FREDDIE MAC NEW RULE AS TO SELLER CONTRIBUTIONS DUE TO FRAUD AND RISING PRICES |
Fraud
for profit is also referred to as “industry insider fraud” because it:
- X
Cash-out purchase fraud is a scheme that
Freddie Mac has cited as an emerging trend. [1] These schemes involve the
extension of an offer to purchase a home for an amount that is in excess of the
list price. Using an inflated appraisal, the borrower who is perpetrating the
fraud obtains a mortgage for more than the home is worth. After the closing
takes place and the seller receives funds from the lender, he/she pays the
fraudulent borrower the difference between the list price of the home and the
amount shown on the mortgage.
[1] Freddie Mac. “Emerging Fraud Trends: Illegal Property Flipping With Cash-Out Purchases.” http://www.freddiemac.com/singlefamily/preventfraud/flipping.ht
Builder bailout schemes are also carried out by establishing shell companies
that purchase new homes at inflated prices, or by attracting investors with
fraudulent incentives, which may include promises to provide free property
management services or to absorb any negative cash flow for some period of time.
After the closing takes place, these promises are not honored.
Red flags for builder bailout schemes include:
Red flags for builder bailout schemes include:
- Appraisals that solely rely on other homes in the same development for comparables
- Strong sales in a development while the surrounding market is slow
- Special incentives for home buyers and investors
- An unclear source of funds for down payments
- Affiliated parties in the transaction