When homeowners in foreclosure run out of options that would let them keep their homes, many decide to sell. The problem they run into, though, is that they owe more on their home than it is worth, and no potential buyer is willing to pay tens of thousands of dollars above the market value. In this case, a short sale may be the perfect solution, but the possibility of fraud has been contributing to lenders' reluctance to approve offers. In a typical short sale, the homeowners provide an appraisal or Broker's Price Opinion (BPO) to the mortgage company to prove that the property is not worth as much as they owe on the loan. This is to convince the bank that it is better to approve the short sale offer, accept less than the total amount owed, and get as much as they can for the property. This can be an effective solution to foreclosure if the numbers make sense to the lender.
Unfortunately, the same speculators, investors, and other home buyers that relied on deception and fraud to obtain mortgages during the real estate boom are now engaging in the same tactics to defraud banks in short sale transactions. During the bubble, appraisals were often inflated, using the highest comparable sales, even if the compared properties were not in the same town or were built decades apart, for instance.
Now with the collapse of the housing market, this fraud is being reversed. The people selling are offering appraisers or real estate brokers fees to create the appearance that a house is worth far less than its true market value. Comparable sales with low values will be used, and any defects of the property will be highlighted when presenting a short sale offer to the bank.
But this deception makes it easier for those who get away with the fraud to sell their home through a short sale to a friend or family member and end up with a much lower mortgage balance. The bank may accept $50,000 less to avoid foreclosure, but the homeowners stay in the property and make rental payments to whomever purchases the house through the short sale. They may save hundred of dollars a month in payments.
While this tactic is perfectly legitimate and may work for many homeowners who are facing a financial setback that changes their long term income potential, the deception practiced on the bank is still counterproductive. It may work in some individual circumstances, but it makes the banks more wary of accepting short sale offers from other foreclosure victims.
And with fewer short sale offers accepted, more properties will go into foreclosure, which will drag down property values even further. People that have a short sale approved through fraud may find out in several months that they are back in the exact same position of owing more on the home than its current market value justifies. Of course, this situation will require another manufactured BPO and short sale offer. Nick publishes articles providing foreclosure help and solutions to borrowers who are in danger of losing their properties. His sites examine numerous solutions to saving a home, including large sections on how to qualify for a loan modification that will not almost certainly default. Visit his site today to learn more about how foreclosure works and why a mortgage modification will benefit you: http://www.foreclosurefish.com/
