BiggerPockets

This and many other articles alike are popping up to sell newspapers and magazines. What they ALL fail to mention or specify is that not ALL short sale transactions are fraudulent, not all investors are crooks and of those that are, they are a small minority in which the guilty party failed to properly disclose and had full intent at the start.

If you as an investor negotiate to buy a property for under market value and disclose to the short sale lender your intent to immediately re-sell for a profit, then no fraud occured and no laws were broken. The bank performs and orders there own BPO and appraisals, and does their own analysis of the value and loss they are willing to accept. Once they agree to it, it was their decision, not yours.

Chris,
"A flop works the other way. Rather than inflate the value of the house, they deflate it so the lender will permit the borrower to sell the place for far less than what it's worth. Then the buyer or realty broker, who is often part of the fraud, sells it to someone else at its true value and splits the profit with others in on the deal."

So I guess in this case the bank is relying on the scammer for the value of the house right? LOL..really this is getting nuts. If the bank relied on what I THOUGHT the value of a house was, I'd be RICH. Oh wait, and potentially in jail. I have to ASSUME that the bank is going to do their due diligence.

Also, look up how many short sale fraud convictions there are. You might be very surprised to see the result.

I agree somewhat with your vague premise that there is certainly risk on the part of any investor who takes it upon themselves to negotiate a sale on a property for less than market value. Disclosure alone would not be enough if the investor/agent pre-empted a previous offer with their own lower offer. However, all of the articles and legal complaints I have read involve collusion or some pre-emptive tactic which involved an A to B being change to an A to B then a B to C transaction.

Eric, let me throw this at you.

One of the agents we work with got a listing. He got it under contract for $155,000 and started the negotiations with the lender - Two months later a back up offer of $163,000 came in and he was able to get the $155,000 approved.

Is it fraudulent to let the approved $155,000 offer go forward knowing a backup offer at $163,000 came in and wasn't presented to the lender? Only one contract a time can be in place.

As far I know no lender has a guideline that every offer be presented. Imagine what a paperwork nightmare that would be for everyone. I also think the guy with the $155,000 offer has a GREAT lawsuit if the $163,000 screws up the sale.

So is this agent committing a fraudulent act? Most agents I know don't submit multiple offers to lenders. They know the headache involved. They get one signed offer by the homeowner and push forward.

"Any misrepresentation or deliberate omission of fact that would induce the lender, investor or insurer to agree to the terms of a short payoff that it would not approve had all facts been known."
From Freddie Mac -
Did this agent INDUCE the lender to accept the $155,000? - No he merely substatiated his first offer.

Now - That was an agent situation.

If an investor puts in his purchase and sale he intends to resell immediately and the next offer on the property is to be delivered to the buyer, was there a misrepresentation? Did the lender get INDUCED into taking the offer?