Presented by:
Kathy Mehringer CRB, SFR®
SFR® Instructor
California Association of REALTORS®
Director for Life
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What is Short Sale Fraud?
 The misrepresentation or omission of material facts designed to
induce a Servicer / Lender to agree to agree to the sale of a
property
 At a price, terms and/or conditions which would not have
been agreed to had the true facts been known
 What does fraud look like:
 Property Flopping / Flipping
 Non-Arm’s Length Transactions
 Non-disclosure of dual agency representation by broker
 Misleading lender / servicer as to distribution of commission
and/or other payouts
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What is Short Sale Fraud?
 Falsification, manipulation AND/OR multiplication of HUD1
Settlement Statement(s)
 Abuse of the Multiple Listing System (“MLS”)
 What / When / Where
 Fair Market Value maneuvering
 BPO
 Abuse of MLS data
 Reverse staging
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Prevent Mortgage Fraud
Recognize Red Flags
Another Definition of Fraud:
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Deceit
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Trickery
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With intent to profit
Recognize the Red Flag:
“If it sounds too good to be true………..”
“Trust me it’s perfectly legal…………….”
“I can give you the secret to multiple commissions…”
DON’T JUST SAY “NO” SAY “HECK NO!”
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Scams and Schemes
 We are all part of the solution!
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Honest Realtors®
Broker defense lawyers
Risk management advisors
Brokers and managers
Real estate trade organizations
Law enforcement agencies
Buyers and sellers
Lien holders and servicers
Settlement Service Providers
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Scams and Schemes
 Recognize: Its easy
 Be alert and pay attention
 Reject: Not hard when you understand the
consequence
 Just say “NO”
 Report: Take the time to do the right thing
 Walk the walk – don’t just talk the talk
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Scams and Schemes
Real Estate
Licensees:
“Earn three
commissions
on every short
sale”
Investors
“Flip ‘em and
Flop ‘em” I can
show you how
Cash for
homeowners:
“Only to you
will
my secrets
revealed!”
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Arm’s Length Affidavits
 Require borrower(s) and buyer(s) signatures
AND
 Listing agent and buyer’s agent signatures
AND
 Are signed under penalty of perjury
AND
 Ought to be read carefully before signing
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Distressed Homeowner :
In Default OR Danger of Imminent Default
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Mortgage or Loan(s) – More $$$
 Some Scams & Schemes
 Seller persuaded to: Transfer into a trust w/ beneficial interest
to interested party; Stop making payments OR Pay to Con Man

Power of Attorney
 Short Sale Negotiator is Buyer or works for Buyer
 Deed transfer, quit claim, multiple bankruptcy filings
 Quick Sale below FMV “for the flip”
 Falsify MLS info, bogus offers, fake photos, listing agent freezes out
offers in order to self sell mulitiple HUD-1’s
 LLC Buyer, reverse staging, bogus liens, bogus repairs
 Settlement service provider “in pocket” manipulates HUD-1 outside
escrow payouts
 Pre-determined buyer - double escrow to retail buyer A-B-C
 Close Escrow – Jail time
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Current Fair Market Value – Less $$$
 Legitimate Real Estate Representation
 Open to market and Public Brokers
 Present all offers to seller
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Secure highest price with best terms from a legitimate qualified buyer
 Best offer to short sale lender
 Disclose all material facts, addenda, agreements
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HUD settlement & lender approval letter match
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No money changes hands without consent of short sale lender
 Adhere to Arm’s Length Affidavit
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No money transfers outside of escrow
 Close Escrow and complete short sale
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Just When You Think You Have Seen it All
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Red Flags
 Listing agent (individual) also represents buyer
 Dual Agency IS NOT necessarily problematic as long as
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offer is legitimate
No counter offers negotiated with purchase contract
MLS data entered the same day as the sale
Listing agent unable / unwilling to provide market activity
verification
Specific escrow company as a condition of sale
 “Off Brand”
Offers from LLC
 Multiple Offers in queue from other LLCs
 “Teasing the Lender”
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6+6=12 Preventative Measures
Property Inspections
2. Independent Licensed Certified Appraisals
3. Preliminary Title Reports
4. Review contracts for added language:
a. I’m robbing you but I’m telling you
b. “Buyer intends to resell at a profit”
5. Controls on LLC transactions
6. Cash purchases / verify funds upfront
1.
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12 Preventative Measures
Pre-Approval letters / legitimate source
Third Party Short Sale Negotiators
Implement Exclusionary List
Minimum MLS marketing time
a. In the relevant MLS
5. Require Market Activity Report
6. Require both Buyer and Seller side of HUD-1 Settlement
Statement
a. Why would a Buyer agree to pay off liens, debts, short
sale negotiator or any additional fees?
b. Because the house is being sold at a price well below
fair market value, right?
1.
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4.
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Enforcement Efforts are Underway
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Fraudulent Short Sale Approval Letters
 http://www.fbi.gov/losangeles/press-releases/2012/three-arrested-in-losangeles-and-orange-county-for-fraud-involving-short-sale-real-estatetransactions?utm_campaign=emailImmediate&utm_medium=email&utm_source=fbi-in-thenews&utm_content=106751
 U.S. Attorney’s Office June 15, 2012 three arrested in Los Angeles and Orange County for
Fraud Involving Short Sale Real Estate Transactions
 Alleging they defrauded homeowners, financial institutions, and real estate investors in
schemes that targeted the distressed homeowner market and allegedly caused more
than $10 million in losses,
 According to court documents, the defendants used a variety of schemes, at least two of
which centered on fraudulent short sale approval letters purportedly issued by a bank.
 Many of the properties utilized in the schemes were distressed homes. In some cases,
the defendants claimed to have insiders working at the bank who, in exchange for cash,
would authorize short sales for far less than the fair market value. This allowed the
defendants to “flip” the house for a significant profit.
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Federal Bureau of Investigation
 http://www.fbi.gov/losangeles/press-releases/2014/real-estate-
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professional-pleads-guilty-to-federal-bank-fraud-charges-for-illegallyflipping-central-coast-residential-properties
San Luis Obispo real estate broker pleads guilty to a short sale
“flipping” scheme
He purchased homes at artificially low prices and resold them at a
profit
Between January of 2010 and September of 2012 the broker admitted
that he made false representations about the fair market value of the
short sales he was purchasing
While negotiating the short sale at a lower price he simultaneously was
negotiating the flip at a much higher price
Profiting in excess of $500,000.00
The Judge will impose the sentence in June of 2014
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Question and Answer Time
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