CoreLogic, a real estate data and analytics firm, estimates that while short sales have tripled since 2008 and are saving literally thousands of homeowners from foreclosure, that lenders are losing money in the process – a lot of it[1]. By the end of 2010, CoreLogic research indicates that lenders will have lost as much as $310 million to “unnecessary losses” occurring through short sale fraud. In fact, the report estimates that this type of fraud occurs in one of every 53 short sales, and that the average loss in each instance is $41,500.

The main problem (for the lenders) and the way that CoreLogic is spotting this “fraudulent” activity is by looking for resale of the property within the space of 18 months or less. While CoreLogic emphasized that investor short sales “are not inherently bad because investors provide the industry with necessary liquidity,” it went on to say that short sale transactions of this nature do pose a fraud risk if the investor makes a significant profit or if the short sale and the resale are executed within a short period of time.

I understand that it is important to lenders to recoup as much as possible on these sales, but I still fail to see why it is so important that investors be sure not to make as much money as they possibly can on the sale. To further complicate matters, CoreLogic released a statement declaring that lenders should have both pre- and post-closing information on the property and that all buyers for the property must be disclosed before the short sale occurs, even if the end-buyer is working directly with the investor-buyer. Essentially, this will enable lenders to cut investors out of the deal when it suits them, which does not seem entirely fair.

Do you think that this report represents a problem for short sale investors, or is this just more of the same “fraud” complaint that has been an issue for nearly a year now?

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