Short Sale Fraud

One of the truly interesting things about working in real estate is watching some of the ways that people come up with to work around (or outside) the edges of legal and ethical behavior. I hear people say that it's a sign of the times, that scams tend to happen when the economy is tight. But really, we had other scams going on when things were hot as well. It's like this crazy game of Whack-a-Mole. Some scam pops up, the authorities figure out how to combat it, and almost instantly, a new scam pops up. The "Mole" of the day is fraud related to short sales.

The big thing to remember about short sale fraud is that what we're typically talking about frauds perpetrated against a federally insured lender. That's a federal felony offense, boys & girls, punishable by 30 years in prison and a $1,000,000 fine. And I don't think you'll be playing tennis with the Enron boys if you go down this road.

Probably the biggest key thing that you as a consumer need to understand is the simple concept that any and all payments for anything must - absolutely must - be paid through escrow and disclosed on the closing statement to all parties. If someone is trying to encourage you to handle something outside of escrow, be afraid. I heard one of our California Association of REALTORS® attorneys put it this way a few weeks ago: When you hear the words "outside escrow" in a sentence, just replace them with the words "in a dark alley". It's pretty much the same thing.

I could write about this at some length, but lucky for me, the California Association of REALTORS® has saved me a lot of typing and you a lot of my typical tortured prose. They've published this article, and if you find yourself in the middle of a short sale transaction and something just doesn't smell right I would encourage you to take a look at it. Or better yet, consult an attorney before getting in too deep. It's a lot of reading, but it's probably better to read about it now than wait until you find it in the prison library...