Lenders and servicers can expect to lose $375 million in 2011 due to "suspicious" short sales where the buyers resell the properties within six months at a sizable profit, according to a new report by CoreLogic.
Suspicious short sales have doubled in the last six quarters. CoreLogic analysts estimate that lenders incurred unnecessary losses in 1.9% of short sales or (one in very 52) during the first-half of 2010.
Short sales serve as a foreclosure alternative where the lender allows delinquent borrowers to sell the property and walk away debt free.
But in cases where the buyer resells or flips the property within 24 hours, CoreLogic estimates that that investor pockets an average gain of 34% ($56,947) between sales at the expense of the lender.
The study also shows such flips are not uncommon. Short sales where a reseller closes on the same day "account for 16% of all suspicious short sales in the industry," said Tim Grace, senior vice president of product management and analytics at CoreLogic.
The study also confirms that 25% of suspicious short sales are related to limited liability companies, which "validates industry perception," Grace said. Short sales have tripled from approximately 90,000 in 2008 to an estimated 270,000 in 2011, according to CoreLogic, a real estate and loan analytics firm based in Santa Ana, Calif.
CoreLogic also notes that 61.5% of all suspicious short sales in the first-half of 2010 occurred in California, Arizona and Florida - states with the highest volume of short sales.
This is a major shift, since those three states accounted for only 40% of suspicious transactions a year ago. "Obviously, this results in maximum negative impact on the lending industry," the study says.
