CoreLogic estimates that there is some degree of fraud in nearly 2 percent of all short sale transactions.
From the report:
There has been much discussion in the industry about short sale fraud. Initially defined by CoreLogic, short sale fraud is a transaction, “where parties involved in the process manipulate the short sale transaction and/or subsequent transaction for a profit.” Freddie Mac recently refined the definition: “Any misrepresentation or deliberate omission of fact that would induce the lender, investor or insurer to agree to the terms of a short payoff that it would not approve had all facts been known.”
One example of this is strategic default when a homeowner misrepresents his or her financial situation — fabricating untrue hardship in order to qualify for a short sale.
- Estimated Annual Short Sale Volume 400,000
- % of Short Sales with Unnecessary Loss 1.87%
- Average Amount of Unnecessary Loss $41,500
- Estimated Industry Financial Impact $310,000,000
Banks are losing money on short sales in another way as well:
Because short sale approval often takes several months, most buyers won’t even bother unless they are getting one heck of a price. On top of that, many agents will discourage their buyers from seeing or writing offers on short sales because the odds of eventual success are pretty low.
Banks would lose a lot less money if they would find ways to speed up the approval process.
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I’d be surprised if the fraud rate was only 2%.
Patrick,
bank does not lose money, PMI and goverment bail out them.