The Insidious Virus Circulating Through the Industry’s Blood
by Patrick Barnard
Short sale fraud and foreclosure fraud continue to grow, impacting mortgage servicers’ bottom lines.
Last year, banks lost more than $375 million to short sale fraud. This does not address the fraud suffered by the sellers who were told a short sale was better than a foreclosure.
Short sale and foreclosure fraud continue to grow, impacting mortgage servicers’ bottom lines. Last year, banks lost more than $375 million to short sale fraud alone, according to CoreLogic, with the servicing side of the business bearing a majority of the loss. And because short sales are on the rise, servicers and lenders are on track to lose even more to this scourge in 2013.
Short sales give the banks involved in the National Mortgage Settlement a means to pay down their obligation, as they get “credits” for providing relief to distressed homeowners and thus an incentive to keep homes out of foreclosure.
As of April, the FBI had nearly 2,000 mortgage fraud investigations pending, with 72% of those representing losses of $1 million or more. What’s more, the agency had more than 70,000 suspicious activity reports to investigate, representing losses of $2.69 billion. The agency reports that mortgage fraud has ballooned to become a $13 billion-a-year problem.
Short sale fraud, in particular, has put the mortgage industry in a conundrum. Servicers and lenders don’t want to foreclose on borrowers’ homes, as having all those real estate-owned (REO) properties on the books isn’t good for their balance sheets. Short sales give them a way out of that. In addition, short sales give the banks involved in last year’s National Mortgage Settlement a means to pay down their obligation, as they get “credits” for providing relief to distressed homeowners and thus an incentive to keep homes out of foreclosure.
At the same time, short sales have become a new favorite target for fraudsters – and today’s sophisticated short sale schemes are extremely difficult for servicers to detect and prevent.
We have several videos on our web site. Below are a few that might be of interest:
“Lender’s Foreclosure Rights in Arizona”
“Should I keep my home or let it go into foreclosure?”
“Meet Ms. Drain and Suggestions on How to Hire an Attorney”
MUSINGS BY DIANE: “I have been warning folks since 2007 that short sales are dangerous for those who chose to listen to folks who make money off the short sale. that includes my realtor and title students in my real estate classes and my law students. In Arizona there are rules governing short sales, but not enough to detour fraudulent behavior. Take a look at the article written by the Arizona Department of Revenue – Short Sale Seller Advisory. This advisory explains that short sales can be dangerous for those who are not well informed of both the legal and tax consequences. Again, never rely on legal or tax advice from anyone who will receive money if you go forward with the short sale. Same warning if you take advice from those who really don’t know the law or tax issues. There is a 6 year statute of limitation to sue on this short sale agreement, so be very careful.”
Diane is a well respected Arizona bankruptcy and foreclosure attorney. As a retired law professor, she believes in offering everyone, not just her clients, advice about bankruptcy and Arizona foreclosure laws. Diane is also a mentor to hundreds of Arizona attorneys.
*Important Note from Diane: Everything on this web site is offered for educational purposes only and not intended to provide legal advice, nor create an attorney client relationship between you, me, or the author of any article. Information in this web site should not be used as a substitute for competent legal advice from an attorney familiar with your personal circumstances and licensed to practice law in your state. Make sure to check out their reviews.*
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