Banks Keep an Eye Out for Short-Sales Fraud

Short-sale fraud totals $310 million annually and the average amount of fraud is $41,000 per transaction, according to real estate research firm CoreLogic’s 2010 short-sale research study.



"The best way to mitigate fraud risk and unnecessary loss is through a collaborative effort where lenders collectively share pre-closing and post-closing information,” says Craig Forcardi, senior research director, consumer lending at The Tower Group.



CoreLogic concluded:



The number of short sales in the market has more than tripled since 2008, with the estimated annual volume at 400,000.

Over half (55.8 percent) of all short sales occur in just four states (California, Florida, Texas, and Arizona).

Approximately 4 percent of short sales have a subsequent resale within 18 months.

Investor-driven short sales are not inherently bad. Investors provide the industry with necessary liquidity.

Short sale transactions may be deemed risky to the lender when either the second sale amount is vastly higher than the short sale amount, and/or the two sale transactions are executed within a very short window of time.

Approximately one in every 53 (1.9 percent) short-sale transactions was part of an egregious flip and therefore deemed risky.