Will Rise in Short Sales from HAFA Mean Rise in Fraud?

When the Home Affordable Foreclosure Alternatives (HAFA) program launches on April 5, 2010, it is expected that there will be a significant increase in the demand for short sales. With that, unfortunately, there is also an anticipated rise in fraud from unscrupulous borrowers, and lenders are putting systems in place to protect themselves.

The US Treasury Department announced the HAFA program, which will provide incentives to servicers that provide short sales in lieu of foreclosures to borrowers who do not qualify for a loan modification through the Home Affordable Modification Program (HAMP).

Now that short sales are beginning to increase in demand in anticipation of HAFA, some lenders are having those involved in a short sale transaction, borrowers, buyers and real estate agents, sign affidavits assuring that there are no under-the-table agreements and the transaction is taking place at arms length.

One of the problems is when a borrower has a relative or partner purchase the property in a short sale and then rent it back to the defaulted borrower. There is also a situation where an investor makes a lowball offer to the lender to buy the property at a short sale. If the lender approves the offer, the investor then sells the property to an end buyer at a double closing. In that case, the investor collects the difference between the amount of money the lender was willing to accept for the short sale and the purchase price that could be obtained on the open market with another buyer. Because of this, there are many lenders that now require that any offer come through a licensed real estate agent.

As another attempt to combat fraud with regard to short sales, Fannie Mae requires borrowers wait for a mandatory two years before they qualify for the purchase of another home with a Fannie Mae backed mortgage.

Times are tough and there always seem to be people out there who want to take advantage of the system to make or save a buck. The short sale system is designed to help people with legitimate hardships avoid foreclosure. The HAFA program will help expedite, what has thus far been an arduous process, and hopefully help many more people. I hope the fraud is kept to an absolute minimum.

Calabasas and Westside real estate and homes for sale


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