Many people are struggling to make their mortgage payments, and some have even decided to put their property up for a short sale. A short sale is when a property is sold for less than what is still owed on a mortgage loan for that particular property. While short sales may help sellers in dire financial situations and buyers searching for a property deal, these types of sales are more susceptible to fraudulent and unfair sale practices. Some people who are pursuing short sale negotiation are taken advantage of.
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It is always best to work with an affordable short sale lawyer to protect your interests. Read on to find out the three most common short sale scams buyers and sellers should be cautious to avoid. Before you decide on how to handle your mortgage, visit our useful sections so that you know your options:
Keep reading for useful information on how to avoid short sale scams
1. Hidden Payments
Often, lending companies approve short sales on properties to avoid foreclosure and reduce their losses. In these situations, the lending company for a particular property typically requires that sellers earn no money from the sale. They may also reduce commissions to real estate agents and reduce or cancel payments to other parties involved in the sale such as negotiators and attorneys. When there is more than one lender on a particular property, primary lenders usually put a cap or reduce payments to junior lenders during a short sale. Prior to approval, junior lenders must release their lien on a property in exchange for receiving a predetermined amount from the sale. In this scenario, junior lenders may try to take advantage of buyers and sellers by requesting an off the settlement statement.
Watch our for Loan Fraud!
Many buyers and sellers agree to these off the settlement statements because they want to close a deal on a property as quickly as possible. However, in doing so, they make themselves susceptible to loan fraud. This is because buyers and sellers are required by law to disclose all payments made in a short sale transaction to all the parties involved in approving the sale. According to Freddie Mac, which is one of the biggest mortgage lending firms in America, short sale fraud occurs when a party attempts to misrepresent or omit facts to lenders, investors and insurers during a short sale that may have altered whether the sale was approved. As a result, buyers and sellers should always disclose all information with all parties involved in approving a short sale to avoid these legal issues.
2. Misrepresentation of Property Value
Another common type of fraud in a short sale is when the value of a property is misrepresented, which is commonly known as flopping. This type of fraud is typically committed by the buyer who is purchasing a property in a short sale. In this type of case, the buyer offers a small offer and a low valuation report for a property in order to convince the property’s lender that the structure is worth less than its true value. At the same time, higher offers from other buyers are withheld from the lender. After the lender approves the short sale at the undervalued price, the buyer resells the property to make a profit.
3. Bad Short Sale Negotiators
Finally, sellers during short sales are also susceptible to con artists who may attempt to take advantage of them during a dire financial circumstance. These con artists will typically present themselves as short sale negotiators and guarantee sellers some sort of incentive such as negotiating their terms with their lender. They will also typically require the seller to either pay them a flat fee or agree to pay them a percentage of the sale for the property. In this situation, the con artist usually accepts payment and either does nothing or very little in return for the seller.
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