Monday, August 29, 2011

Freddie's Friendly, Subtle 'Warning' To Real Estate Agents On Short Sale Fraud: 'Don't Play A Role, Don't Look The Other Way!'

Housing Wire reports:

  • Freddie Mac recently began reaching out to real estate associations and fielded more calls on a rising rate of fraudulent short sales. [...] Shelley Poland, a vice president at Freddie, and Robert Hagberg, the associate director of fraud investigations, said in a blog post Monday the mortgage giant sees short sale fraud on the rise as well — especially when real estate agents fail to disclose other parties involved in the transaction, who will rig sales at a low price and hide better offers from Freddie and the distressed homeowner.

  • "Then, after the house is sold, the fraudster can flip it a few hours later for the better price and walk away with the profitable difference," the Freddie executives said.


  • Short sales fraud is now the top priority for Hagberg's investigation unit. It began working with these real estate agents and law enforcement to detect suspicious activity before a deal closes. The unit also built an exclusionary list of companies and individuals who will can no longer do business with Freddie.

  • The unit soon began seeing trends. Some agents provide false offers on a property to discourage legitimate bids and ensure accomplices get the property for a planned low bid. Others manipulate the listing price to make the house seem more problematic than it is by inflating repair costs and obtaining an artificially low broker price opinion.


  • Others even skew the HUD-1 settlement statement, which itemizes fees, charges and other funds, to skim away proceeds from the short sale.

  • Freddie now requires all parties in a short sale to sign an affidavit, holding them liable if investigators find the transaction wasn't done at arms-length.

  • "There are many conscientious real estate professionals who want to do the right thing. We often receive calls in our servicing, quality control, fraud investigation, outreach, and HomeSteps divisions from real estate agents who know they've seen something inappropriate and won't look the other way,"(1) the executives said. "They understand that real estate fraud turns a shortsighted profit at the cost of the public's long-term confidence in homeownership and the housing industry."

For more, see Freddie Mac alerts real estate agents to rising short sale fraud.

See also, Freddie Mac: Teaming Up to Fight Short Sale Fraud.

(1) Real estate agents may want to note that, as a practical matter, they legally can't look the other way, at least not without opening themselves up to potential criminal exposure for misprision of a felony, a federal crime. See 18 U.S.C. §4:

  • Whoever, having knowledge of the actual commission of a felony cognizable by a court of the United States, conceals and does not as soon as possible make known the same to some judge or other person in civil or military authority under the United States, shall be fined under this title or imprisoned not more than three years, or both.

A couple of dozen court cases decided in 2011 alone is an indicator that the Feds don't take too kindly to those who, when witnessing a felony, simply look the other away and engage in willful ignorance in an attempt to establish plausible deniability in the event law enforcement investigators question them in the future about their knowledge of a crime they've witnessed (this seemingly-convenient 'lapse' into a state of willful ignorance by those witnessing a bad act is referred to by some as 'pleading the dummy defense').

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