Wherever there is a crisis, there will be a line of unscrupulous people poised to take advantage of it. The housing crisis is no exception. According to CoreLogic, fraud occurs in one in every 53 short sales. And sometimes, it's not the homeowner but the lender who is targeted in the scam.
While hearing that lenders have gotten burned may not exactly bring fret to the brow of the underwater-mortgage crowd, a fraud is a fraud is a fraud -- and it actually does undermine home sellers, who may be taxed on the difference between the loan balance owed and the price the house fetched in a short sale or foreclosure auction.
The scam that seems to most plague lenders is known as "short sale flopping," although it is a pattern being applied with equal gusto in foreclosure resales. It works like this: Real estate agents hide their affiliations with third parties involved in the transaction and then rig the sale for a lower price to that buyer, not disclosing better offers to the lender (and the distressed home seller if he's still in the picture). Then, after the house is sold, the agent flips the property back on the market at a higher price and, once it sells, walks away with a profit to be split with the straw partner.
Neighbors are frequently the best whistle-blowers in these cases and do have a horse in the race: a low comp on the books will impact the value of their own homes. Neighbors should watch for "investors" buying way below market in their area, especially if the home is quickly put back on the market at a higher price. It may mean that someone just got a great deal, but it also could mean that there was collusion on the part of the agent representing the property. (To report suspected fraud, Fannie's tip line is 800/7-fannie, or e-mail: email@example.com.)
Flopping houses isn't the only scam going on, of course.
Fannie Mae reports seeing a lot of what it euphemistically calls "reverse staging," where homeowners willfully trash their home to intentionally lower its value. Someone they know makes a low-ball offer and buys it for a song, makes the cosmetic repairs and flips it for the true market value.
And then there are buyers who sell on a short sale to a friend or relative, with the intention of lowering the principal loan amount on the property to something more affordable. Once the short sale closes, the original owner pays the new buyer until the point his credit is repaired and he can once again qualify for a loan. In the meantime, he stays in his house for a lower monthly mortgage. It's a way that parents have been able to help their children and grandchildren, or vice versa.
Location: Cherry Hills Village, Colo.
Price: $8.95 million
Sq. Ft.: 21,320
Situated in affluent Cherry Hills Village, this home is absolutely enormous, spanning more than 20,000 square feet on its 2.5-acre plot. The home boasts mountain views, five fireplaces, a giant family room and a garage that holds a whopping nine cars. The neighborhood homeowner's association offers a clubhouse, pool, tennis courts and trash removal.
This shingle-style mansion commands 359 feet of beachy lakefront and three total acres of prime Orono real estate. The residence, which features tile floors and vaulted ceilings, also offers a carriage house for any guests you'd like to keep at arm's length on their lake house sojourn.
Behind its stately stone and stucco exterior, this home offers equally elegant interior character with decorative features, like exposed-beam ceilings, reclaimed wood floors and Victorian-style chandeliers. The home sits on a ridge in the Upper Canyon of Silverleaf that has uninterrupted panoramas of the city.
Location: Castle Rock, Colo.
Price: $2.55 million
Sq. Ft.: 8,607
This home fits its town's name: With its turret and a stone exterior the mansion resembles a castle. Officially labeled a "mountain contemporary," the home is located on a cul-de-sac and comes with a four-car garage.
But that's not all it comes with. Get the full details by viewing the listing.
The "Wyndham Estate" sits on Newport's posh Ocean Drive. Having undergone extensive renovations, the massive stone baronial mansion offers a ballroom, music room, elaborate landscaping and a rooftop deck with panoramic views of the ocean.
It's hard to argue with the listing description when it describes this behemoth as "extraordinarily opulent." Adjacent to the world-class Arizona Biltmore Golf Course, the estate has a sweeping paved motor court that leads up to a massive amalgamation of stone, wood and iron -- 17,799 square feet of it.
It's the sort of home you can actually get lost in. For avid cooks -- servants or otherwise -- there's a lot to work with: The mansion has four kitchens. In addition to myriad other amenities, the monster residence offers a home theater, pool, spa, sauna, steam room and elevator.
Location: Del Mar, Calif.
Price: $4.495 million
Sq. Ft.: 3,142
Said to offer the most square footage of all homes in the ritzy Beach Colony of Del Mar, this stunner is steps from the beach. Special features include a great room, multiple patios and a secluded outdoor area with a spa, sand room and game room.
This storied estate built in 1930 may need "major renovating," according to the listing, but its lush landscaping is sure to impress: Three whole acres of garden stretch across the premises, offering paths, grottoes, waterfalls, caves, and ponds draped with tropical trees and other foliage.
Location: Las Vegas, Nev.
Price: $2.45 million
Sq. Ft.: 13,198
One of many, many other foreclosed homes in Las Vegas, Ground Zero of the housing crisis, this home shows just how far the dollar really goes when it comes to Sin City dirt. For $2.45 million, you get seven bedrooms, eight bathrooms, 13,198 square feet, a lighted tennis court, a come-hither pool and much more.
Live it up in this Spanish-style mansion built in 2002 -- you know, back when Kelly Clarkson and home prices were on the rise. The years have not been kind, however, and another millionaire’s misfortune could be your ticket to the good life.
Whoo, doggie! Everything’s bigger in Texas, including this over-the-top, Mediterranean-style villa. Unfortunately for the previous owner, this dream castle was built in 2009, right in the middle of the housing market’s freefall. The massive manor includes three bars, a game room, a lounge, a “poolside kitchen and fountain,” multiple fireplaces and two elevators. So much for fiscal austerity.
The fact that a home of this caliber can end up in the bank’s pocket shows just how pervasive the housing crisis has been. Built in 2004, this glass and concrete beauty is one sprawling, intricate showroom. With panoramic views of the hilly Denver landscape, this modern four-bedroom is perfect for star gazing – just so long as you’re comfortable with the neighbors staring back.