Banks Face Short-Sale Fraud as ‘Flipping’ Schemes Spread

It seems to never end. Now the real estate professionals that homeowners believe they can trust and rely on are finding ways to profit from the homeowners unfortunate circumstances. Isn't it enough that the real estate agent is earning a substantial commission on the short sale transaction?

Two Connecticut real estate agents found a way to profit in the housing bust: Buy low, sell fast. Their tactic was also illegal. The two are scheduled to be sentenced in Hartford's federal court in August after pleading guilty to fraud. Their crime involved persuading lenders to approve the sale of homes for less than the balance owed -- known as a short sale -- without disclosing that there were better offers. They then flipped the houses for a profit.

The scam involves a practice called "flipping," In that scheme, investors or home buyers hire brokers to assess a home for less than its market value and convince banks to accept a sale at that level. The buyer conceals from the lender that he has lined up a higher offer and then quickly resells the property for a profit, as in the Connecticut case.

"Flipping" occurs in more than 1 percent of short sales and may cost lenders $50 million this year, according to estimates from CoreLogic Inc., a real estate data and research company in Santa Ana, California. Data from the National Association of Realtors shows about 12 percent of existing home sales, or almost 622,000 houses, were short sales in the 12 months through April.

"A majority of the short-selling fraud is related to LLCs and investment companies trying to make a quick profit," said Tim Grace, vice president of fraud analytics at CoreLogic. LLCs refer to limited liability corporations.

Short sales are an important tool that can help both the bank and the borrower it's just that criminals are always trying to find ways of profiting.

If you are facing foreclosure or considering a short sale, you should consult with an experienced Florida Foreclosure Defense Lawyer not your real estate agent, these are legal matters .

As a Florida Foreclosure Defense Attorney who has experience in real estate law I educate and protect Florida homeowners, so get the legal advice you need, understand your rights, know your options and have a plan BEFORE taking action.