By Robert Freedman, Senior Editor, REALTOR® Magazine
If you’re thinking about working with a financially distressed seller and the house he wants to sell is trashed, take the extra time to be 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. 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
To learn more about this and other types of short-sale fraud, we spoke with Kim Ellison, Fannie Mae senior industry relations manager for the mortgage fraud program.
REALTOR® Magazine: What kinds of short-sale fraud are you seeing?
Kim Ellison: 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. Continue reading »
By Robert Freedman, Senior Editor, REALTOR® Magazine
A few months ago we heard from real estate practitioners about a short-sale contract addendum that lenders were requiring of borrowers to curb fraud, so we talked with David Sunlin, Bank of America senior vice president and operations executive for short sales, to learn more about his company’s version of that form. He said it had been incorporated into the process in part because of a Freddie Mac policy requiring borrowers to vouch that their deal is an arm’s-length one. “They came to us and said, ‘We, as an investor, require you to do this,’ said Sunlin. “And then we looked at it and thought it was a good practice, so we extended it to our entire portfolio that we service.”
As a follow-up to that conversation, we spoke with Kathleen Cooke, fraud investigation manager at Freddie Mac, in mid-June, and she said her company’s requirement was simply putting into formal practice what the industry had informally required all along: that parties to a short-sale transaction show there’s no collusion between them.
Cooke said fraud continues to be an issue with short sales, mainly flipping arrangements, but other types of fraud are cropping up, too. The impact of her company’s anti-collusion affidavit is preventative: some parties that are thinking of colluding aren’t, because the affidavit takes away the legal gray area: Once you vouch for the fact that the deal’s at arm’s length, you have nothing to hide behind if you’re shown to be colluding. Cooke thinks the affidavit is succeeding in combating fraud.
Here are the highlights of our conversation with her: Continue reading »
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