Freddie clamps down on short sale fraud
Freddie Mac will force parties involved in a short sale to sign affidavits making them liable for their negligent or intentional misrepresentations in the deal, an effort to be sure it's an arms-length transaction, according to guidance released Friday. The new affidavit will go into effect Jan. 1, but Freddie is asking servicers to implement the change immediately to fight fraud. However this, and other changes, are meant to expedite the process of getting borrowers in default relocated. In August, the government-sponsored enterprise alerted real estate agents to the rise in shady short sale deals. The main concern is flopping. There is a growing trend of real estate agents on the buy-side of the deal failing to disclose other bids on the property, rigging the sale at a lower price. The fraudsters can then flip it, sometimes the same day, and pocket the difference. In the third quarter, Freddie completed 11,744 short sales and deeds-in-lieu of foreclosure, according to its financial statement. It completed nearly 33,500 of these two foreclosure alternatives in all of 2011. CoreLogic (CLGX) noted an increase in property fraud in 2011 tied specifically to flopping. "With this change, you will have more information to identify potential mortgage fraud and a clearer understanding of the intent of all parties involved in the real estate transaction," Freddie said in the guidance to mortgage servicers. The guidance put out Friday also trimmed other rules to help servicers speed up the loss-mitigation process. The GSE also required all amounts paid in the transaction, including anything going to the borrower, be documented fully in the HUD-1 Settlement Statement. Freddie eliminated the requirement that borrowers more than 120 days delinquent have to list their home for sale before becoming eligible for a deed-in-lieu. Write to Jon Prior. Follow him on Twitter @JonAPrior.