We all know the old adage, “If it sounds too good to be true, it probably is.”  Well, anyone facing foreclosure or considering a short sale should keep that in mind as there is a new breed of scam artist on the street.

Short sale scams are perpetrated at many different points in the process and can involve, knowingly or unknowingly, the homeowner, the real estate agent, the negotiator or other third party, and/or the buyer; basically anyone who is a party to the transaction. A few types of scams include fraudulent short-sale flips, negotiator scams, bogus short-sale packages, improper payments and upfront fees.

Let’s start with upfront fees, as that is the first scam that an underwater homeowner is likely to face.   To the person unable to pay their mortgage, possibly facing foreclosure, a fast solution is exactly what they are looking for.  The scammer often poses as a negotiator or real estate agent who guarantees a short sale approval in as little as two weeks.  To reinforce credibility of the claim, the scammer might say that they are related to someone on the inside, such as a bank vice president or negotiator…..some sort of relationship that gives them an insider’s advantage.  The scammer then asks for an upfront fee which could range from $1000 to $5000, and he/she might even ask for the required documentation such as pay stubs and bank statements.  At this point, the scammer has the money and proceeds to do little or nothing to work with the bank.  Two weeks later he tells the homeowner that he is sorry, but the bank will not approve the short sale.  The scam might vary, but the basic idea is that the scammer does nothing, and the home owner is not only out the money, but has lost precious time. 

Here are a few ways homeowners can protect themselves from upfront fee scams and make sure they are hiring someone who can help versus hurt their situation: 

  • Check the credentials of the individual or company that would provide the service.  If they are licensed, such as a real estate agent, check the status of their license with the department of real estate, www.dre.ca.gov
  • Ask for references, and follow through by carefully checking them.
  • Thoroughly read all documents before signing anything.  Make sure you understand everything and do not sign anything with spaces left blank, especially if told they are inconsequential.
  • Get as much information as possible and consult other professionals, family and friends before making a decision.
  • Refuse to pay any upfront fee or provide credit card information.

Check back and we’ll look as some additional red flags for short sale scams.