3 Most Common Short Sale Scams – DC Fawcett

A short sale is a sale in which the proceeds obtained from the sale is less than the balance owed on the mortgage covering the sale. DC Fawcett reviews the 3 most common short sale scams.

Unrevealed payments

This is a short sale scam committed by junior lenders, sellers, real estate agents  and short sale negotiators. Primary lenders approve the short sales but they place a limit on the amounts received by the junior lenders. This leaves them dissatisfied and unhappy. In turn, they ask the sellers to pay them amounts off the settlement clause. Sellers end up paying these undisclosed payments. When they do this, they are subject to short sale frauds. How do they know if the money lenders would have approved of the short sales if they had known about the undisclosed payment?

 Short sale flopping

In flopping scams, the tricksters are the buyers of the properties. They show the properties as worth very less to the lenders. Offers to buy at higher rates are hidden from the lenders, as they would approve those prices instead. So, the lenders approve the short sales at lower prices instead. Then tricksters contact other bona-   -fide buyers and arrange the properties to be sold at high prices. They ensure that the transactions close at the same time as the short sales and keep the differential  amounts with them. Short sale flopping affect the sellers because they are held responsible for the shortages in the amounts. Even if they are forgiven for the shortages, they cannot escape taxes on the insufficient amounts.

Read also – What is Foreclosure?

Exploitative short sale negotiators

Some fraudsters call themselves as short sale negotiators and take advantage of the highly motivated sellers and buyers. They collect upfront fees from sellers and offer to provide services for short sales. They do nothing in return. When sellers hire short sale negotiators, they should contact the agency of the state to check if negotiators should be licensed. If they should be, then they have to verify whether they are. So, sellers should read documents carefully or they can take the help of an attorney or housing agency to do so. Authentic and successful real estate agents can help.

Danger signals for short sale scams

Danger signals as analyzed by DC Fawcett are

  • Off the settlement statement payments
  • The buyer is phony or purchasing under the power of an attorney
  • The purchasing agreement contains a clause stating that the buyer can resell
  • Upfront fees
  • Fees required to be paid outside the escrow
  • Short sale negotiator is not licensed


Before coming to short sale scams, people have to decide whether a short sale is really good for them. DC Fawcett says Short sales are often done to increase the credit score. But, this is not a guaranteed result. Also when sellers short sell, they are liable to taxes on the deficient amount. Short sales do not necessarily cancel the remaining debt on the mortgage. There are other alternatives to short sales like loan modification, modification of foreclosure deeds and others. But if somebody is doing a short sale, he has to do it carefully.

To Know more about  – Real Estate Tips and Training By DC Fawcett


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