Short Sale Fraud Crackdown

News Release

June 17, 2010

For Immediate Release

Contact: (510) 622-4500

Brown Issues Warning about Rise of Short Sale Fraud

LOS ANGELES - Attorney General Edmund G. Brown Jr. today joined the
California Department of Real Estate and the State Bar of California to warn
homeowners about an alarming rise in short sale fraud across California in a
field "rife with scam artists".

A short sale is an arrangement in which
a homeowner sells his or her home for less than the outstanding mortgage, with
the consent of the lender.

"While short sales can provide homeowners
with a last-ditch alternative to foreclosure, this market is rife with scam
artists," Brown said. "Homeowners and buyers, agents, and lenders should beware
of short sale negotiators who operate without licenses, use straw buyers or
charge illegal fees."

With so many homeowners now considering short
sales, an entire industry of so-called short sale negotiators has emerged. These
individuals solicit homeowners by promising to expedite the process and help
coax lenders into taking part in the transaction.

The Department of Real
Estate is investigating more than 40 complaints of short sale fraud, up from
"virtually zero" cases only three months ago, a spokesman said.

In
April, the Obama administration launched a new initiative called the Home
Affordable Foreclosure Alternatives Program, which encourages homeowners in
financial distress -- especially those who have failed to complete a trial
modification or qualify for a loan modification -- to consider a short sale as
an alternative to foreclosure.

Before working with -- or paying -- any
short sale negotiator, homeowners should consider the following red flags:


No license
With limited exceptions, only licensed real estate agents
or attorneys can engage in short sale negotiations with a homeowner's lender.


Up-front fees
Licensed real estate agents wishing to collect
up-front fees from homeowners for short sale transactions must first submit an
advance fee contract to the Department of Real Estate and receive a no-objection
letter.

Surcharges
With many distressed properties listed well below
market value, negotiators and agents are charging potential buyers thousands of
dollars in surcharges and hidden fees just to place an offer on a home. These
illegal fees are frequently not disclosed and are paid outside escrow.


Straw buyers and house flipping
In this scheme, short sale
negotiators misrepresent the market value of a property to a homeowner's lender
by only submitting offers on the property from an affiliated straw buyer. After
the home is purchased below market value, the fraudsters immediately flip it and
pocket the difference.

Short sale negotiators and agents use a number of
titles including debt negotiator, debt resolution expert, loss mitigation
practitioner, foreclosure rescue negotiator, short sale processor, short sale
coordinator and short sale expeditor.

If you are a homeowner who has
been scammed, contact Brown's office at 1-800-952-5225 or file a complaint
online at: www.ag.ca.gov/consumers/general.php.


Homeowners can also learn more about avoiding mortgage and real estate
fraud by visiting the Department of Real Estate website at: http://www.dre.ca.gov/cons_alerts.html. A complaint form can be
accessed online at: http://www.dre.ca.gov/frm_consumer.html.

"Short sale
fraud appears to be the fraud of the moment, and it is proliferating statewide,"
according to Real Estate Commissioner Jeff Davi. "Consumers, licensees and
lenders must all arm themselves with the tools necessary to avoid such scams."


Homeowners can file a complaint against a lawyer, a legal specialist or
a company purporting to operate as a law firm with the State Bar by calling
1-800-843-9053 or visiting: http://www.calbar.ca.gov/.

Homeowners can learn more
about the federal government's Home Affordable Foreclosure Alternatives Program
by visiting: http://makinghomeaffordable.gov/hafa.html.

Non-profit
housing counselors certified by the U.S. Department of Housing and Urban
Development are also available to provide free help to homeowners. To find a
counselor in your area, call 1-800-569-4287.

For more information on
Brown's work against loan-modification fraud visit: http://ag.ca.gov/loanmod.

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