The Single Biggest Drawback to Shortsale – Delayed Closure

After we explain the benefits of short selling real estate, people often ask us . .. “so what is the drawback?” In a word – “Delay”. Relief in a shortsale is not as quick or comprehensive as it may be in a Bankruptcy, for example. But it may have the potential to heal your credit more quickly and allow you to qualify for buying a home or car at a competitive market rate more quickly than the alternatives of bankruptcy, deed in lieu of foreclosure, etc.

What short selling your home means to you is that you have to stay involved in the process! Stay ever vigilant. Support your short sale professionals such as your listing agent and your negotiator and closing attorney. If you make the decision to short sell your real estate, count the cost and stay committed to the end. Expect a few hurdles and be ready to jump!

One additional reason to stay vigilant is to avoid getting drawn into a fraudulent short sale scheme. While banks are willing to take a loss and share your pain in most cases, they do not want you to get away with secret profits from your short sale or with selling the home well below market value. Deliberately engaging in such behavior can be a crime!

Freddie Mac summarizes a few common fraud scenarios this way:

” short sale fraud requires the cooperation of one or more real estate professionals involved in the transactions, . . . the red flags to watch for . . . include:

Falsely indicating on a new short sale listing that there is an offer on a property in order to discourage legitimate offers and protect an accomplice’s planned low bid.

Manipulating the short sale listing price by making the house look more distressed than it really is (“reverse staging”), inflating repair estimates, or using similar tactics designed to obtain an artificially low home value on the Broker Price Opinion. (Our requirements prohibit the buyer, buyer’s agent, buyer’s attorney, or a third-party short sale negotiator to be the contact point for the agents preparing the BPO.)

“Flipping” schemes where the fraudster “buys” a house at a short sale without putting down any of his own money and then sells it a few hours (or days) later to a legitimate buyer at a much higher price. These are complex multi-step schemes that use falsified title and/or loan documents to fool a lender into approving the ultimate buyer’s mortgage, which the fraudster uses to settle the earlier closing on the house he “acquired” at the short sale for a much lower price.

Manipulating the HUD-1 settlement statement so the fraudster can skim away net proceeds from the sale for himself or other parties in the transaction without the seller’s or investor’s knowledge. (The HUD-1 is the document that itemizes all fees, charges, and other funds involved in a home sale.)

As a result of the uptick in short sale issues, Freddie Mac now requires all of the parties involved to sign an affidavit attesting that it is a true arms-length transaction. These affidavits not only deter individual participation but also give us a stronger legal path to enforce our rights.”

If you are not sure whether someone is trying to draw you into a fraudulent deal, nothing takes the place of having your own legal representation when you sell. But in addition, you can call the Freddie Mac Fraud Hotline at 1-800-4FRAUD-8 or 1-800-437-2838, as well as your local FBI office, state attorney general, and Real Estate Board.

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