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» VISIT US ONLINE @ DSNEWS.COM "strongly resembles the environment during the boom: big-time pressure to quickly move a lot of bad loans and properties off the books. It encourages everybody to do the minimum amount necessary to resolve cases without necessarily doing the due diligence needed to stop fraud. They're just trying to stop the bleeding." Wells Fargo and Bank of America wouldn't comment for this article, and JPMorgan Chase didn't respond to a request for information. Banks are one thing; real estate agents, on the other hand, have no excuses, Fulmer says. She notes the apparent irony of their part in a short sale. "It's the fox guarding the hen house be- Freddie Mac cites manipulating or influencing the broker price opinion (BPO) as one of the most common short sale fraud schemes. couraged for a quick recovery of the market," Sharma said. Clamping Down on Cons Servicers play an important role in trying to cause in short sales and other distressed sales, brokers aren't required to obtain an actual ap- praisal. A broker price opinion will suffice and a broker price opinion is prepared by the fox— the real estate agent—at least a few of whom convince banks to accept less than market for a piece of property," she explained. In fact, some agents go so far as to give tamp down short sale fraud, according to Ed Gerding, senior fraud and risk strategist consul- tant at CoreLogic. "With hundreds of millions of dollars in short sale losses over the past few years, the benefits have never been greater" for lenders and servicers to implement short sale monitoring tools and improve their short sale fraud preven- tion strategies, Gerding noted. He says CoreLogic believes consortium- short sale properties "token exposure" with a listing service in order to meet lenders' market- ing requirements but limit offers, according to Fulmer. "We've seen cases where a property's been listed in the wrong market. It's kind of manipulation," she said. Legitimate Deals Do Exist While he can't directly address fraudulent activity, broker Allan Glass proffers a different overall take. "I think a lot of these deals, when you're trying to analyze them from an altitude of 10,000 feet, without understanding their complexities, often look like they could be fraudulent or suspicious but in no way are," said Glass, president of ASG Real Estate Inc. in Los Angeles. Glass says he, and others, often legitimately complete short sale transactions on the fast track, precipitated by a number of factors, such as the need for families to move into a home quickly for things like school or work. Gagan Sharma, president and CEO based tools are an effective component of a short sale fraud prevention strategy. Pre-closing short sale monitoring provides tracking of transactions and pending applications not normally record- ed prior to a short sale, "so the lender and servicer can spot potential flipping and flopping and proactively react to stop it," Gerding explained. While the use of short sale monitor- ing tools are effective, it's also important for lenders and servicers to provide adequate risk mitigation training that will heighten the awareness of short sale fraud red flags and how to mitigate against them, Gerding notes. "When all else fails, send the high-risk short sale transactions to the fraud prevention team for a full investigation," he added. Gerding says short sale fraud prevention have become much better about ensuring that people who negotiate short sales or loan modifications are familiar with those flags," Hagberg said. "Just because someone doesn't work in the fraud unit doesn't mean they can't identify red flags and flip them over to those who conduct the actual investigation." To help prevent fraud, Sharma says his "Over the last few years, a lot of users company uses property valuations done by an independent source that's not involved in the disposition of the property. "This ensures that we get an accurate estimate of value," he explained. Further, when the deal is going through closing, Sharma says BSI Financial as wells as its investors independently review the property valuation as an additional layer of quality control. BSI also ensures an arm's length transaction and single point of contact. Still, based on what she's been told, Fulmer says scams are successful because they target servicers since they conduct most negotiations although servicers generally aren't the most qualified to detect or prevent fraud. "Servicers have always functioned basically as back office, collection, and account management kind of people, and they're clearly overwhelmed with volume right now," she said. Furthermore, they're performing tasks like strategies are gradually beginning to improve but not to the degree he'd like. "It's important to communicate, communicate, and over- communicate about the inherent risk of short sale transactions, how to identify the fraud red flags, and how to respond to these emerging threats," he said. Hagberg says training loss mitigation of servicer BSI Financial, offers a similar point of view. "If an investor does his or her research, is good at identifying and buying the right property, and has good contacts to finish [a deal] fast, I don't think that's fraud. If anything, that investment activity is to be en- staff to recognize the red flags surrounding short sale fraud—like whether the purchase contract on the short sale is an option contract or a customized form rather than the standard state-issued form—"is far and away," the most effective best practice tool lenders and servicers can implement. single point of contact and "basically acting as psychologists and social workers for troubled borrowers—things they've never had to do be- fore," Fulmer noted. "I don't think [combating fraud] is part of their genetic code. People flow in and out of the industry and you get new crops of people who've never experienced this before. They're never been trained to detect or prevent fraud." Besides, most people don't think like criminals, Fulmer points out. "We tend to trust people, but that creates vulnerability be- cause if you don't think 'how can I gauge this?' you're not able to expose the realities and won't be able to figure out what's going on," she said. That, she noted, creates a "huge opportunity for scammers." 57

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