Stanislaus County short sales pose threat

Sick and tired of foreclosure headaches, a bank jumps at a short sale offer, even though the deal means a modest loss on paper.

But the lender -- and the entire community -- would suffer less if the agent had been honest. The agent hid much better offers, or refused to take them, because he wanted the bank to see only one.

His own.

Of course, he didn't reveal his involvement in the purchase, perhaps enlisting a straw buyer or forming a limited liability corporation. He might even have help from a conspiring title agent, broker, appraiser, attorney or all of the above.

And soon after the lowball short sale, he lists the home again, snags a much higher offer -- maybe even from someone who bid the first time -- and pockets a tidy profit.

Whether called "flopping" or "double escrow" or simply short sale fraud, it's the scourge of the real estate industry, it's sweeping the nation and it's illegal.

And Stanislaus County is a prime target.

A study by analytic firm CoreLogic recently estimated that lenders are dealing with $14 billion in fraudulent loans. Another recent analysis by Interthinx says Stanislaus County remains -- for a third consecutive quarter -- more at risk for rip-off schemes than anywhere else in the nation.

Lenders and legitimate buyers forced out of the market are most commonly perceived as victims, although authorities say they're becoming frustrated at banks' lack of cooperation with investigations.

But officials and industry experts increasingly acknowledge that the ultimate victims are us -- regular people hurt by artificially devalued neighborhoods, fewer government services and a poor economy tied to the American dream of property.

"Fraud affects everyone at every level," said Glenn Gulley, investigator with the Stanislaus County district attorney's real estate fraud unit.

His workload multiplied after The Bee first reported Stanislaus County's dubious distinction as the mortgage fraud capital of the country earlier this year. About the same time, leaders of counties and cities anguished over laying off hundreds of workers and slashing services that people come to expect from government.

Now they're seeing a link.

"When values of properties go down artificially, taxes also are artificially low and services provided by cities goes down also," said Scott Abell of Century 21 M&M and Associates in Oakdale. "Fraud hurts all of us."

Fraudsters are adaptive

Real estate fraud knows many faces and constantly evolves to stay a step ahead of investigators, said Ann Fulmer, vice president of industry relations for Interthinx, which analyzes mortgage application data across the United States.

Short sale fraud -- essentially, tricking lenders into selling homes for substantially less than they're worth -- is the most prevalent, locally and throughout the nation, several experts said.

"(Banks') motivation has nothing to do with getting the best value for the property," Abell said. "They're trying to rid themselves of bad mortgages, converting rotten assets into cash. And the collateral damage is impacting us all."

In June, RealtyTrac reported that two of every three Stanislaus County homes purchased this year went through short sales.

CoreLogic reported recently that one in 200 short sales throughout the United States are deemed "very suspicious," defined as resale less than 60 days after a short sale, with the new price more than 20 percent higher.

Other schemes might involve lying about income to qualify for loans, obtaining lower down payments or interest rates by falsely claiming intent to occupy, and falsified lien releases. Some crooks change locks on abandoned homes neglected by banks, lease homes to unsuspecting renters and collect small fortunes before anyone catches on.