She stressed that real estate fraud turns a shortsighted profit at the cost of the public’s long-term confidence in homeownership and the housing industry.

“We strongly believe responsible Realtors are America’s natural first line of defense against such scams,” Poland said.

Freddie Mac has begun reaching out to Realtor associations in target markets to educate them about the latest trends in short sale fraud, the red flags to watch for, and what actions they can take to stop it, Poland said.

In addition to flipping schemes, the GSE is seeing trends in which agents manipulate the short sale price and obtain a low broker price opinion (BPO) by inflating repair estimates or making the house look more distressed than it really is, something called reverse staging.

Freddie Mac prohibits the buyer, buyer’s agent, buyer’s attorney, or a third-party short sale negotiator to be the contact point for the agents preparing the BPO.

The company says fraudsters are falsifying title and loan documents to obtain mortgages to buy short sale properties that can be flipped, and manipulating the HUD-1 settlement statement to skim net proceeds from the sale.

As a result of the uptick in short sale issues, Freddie Mac now requires all of the parties involved to sign an affidavit attesting that it is a true arms-length transaction, Poland said.

“These affidavits not only deter individual participation but also give us a stronger legal path to enforce our rights,” she said.

Known perpetrators are added to the GSE’s “Exclusionary List” – firms and individuals barred from conducting business with Freddie Mac – and face prosecution from law enforcement agencies.

Comments:

To clarify- the GSE are upset when things are hidden from them, calling it fraud.  If the investor and buyer do not influence the BPO or value and fully disclose that it is an option contract to the owner, it is perfectly acceptable.  Whether the seller’s negotiator delivers that information or the negotiator reviews the entire contrat is another story.

We have had several contracts written with “et al” for instance, with the correct names to be taken on title in the contract, and the negotiator never reviews it.  In my professional opinion, it is up to the negotiator and servicer to get the correct value.  There is more than enough information out there.  In Florida though, a short sale sells for much less than a non distressed property.

As far as negative staging, this most definitely is not the case all the time.  It is simply that a seller has let a home go.  After a short sale is approved, the buyer is an equity owner in the property until close.  They have to turn on power and water for inspections (in vacant homes), and typically keep it on through closing.  They may cut the grass and a few other things to protect their APPROVED purchase by the lender.  If at that time they find another buyer or the market shifts some and the value goes up, why punish the buyer for selling?

Investors buy and flip REO whoesale all day long.  There is no difference with a short sale.  If ANYTHING, it is my opinion that the  flippers are helping the market place because the value of a sold short sale is 10% less than a non distressed sale.  We are no BPO virgins, and we understand how the lenders determine value.  Which would you rather have in your neighborhood?  A short sale that sold for $145,000 or a wholesale non distressed property for $165,000?