break(great for any design)Freddie Mac contends that fraud is rampant among short sales and REOs despite the improvement in the U.S. housing market. According to Rob Hagberg, associate director of fraud investigations at Freddie Mac, “This area is ripe with fraud.” He pointed to a variety of practices that are becoming more and more common during short sales and REOs and cautioned mortgage servicers and others in the industry to be on the lookout.

Perhaps the most common form of fraud is the straw buyer. This occurs when a buyer temporarily purchases an undervalued home via REO or short sale, and then sells it to a third party at a higher price.

Bribery is also rampant, with fraudsters offering kickbacks to REO brokers. They will go so far as to manipulate MLS data to reduce the prices of comparable properties nearby, and stage properties in such a way that they appear worse off than they really are. This includes everything from strewing garbage about the home to hiding rotting food like fish in kitchens and removing kitchen cabinets.

Hagberg also pointed to what he calls the “short sale and stay.” This occurs when an underwater homeowner needs to lower their loan amount. What the homeowner will typically do is recruit a friend or family member to purchase their home via short sale, and then they will stay in the home. People are becoming more and more crafty, with couples resorting to practices like a woman using her maiden name to purchase the home from her husband.