California Real Estate Fraud Report

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Borrowers: Short Sale Fraud is Now Expensive

Short sale fraud will be the real estate fraud crime of this decade, there’s no doubt about it. The criminal can be the real estate agents or the principals to the transaction (seller, buyer). While getting away with real estate fraud is easier than a lot of white-collar crimes due to (1) nobody paying attention (2) real estate fraud can be tricky to prove (3) prosecuting agencies are too overwhelmed to deal with single transaction cases, doing so can be costly.

A new law went into effect January 1. For borrowers who short sale their 1-4 unit properties, the law now prohibits the lenders of the first deed of trust from demanding a deficiency judgment. That is the difference between what was owed on the loan and the price the property was sold.

That’s the good news. The bad news is that if the seller commits fraud in the transaction, i.e., short sale fraud, the lender now has the green light to seek damages and use “existing rights and remedies against the owner or any third party.” The most common form of short sale fraud occurs when the seller demands a cash kick-back from the buyer after escrow has closed. Short sale fraud also occurs when the buyer is related to the seller in any way (family, business, friend, etc.) and the buyer fails to disclose this on the purchase contract.

A link to SB 931 can be found on the California Association of Realtors® website.

© Copyright 2007-2017 Monique Bryher

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The information and notices contained on The California Real Estate Fraud Report are intended to summarize recent developments in real estate fraud, mortgage fraud, short sale fraud, REO fraud, appraisal fraud, loan modification scams, loan modification fraud and other real estate related crimes occurring in Los Angeles and California. The posts on this site are presented as general research and information and are expressly not intended, and should not be regarded, as legal advice. Much of the information on this site concerns allegations made in civil lawsuits and in criminal indictments. All persons are presumed innocent until convicted of a crime. Readers who have particular questions about real estate fraud, mortgage fraud and appraisal fraud matters or who believe they require legal counsel should seek the advice of an attorney.

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