It is estimated that lenders lose hundreds of millions annually in undervalued short sale transactions. Loss mitigators working on behalf of the lenders have anywhere from 450 to 600 active files on their desks at any one time. Working the best deal for the lender is an all-consuming task for the loss mitigators and each short sale has its own complexities.
When a seller applies for short sale approval, the seller submits hardship affidavits and signs forms such as a “Purchaser Eligibility Certification” which includes statements such as:
In making this request for consideration of a short sale I certify under penalty of perjury:
- All of the information in this document is truthful.
- I/We agree that the financial information provided is an accurate statement of my/our financial status. I/We understand and acknowledge that any action taken by the lender of my/our mortgage loan on my/our behalf will be made in strict reliance on the financial information provided.
- I understand that if I have intentionally defaulted on my existing mortgage, engaged in fraud or misrepresented any fact(s) in connection with this document, the lender may cancel any modification of foreclosure prevention agreement and may pursue foreclosure on my home. I understand the lender will use the information in this document to evaluate my eligibility for a short sale.
Even with statements such as these, the loss mitigator still goes through a process to confirm that the information provided by the seller is true, but some fraudsters have found ways around this.
In August 2010 Ticor Title office closed a short sale transaction. The seller (we will call him John Doe) had two loans on the property and the lender on both loans was the same. The sales price was $425,000 and the Lender agreed to the sale and issued short pay approval letters for both loans.
The buyer was a LLC, and the managing member of the LLC was Jane Doe. The buyer purchased the property with cash and did not get a purchase money loan. At closing, the buyer and seller both signed an arm’s length affidavit which contained these statements:
“There are no hidden terms or hidden agreements or special understandings between the Seller(s) and the Buyer(s) or among their respective agents which are not reflected in the Agreement or the escrow instructions associated with this transaction.
There is no agreement, whether oral, written, or implied, between the Seller(s) and the Buyers and/or their respective agents which allows the Seller(s) to remain in the property as tenants or to regain ownership of the Property at any time after the consummation of this sale transaction.”
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