Freddie Mac Changes Short Sale Rules

Starting at the beginning of 2012, everyone involved in a short sale will be liable for “negligent or intentional misrepresentations in the transaction” and will have to sign affidavits stating that they are handling the transaction to federal standards. The addition of the affidavits to the short sale process is designed to help everyone involved in the short sale “identify potential mortgage fraud and have a clearer understanding of the intent of all parties involved in the real estate transaction,” the GSE announced in a public statement last week. The move is specifically designed to prevent “flopping” short sales, which occurs when short sale properties are purchased from the bank at a discount, then sold immediately for a higher price. The government agency considers this practice unscrupulous because it involves at least one party having knowledge of another party willing to pay more for the property than the amount for which the bank is settling.

The notion that reselling property for a profit is, of course, utterly ridiculous. But Fannie Mae is utterly unconcerned with rationality.

Although the changes to the process do not have to be implemented before January 1, 2012, the government is asking that servicers “implement the change immediately to fight fraud.” Along with the affidavit announcement, Freddie Mac also announced that borrowers more than 120 days delinquent no longer have to list their home for sale in order to become eligible for a deed-in-lieu transaction.

*God Speed*

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