Beware of The Short Sale Investor

August 10, 2011 by  
Filed under Beware of The Short Sale Investor

Beware of The Short Sale Investor

In recent year, short sales have become quite common due to the fact that so many homeowners owe more than their houses are worth. In a short sale, a seller facing potential foreclosure strikes a deal with their lender to accept less than they owe on the property, in exchange for avoiding foreclosure.

According to a recent study, 1 out of 53 short sales generated “unnecessary losses”, which may or may not mean there a short sale fraud occurred. Four states, including California, Arizona, Colorado and Florida, accounted for 55.8% of the suspicious activity. Study results estimate the average loss to lenders on a short sale fraud to be $41,500.

But wherever there are home sales, there are the opportunities for home sales fraud. Short sales pose a suspicious risk in a variety of ways.  There is the chance that a buyer may flip the property for a 10% profit, less than one month after the bank unloads it. The same-day turnaround of a short sale can be fulfilled by what is called as a “back-to-back” closing. In this case, the investor prepares two different contracts - A purchase contract with the short sale lender and a sale contract with a third party. The purchase transaction is first executed, followed immediately by the sale contract.

Overall, roughly 65% of the resales after the originally short sale transaction were deemed “suspicious” and caused direct and unnecessary losses to the bank.  For further information or questions on short sales, please contact

Housing Assist Coldwellbanker