More effort should be made to prevent short-sale fraud so that investor returns are maximized, said Gagan Sharma, chief executive of Titusville, Pa.-based servicer BSI Financial.

“We are probably much easier to work with than a larger servicer, but even in our organization, the focus is on how do I know that I got the best deal for the investor?” Gagan said Wednesday at HousingWire’s REO Expo in Fort Worth, Texas. “We have a duty to our investors to maximize value for them.”

Short sales have seen rapid growth recently as investors turn to them as a way to maximize returns over foreclosure sales. Pre-foreclosure sales, which are typically short sales, showed a 33% increase in January over year-ago figures in 32 states, according to RealtyTrac, and some industry experts have predicted that 2012 will be a big year for short sales.

Twelve states, including Arizona, California and Florida, had more short sales than REO sales for the month of January.

The number of suspicious mortgage activity reports filed by financial institutions grew 31% to 92,028 in 2011 from 70,472 in the previous year, according to the Financial Crimes Enforcement Network.

Suspicious activity reports don’t prove a crime was committed, but they do indicate the presence of a growing problem.

Sharma referenced an investor at a conference he recently attended who said if a short sale sells within a week, that means he underpriced it. “He actually starts looking at it as a fraud flag. It was a very interesting angle that I had never thought of. Especially in the short-sale market, that’s what a lot of investors and servicers like us are looking at.”

Rob Friedman, chairman of, said his company vets individuals before it allows them to bid on the platform. “They have to leave a deposit on their credit card. If it’s an all cash deal they have to prove funds are in the bank. We don’t want children playing on the site.”

“We are smaller servicer. We have a single point of contact. We have an individual who is working the asset, but who really knows the asset?” Sharma wondered.

Unlike years past, suspicious activity reports are now accepted through electronic filing. The states with the most SARs per capita include California, Hawaii, Florida, Nevada and the District of Columbia jurisdiction, according to FinCEN.




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