With short sales on the rise, mortgage fraud scams involving these transactions may be following the same trend.[IMAGE]
In fact, two former Connecticut real estate agents, Sergio Natera and Anna McElaney, recently pled guilty to bank fraud stemming from their involvement in a short sale mortgage fraud scheme. According to ""court documents"":http://www.mortgagefraudblog.com/ee-assets/my-uploads/NATERA.pdf, Natera and McElaney worked together to defraud various banks, including ""Regions Bank"":https://www.regions.com/personal_banking.rf, ""Wells Fargo"":https://www.wellsfargo.com/, and other financial institutions by means of ""materially false and fraudulent pretenses, representations, and promises.""
In the case of Regions Bank, Natera and McElaney deceived the bank into agreeing to a short sale on a property for which it held two mortgages on. McElaney, who was the listing agent for the property, received an offer to purchase the property for a price of $132,500. However, she and Natera subsequently directed communications to Regions Bank that the highest offer to purchase the property was for $102,375 by BOS Asset Management, LLC, an entity Natera controlled.
The bank agreed to the short sale of the property for the lower price and released its mortgages on the property. Shortly thereafter, Natera, through BOS Asset Management, sold the property for $132,500 to the initial[COLUMN_BREAK]
bidder. He and McElaney then retained the difference in the two sale prices.
Natera and McElaney used this scheme in various other short sale transactions and have been charged with bank fraud, conspiracy to commit bank fraud, and aiding and abetting. They both await sentencing in August.
The ""Office of the Special Inspector General for the Troubled Asset Relief Program"":http://www.sigtarp.gov/ (SIGTARP) warned of the potential risk of short sale fraud in its recent ""quarterly report"":http://www.sigtarp.gov/reports/congress/2010/April2010_Quarterly_Report_to_Congress.pdf to Congress. In the report, SIGTARP said revisions to the Home Affordable Foreclosure Alternatives (HAFA) program under the Home Affordable Modification Program (HAMP) present an increased prospect of potential fraud.
As part of the new initiatives, Treasury announced that additional incentive payments will be paid to borrowers and servicers who participate in short sale provisions. This also increases the incentives for those participating in criminal short sale scams, and it appears that the program may lack necessary antifraud protections, SIGTARP said.
The report cited ""flopping"" Ã¢â‚¬" which is exactly what Natera and McElaney have been accused of Ã¢â‚¬" as one prevalent short sale scheme. SIGTARP explained that this scam centers on home values that are fraudulently deflated for the purpose of decreasing the cost of the short sale to a ""straw purchaser."" The property is then quickly resold for its true market value, leaving the difference in the ""crook's pocket,"" the report said.
SIGTARP said the HAFA program permits home valuation, the key vulnerability point for a flopping scheme, without a true appraisal, allowing estimates from brokers or other ""independent"" provider at the discretion of the servicer, subject to its contractual agreement with the investor.
To combat this risk, SIGTARP recommended that Treasury adopt a uniform appraisal process across all HAMP and HAMP-related short sale programs consistent with the Federal Housing Administration's procedures.