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Short Sales Are Targets For Mortgage Fraud

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Short Sales Are Targets For Mortgage Fraud

— California investigators say there are a lot of people trying to take advantage of the complicated short sale process. Short sales happen when people try to sell their homes for less than the money owed to a bank. The comment came at a San Diego Association of Realtors roundtable. There are a lot of short sales on the market and most people don't understand the process. That leads to fraud.

"Basically that amounts to trying to get an unfairly low offer accepted by the lender," said Phil Idhe, investigator for the California Department of Real Estate. "And then turn around and sell it for a higher price to the buyer, who in effect could have bought it for the price that the lender sold it for."

Instead, the seller pockets the difference. Because there's still a lot of distressed inventory on the market, the situation isn't expected to get better soon.

"That's where the fraud is taking place, not in the loan per say, because the buyer who ultimately purchases that property with that loan would still have to qualify. But the fraud's occurring between the lender trying to unload the property and the ultimate purchaser," said Idhe.

About a third of all homes sales in California involve the short sale process. It's not clear when that number is expected to get smaller.

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