Red Flags For The 7 Most Common Short Sale Scams

Red Flags For The 7 Most Common Short Sale Scams

In a previous article we discussed the 7 Most Common Short Sale scams reported in recent history. It is very difficult to recognize a threat you do not know about. Well, now that you know what they are, let’s dive even deeper and in how to recognize them and avoid being taken advantage of.

Undisclosed Payments

The main thing to watch out for is anyone suggesting and hinting at giving or receiving anything on the side. It is absolutely illegal to transfer any funds from this transaction outside of the transaction. Before closing, both the buyer and seller will have to sign a closing disclosure, aptly named, disclosing all funds coming from the transaction. Any monies not on there are not legally enforceable, nor legal to provide or accept.

Fake Buyer

This is very difficult to catch and the bank is usually the only entity with the resources to catch this scam. The issue is with a fake buyer is you will not ever notice it is happening unless you keep really tight records. The good news is if you keep you closing documents you will not be held liable for any damages.

Fraudulent Short Sale Negotiator

This one is easy. With a short sale the seller should pay no fees out of packet during the transaction.Everyone is paid at closing from the bank or the sale proceeds. If anyone asks for funds upfront they’re scamming you.


Another easy one to spot, however, leasebacks are not illegal. Bottom line, the legal liability taken on by anyone purchasing a short sale and allowing the seller to stay in the home is so overwhelmingly negative, no legitimate buyer will lease you the home you’re selling. Although it may sound like a good compromise, there is little to no legal protection to keep you in the home after the transaction.

Straw Buyer

Having a straw buyer is not only illegal, but offers no legal protection to complete the transaction. After the short sale approval and before the closing the bank will have you sign a document stating you will not make an attempt to purchase the house back. Before then, the buyers sign a document stating they do not know you and will not attempt to sell the property to you. So,should you attempt this you are literally on your own and will be prosecuted if discovered.

Reverse Staging

This is a common scam, unfortunately, offered by real estate agents. It involved purposely taking actions that lower home values so the short sale is evaluated at a lower price. It is commonly accompanied by one of the aforementioned scams as well. The issue is, especially in the older states like NJ, some values cannot be recovered. There are homes older than the United States itself and the material used cannot be replaced. Keep in mind not all short sales are approved and doing this can put you in a worse position than you started.

Additional Help

Scam really affects the seller on the back end. Some unscrupulous agents hire unnecessary help and bill the bank for their services while pocketing their fees. Their fees would be on the HUD so it is technically legal to do so. However, if you are receiving funds from the bank, it can take away from what the bank approves you to receive. Additionally, if the bank decides to hold you liable for any funds, you would still be liable for those additional fees.

John Lewis Headshot
Phone: 201-855-9377
Dated: March 25th 2019
Views: 449
About John: Specializing in Distressed Properties and Foreclosures, I have been regarded as "the angel realtor."...

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