Freddie Mac Alerts Agents to Its New Investigation into Short Sale Fraud

Forget about buyer beware. It’s now agent beware. In another fast-spreading scam, another federal agency today put the industry on notice that they are stepping up their investigations into short sale fraud.

As RE-Insider reported last week, the FBI is increasing its mortgage fraud investigation. Now Freddie Mac has announced that it is doing the same in an effort to stop short sale fraud.

According to Freddie’s Shelly Poland and Robert Hagberg, who are responsible for fraud investigation, short sale fraud is on the rise – especially when real estate agents fail to fully disclose all other parties involved in the transaction.

According to them agents should be on the lookout for the following trends:

• Falsely indicating on a new short sale listing that there is an offer on a property to discourage legitimate offers and protect an accomplice’s planned low bid
• Manipulating the short sale listing price by making the house look more distressed than it really is (“reverse staging”), inflating repair estimates, or using similar tactics designed to obtain an artificially low home value on the Broker Price Opinion
• “Flipping” schemes where the fraudster “buys” a house in a short sale without putting down any of his own money and then sells it a few hours (or days) later to a legitimate buyer at a much higher price
• Manipulating the settlement statement so the fraudster can skim away net proceeds from the sale for himself or other parties in the transaction without the seller’s or investor’s knowledge

While short sales have increased dramatically – up 31% from a year ago –regulatory oversight and enforcement has apparently fallen behind. Now short sale fraud is the top priority for Hagberg’s group. Freddie Mac has begun working with agents and law enforcement officials to detect and investigate suspicious behavior.

To strengthen their hand, the government-backed mortgage institution has even implemented a new policy that requires all parties involved in a transaction to sign an affidavit attesting that it is a true “arms-length” deal.

So now, agent beware.