Mortgage short sale fraud running rampant in the reviving market

If you have been following the news closely enough, you may already have got the news that, number of short sales in the mortgage or rather the real estate market is increasing. It has suddenly become the favorite option for the underwater homeowners. However, with this another thing is experiencing the surge too, and that is mortgage fraud. So, if you too are one of those underwater homeowners, beware of the situation and be cautious while finalizing a sale. Moreover, it is not only the frauds, but also the other effects of short sale, which you will be required to consider.

The rising short sale

With Nevada leading the pack, Maryland, Washington D.C., are some of the states which are fraught with several instances of mortgage and short sale fraud. With the national average on Fraud Risk Index with regards to mortgage fraud, standing at 146, it is 245 is Nevada, and 150 in Maryland, and Washington D.C.

Instances of short sale have increased in the last couple of months, and this means there has been an increase in the number of distressed homeowners too. Now, fact is that frauds thrive in the distressed market and this is because, people seem to become more desperate to get at least some form of help. So, it becomes easier to dupe people in dire need. Real estate agent Lolita Ellis has said that 90% of home sales within the County of Prince George are short sale.

What is a short sale?

Short sales are in general opted for when the property values lower, or if there had been inflated appraisals. This results in the lowering of the property value in comparison to the mortgage amount. So short sale means an agreement where a lender agrees with the homeowner, to get much less than what is owed by the homeowner. This is because, in case of a short sale, the sell off happens where the amount which is smaller than the present balance of the mortgage.

Now, there are various consequences of a short sale. It has a negative effect on your credit, though not as high as that of foreclosure. Then, you definitely are going to lose your home. Moreover, you can also fall prey to short sale scams.

What are the different types of short sale scams?

There are various types of short sale scams that can pose as a loss for the sellers too. One of these is undisclosed payments. This also proves to be dangerous for both the lenders, and the buyer too. These payments can be the ones that are made “outside the escrow” or off the statement, with regards to settlement. Now, this happens when the lenders reduce the commission amount to be paid to the real estate agents. It happens when the lenders asks for the sellers to receive no benefits with regards to finances, from the sale. In case of two mortgages, the primary lender in some cases cap payments to be given to the junior lender. So, the second mortgage lender starts taking advantage of the highly motivated sellers. They may be asked to make the “outside of escrow” or “off the settlement statement“.

Another common scam is the predatory short sale negotiators. Some scam artists, posing themselves as short sale negotiators promise to show good results, with regards to short sale, for a certain fee. However, in most of the cases, such scam artists do nothing in return for the money.

So, this is what you will be required to be aware of, while trying to short sale your home. Avoid being desperate, and be careful about the people with whom you are going to deal.