settlement statement that does not appear correct. Through selling the property by short sale, the owner is able to avoid the foreclosure process and avoid more losses. With capped payments or reduced amounts, those involved may want to receive money outside of the escrow period. This is where the scam starts and harms those included in the situation.

The Flopping Scam

The scam of flopping could affect the real estate agent and buyers in deals. The signs that could exist in these situations include double escrows, a buyer through a limited liability company or some form of fictitious entity involved in the transactions. There may exist another opportunity to resell the same property. The flopping scheme happens through a short sale where the broker misrepresents the value of the selling property. The person committing fraud in these circumstances is the buyer. He or she buys the property from the seller affecting the short sale. The real estate agent could become the buyer in some flopping instances. The buyer then presents to the agent or seller a low offer with a false low valuation of the building.

The purpose of the low valuation is to convince the lending financial institution that the house is worth less then it truly is on the market. The lender does not see the higher offers in these scams. With approval from the financial institution, the fraudulent buyer makes contact with a real buyer for the real valuation of the property. Then, a second escrow process occurs with the fraud buyer and a real buyer. This happens during the initial escrow and both may close at the same time. The fraud happens through the purchase of the second process with the fraudulent buyer keeping the difference in the low asking price and the true value of the property sold to the true buyer.

Predatory Negotiators in the Short Sale

There are some scams that affect both seller and buyers. The perpetrators that involve predatory negotiators are those that negotiate the sale and the real estate agents or brokers attached to the scam. The signs may exist in upfront fees, expense outside of escrow and negotiators that do not possess a license. In these situations, the negotiators will give his or her services for a flat rate or a percentage of the sale and guarantee results of the sale. However, this person may do nothing or very little to ensure the progression of the deal.