Short sale is one of those options that help you avoid a foreclosure. Yet, you lose your home. However, this is considered to be a better option than foreclosure because the hit on the credit is lower than that of a foreclosure. The plunging home values have resulted in increased number of foreclosed homes and short sales. On the other hand, this spike in the number of short sale and foreclosed homes has also resulted in an increase in the number of mortgage and short sale and foreclosure scams.

Why is there an increase in short sale homes?

The main reason for the increase in the number of short sale homes is mainly because of the lowered affordability of the homeowners. In addition, the home values too have plunged considerably in the past three to four years.

So, most of the people opt to short sale their homes. These seem to be a good option for the lenders too. The short sale helps the homeowners meet the high mortgage obligations by simply making room for them to move on. On the other hand, these short sale transactions also help the lenders by abating the financial losses along with removal of the liabilities of the property which has been lying empty for several months on end.

Who can be scammed in short sale?

In case of a short sale, all of the parties involved can be scammed by one or the other party. It can be the buyer of the short sale home or the lender or the seller or the secondary lender if involved. One party can scam the other. There are various types of scams involved in short sale and these are:

Undisclosed payments – With regards to this scam it can be said that the seller, the buyer and the lender all may get wronged in this situation. The main problem is that in case of a short sale, there can be payments involved which is actually outside the escrow or the actual settlement agreement. If a secondary lender is involved, the primary lender can cap payments to them. Then, the secondary lender may request payments outside the escrow from over-motivated sellers and buyers. You as a seller or buyer may be ready to pay the extra to get seal the deal. So, you are going to become a party to the fraud and scam.

Predatory negotiators – In this case, it is mainly the buyer and the seller who may get scammed. The scammers here are the short sale negotiators who pose to help out both the seller and the buyer party. They get commissions but actually do nothing much in return. Thus, some states like California, Oregon and Washington now require the negotiators to be licensed through the state agency.

Misinterpretation of the property value – Misinterpretation of the property value which is also known as flopping can occur both to the lender and the seller. In this case the person scamming others is mainly the buyer who can also be a real estate agent. In this, the scammer makes a low offer by providing an artificial low valuation of the real estate property.

How can you avoid getting scammed?

There are various ways in which you may be able to avoid getting scammed while buying or selling a short sale home. First of all, it is important for you to be aware of the rules associated with the short sale. In addition, you should also be aware of the scams associated with short sale. Furthermore, in case you are planning to hire any negotiator, remember to contact the state's agency so as to find out the licensed short sale negotiators. Other than this, you should also avoid making any out of the agreement payment even if you are keen on selling or buying the property.