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Daily Real Estate News  |  June 10, 2010  |   Practitioners Face Prison for Short Sale Scam
Two Connecticut real estate practitioners are scheduled to be sentenced in August to time in federal prison after pleasing guilty to fraud in a scheme that involved short sales.

The practitioners admitted to engaging in a scheme known as flopping. They provided broker price opinions (BPO), acted as straw buyers to acquire properties at short sale for very low prices, then resold the properties immediately for higher prices.

Research firm CoreLogic estimates than flopping occurs in about 1 percent of short sale transactions and will cost lenders $50 million this year.

Some critics have argued that requiring a full appraisal instead of a BPO in setting short sale prices would solve the problem, but Laurie Maggiano, policy director for the Treasury Department’s Homeownership Preservation Office in Washington, D.C., is dubious.

“It’s all in the integrity of the person doing the valuation,” she says. “Clearly there are poor quality appraisers, licensed or not, and there are poor quality real estate [practitioners], licensed or not.”

Source: Bloomberg, John Gittelsohn (06/10/2010)

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