According to Realtor Magazine a product of realtor.com, Fannie Mae and Freddie mac will be implementing new short sale guidelines after the first of the year. It appears that everyone involved in a short sale will be liable for “negligent or intentional misrepresentations in the transaction” and will have to sign affidavits stating that they are handling the transaction to federal standards. The addition of the affidavits to the short sale process is designed to help everyone involved in the short sale “identify potential mortgage fraud and [have] a clearer understanding of the intent of all parties involved in the real estate transaction,” the GSE (Freddie Mac) announced in a public statement last week. The move is specifically designed to prevent “flopping” short sales, which occurs when short sale properties are purchased from the bank at a discount, then sold immediately for a higher price. That is not my definition of flopping. Flopping is when there is fraud added to the short sale equation; such as agents buyers and sellers, title professionals etc. intentionally and fraudulently participating in the acquisition and sale of short sale properties. Examples of fraud would be fraudulent BPOs being submitted or utilization of a straw buyer. The government agency apparently considers this practice unscrupulous because it involves at least one party having knowledge of another party willing to pay more for the property than the amount for which the bank is settling.
The notion that reselling property for a profit is apparently unheard of to the GSEs. But Fannie Mae is utterly unconcerned with reality.
Although the changes to the process do not have to be implemented before January 1, 2012, the government is asking that servicers “implement the change immediately to fight fraud.” Along with the affidavit announcement, Freddie Mac also announced that borrowers more than 120 days delinquent no longer have to list their home for sale in order to become eligible for a deed-in-lieu transaction (DIL).
At least that is one good aspect of the GSE actions. DILs may be an option for many homeowners now.
Paddy Deighan, Esq