Freddie Sees Rise in REO Flips with Cash, Pooled Funds, LLCs

Freddie Mac is seeing more REO property-flip fraud cases in which investors recruit people to pool money in an LLC and purchase bank-owned properties for cash, according to Martin Abad, associate director, Freddie Mac. "The logic behind it is that if you submit a cash offer, it's more likely to get approval from the bank, get a better deal and close quickly," Abad said at the Mortgage Bankers Association's National Fraud Issues Conference in Chicago. Property theft is a new type of fraud, he told attendees at the general session on "Mortgage Fraud and the Secondary Market." When a lender or Fannie or Freddie takes a property back at REO, there are people who will record fake rent deeds and transfer title from the banks or GSE to an LLC, he said. "There is an online recording service where you can pay a fee and record any document you want. You don't have to go to the county recorder's office." In an active case he is currently working on, Abad said the fraudster listed the properties for rent on Craigslist and is now attempting to sell some of these properties. Half of the loans involved in Freddie Mac's fraud cases involved non-owner-occupied properties. What had been loan modification fraud is turning into short sale fraud, because scammers can make more money in a shorter period of time with the latter, he said. In 2009, short sale activity at Freddie Mac increased by 250% from the previous year. In the first three months of 2010, it has increased 65%.