The number of short sales has more than tripled in the past three years and with that, the opportunity for fraudsters to make quick money has also grown. Known as “flopping”, an underwater seller arranges a short sale with their mortgage holder and then intentionally misleads the bank about the condition of the property in order to sell it for as low of a price as possible to an accomplice. This includes intentionally causing harm to the property such as removing appliances and cabinet doors, spreading possum urine around a house and then leaving the heat on and windows closed for days, painting fake water damage on ceilings, and anything else they can think of that would reduce the value of the house such as giving appraisers fake repair estimates created by cooperating contractors. Because it is a short sale, the difference between the selling price and what the original debtor owed is often forgiven. After the property is sold, the buyer cleans and repairs the property then sells it for an average gain of 34% or around $55,000 dollars. Not only does this release the original mortgagee from the debt owed on the home, but they can also make a profit when the house is eventually resold. The banks have a hard time refuting fake damage claims without full investigations so except for repeat offenders, sellers have generally been getting away with the scheme.
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