Due to unstable economy, many home owners are taking the route of a real estate short sale .

Consumers and realtors have to learn to recognize the signs of fraudulent activity when dealing with real estate short sales . As result of unethical behavior both the seller and buyer may end up with large financial losses and legal actions taken against them. With continuously increasing number of the short sales in the country authorities monitor discrepancies in real estate transactions and taking measures to stop and prevent from happening real estate fraudulent activity .

In California Jeff Davi, a Real Estate Insurance Commissioner released a Consumer Alert by the California’s Department of Real Estate (DRE). This written document includes a stern caution for both realtors and sellers and buyers about the perils and potential pitfalls of short sale which affects consumer bottom line but also real estate agent earnings.

The idea behind the short sale deal is based on the principle in which the seller accepts an offer from the purchaser for the amount which is less than balance due of the owner’s mortgage . For transaction to go through the seller home owner petitions the mortgage company to accept this smaller amount and authorize the transaction.

All real estate transactions are complex and contain a great deal of documentation . But while dealing working on a short sale, there are a several extra points to consider . Here is an illustration of what one may expect to happen during a short sale :

A buyer’s agent or a negotiator is in agreement with a straw buyer and presents a low-ball offer which is way lower than the current market value of the property . The owner   accepts the offer and the mortgage holder authorizes the deal . The straw buyer promptly resells the house at a much higher price and the profits are divided amongst the perpetrators . Now the seller is left with tax obligations on the debt forgiven written off by the mortgage company and the mortgage company and the home owner . This is considered to be fraud. If you are a real estate agent and you represent the home seller you must understand that these actions may result in dire aftermath to your realtor career.

  How To Spot Short Sale Fraud:

1. All short sale negotiators must approved real estate brokers or licensed agents who work under under a licensed real estate broker .
2. A complete disclosure of every payment has to be documented as a part of escrow documentation . If someone asked to not include the payment of any fees in the escrow it should immediately raise a red flag because these payments may be illegal.
3. Buyers who present themselves as a fictitious entity or acting under a power of attorney or a LLC (Limited Liability Company should be considered as a red flag.  If someone is not presenting their identity, you may be dealing with a straw buyer .
4. Short sales supervised by the non-licensed facilitator or negotiator are most likely to involve illegal activities . In the state of California attorneys acting as attorneys and real estate investors who act on the behalf of attorneys are allowed to deal in short sale negotiations . You have to check your state’s regulations to ensure that you in full compliance .

Everyone involved in real estate transactions is legally responsible for full disclosure and ethical proceedings. It is a sound policy to double check everything before signing on the dotted line .