Report Shows Fraud in Short-Sales Cost Lenders $310 Million Annually

Dennis Norman

A report just released by CoreLogic estimate the financial impact of short-sale fraud to be $310 million annually. It is estimated there is fraud in one in every 53 short sale transactions resulting in an unnecessary loss to the lender of $41,000 per transaction on average.

The report defines short sale fraud as 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 defi nition: “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.

Another short sale fraud happens when parties manipulate the short sale and/or subsequent resale of the property. In Figure 3 below, fraud occurs when the highest offer is deliberately withheld from the lender by the real estate agent.

corelogic-figure 3

Source: CoreLogic 2010 Short Sale Research Study

Highlights of the Report:

  • The number of short sales has more than tripled since 2008. Multiple variables indicate short sales will continue to be a significant factor for the industry.
  • During 2009 and 2010, over half of all short sales (55.8%)
    corelogic figure 2

    Source: CoreLogic 2010 Short Sale Research Study

    occurred in four states: California, Florida, Texas, and Arizona.

  • Approximately 4% of short sales have a subsequent resale within 18 months.
  • Investor-driven short sales are not inherently bad, since investors provide the industry with necessary liquidity.
  • Short sale transactions are “risky” for lenders when either (1) the second sale amount is vastly higher than the initial short sale, and/or (2) the second sale transaction happens too soon after the first.
  • While the exact definition of what constitutes short sale fraud continues to evolve, it clearly exists. The analysis shows a consistent pattern of lenders incurring more loss than necessary. About one in 53 short sale transactions in our study (1.9%) was part of an egregious flip — and therefore deemed risky.
  • It is estimated that lenders are currently incurring unnecessary losses in short sale transactions at the rate of $310 million per year.
Print Friendly, PDF & Email

9 comments to Report Shows Fraud in Short-Sales Cost Lenders $310 Million Annually

  • I simply had to thank you very much yet again. I am not sure the things that I would’ve carried out without those tips shown by you relating to that area of interest. This has been a very frightful scenario in my circumstances, nevertheless looking at your professional form you processed that made me to jump for joy. Extremely happier for this help and then have high hopes you know what a great job you’re getting into teaching people today using your web site. Probably you haven’t encountered any of us.

  • Heya i’m for the primary time here. I found this board and I in finding It truly helpful & it helped me out a lot. I hope to present something again and aid others like you helped me.

  • Hi, Neat post. There is an issue with your web site in internet explorer, might test this… IE nonetheless is the marketplace chief and a huge section of people will leave out your magnificent writing because of this problem.

  • Great V I should certainly pronounce, impressed with your site. I had no trouble navigating through all tabs and related info ended up being truly simple to do to access. I recently found what I hoped for before you know it at all. Quite unusual. Is likely to appreciate it for those who add forums or anything, website theme . a tones way for your client to communicate. Excellent task..

  • I don’t even know how I ended up here, but I thought this post was great. I don’t know who you are but certainly you’re going to a famous blogger if you aren’t already ;) Cheers!

  • Good post. I be taught something more challenging on completely different blogs everyday. It should always be stimulating to read content from other writers and follow a little bit something from their store. I’d desire to make use of some with the content material on my blog whether you don’t mind. Natually I’ll give you a link on your internet blog. Thanks for sharing.

  • Hello my friend! I want to say that this article is amazing, nice written and include approximately all important infos. I would like to see more posts like this.

  • Wonderful work! That is the kind of information that are supposed to be shared around the internet. Shame on the seek engines for now not positioning this post higher! Come on over and consult with my site . Thank you =)

  • I would like to thank you for the efforts you’ve put in writing this website. I am hoping the same high-grade blog post from you in the upcoming as well. In fact your creative writing skills has inspired me to get my own blog now. Actually the blogging is spreading its wings fast. Your write up is a great example of it.

Leave a Reply

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>