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Fradulant Short Sales hurt the Colorado Springs Real Estate Market
Fraudulent short sales ?
Short Sales – Part IV of Short Sale Series
Previous Posts:
- Colorado Springs Homes, 4 things to know about a short sale - Part I of Short Sales Series
- Avoid Foreclosure, Know Your Options - Part II of Short Sales Series
- Colorado Springs Home Foreclosures – 11 benefits of a short sale - Part III of Short Sales Series
Fraud can sadly sometimes come into play in a short sale transaction, which can causes a ripple affect in the Real Estate market and with legitimate sellers who need to do a short-sale. The following is a list of some of the things I’ve heard about in the marketplace. If you are a Seller, I strongly suggest that you stay away from these options.
(1) Submitting “Ghost” offers. I’ve ran into some Realtors who submit “ghost” offers to get lender approval before they have a committed buyer. They have a friend, or someone else they know, write an “ghost” offer; and this person doesn’t have any real intention of purchasing the property. The Short Sale Package gets submitted to the lender with the hope of getting approval from the lender. Once the lender gives approval on the offer, the person who put in the “ghost” offer withdrawls their offer.
I’m not a lawyer nor am I legal expert, but my understanding is that this is considered a fraudulent act if the initial “Buyer” on the offer did not have a true intention to purchase the property. These “fraudulent offers affect the industry as it clogs up the lender pipelines to sort through and review the bonafide offers.
2. Fraudulent Bankruptcy Sellers in a pre-foreclosure situation are occasionally approached 
by companies or individuals who claim that for a fee and the transfer of the Seller’s title to an unknown company, a foreclosure sale can be stopped or postponed. The concept in this scheme is to transfer a small percentage of ownership to an existing company with an open Bankruptcy. As an asset now added to a Bankruptcy, it is protected from foreclosure until the title is re conveyed back to the Seller. My understanding is that this is a highly fraudulent act if there is no proof of valid reason for why the company with the Bankruptcy would have had an interest in the property.
Usually, once the first foreclosure sale is stopped, the interest in the title will be re conveyed back to the Seller, starting the foreclosure process all over again, and requiring the Seller to pay an additional fee to stop the pending sale again.
3: Rent Skimming Many times, a Seller will continue accepting rental payments from either existing tenants, or from potential Buyers they have already allowed to move in while their offer is being reviewed for acceptance by the Lender. In the meantime, the Seller stops making monthly mortgage payments and keeps all of the rental income directly. This could be considered a serious offense to a Lender and could position the Seller to have a more difficult time getting their property sold without deficiency judgements or unsecured notes required, aside from other legal consequences.
4. No Hardship, No Payments Sellers who stop making their mortgage payments, but do not have a genuine hardship. As Sellers have watched the values of their homes drop significantly over the past year, the number of “over-encumbered” properties has risen greatly. Some Sellers have chosen to let their mortgage payments fall behind, even though there is no significant financial hardship, for the opportunity to receive the debt forgiveness benefits of a Short Sale. This again backs up Lenders internally on an administrative level and creates unnecessary Short Sale transactions which only cause market values to drop further. In addition, Sellers are taking a steep risk that the Lender will forgive them of all of the debt and they will not be destroying their credit unnecessarily. if a Lender sees that a Seller could have made their payments but choose not to, there is no guarantee the Lender will be forgiving.
If you enjoyed reading this article, why not Kathy (719-287-1049) KTorline@msn.com
