03 Jun Short Sale and REO Fraud Continues to Emerge
According to Freddie Mac, short sale and REO fraud continues to emerge. Rob Hagberg, associate director of fraud investigations at Freddie Mac, said, “This area is ripe with fraud” during a webinar hosted by CoreLogic. Hagsberg points to short sale and REO space as being perhaps the biggest space where mortgage fraud takes place.
Straw buyers, as they’re called, are a common form of fraud. This occurs when a buyer temporarily purchases an undervalued home via REO or short sale, and then sells it to a third party at a higher price. And although many in the mortgage industry, including servicers, have put measures in place to detect and prevent this kind of fraud, Hagberg says that fraudulent individuals will still find ways to manipulate the system.
Other fraudulent practices include what Hagberg dubbed the “short sale and stay.” He says that this occurs when an underwater homeowner’s objective is to lower their loan amount. Typically, the homeowner will recruit a friend or family member to purchase their home via short sale, and then they will stay in the home. People are becoming more and more crafty, with couples resorting to practices like a woman using her maiden name to purchase the home from her husband.
Bribery is also rampant, with fraudsters offering kickbacks to REO brokers. They will go so far as to manipulate MLS data to reduce the prices of comparable properties nearby, and stage properties in such a way that they appear in worse condition than they actually are. This could include leaving garbage laying around the home, hiding rotting food like fish in kitchens, and removing kitchen cabinets.
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