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Financial Services Law Insights and Observations

DOJ charges short-sale negotiators with fraud

Federal Issues DOJ Mortgages Fraud Enforcement Fees

Federal Issues

On November 8, the DOJ announced that it charged the principals and co-founders (collectively, “defendants”) of a mortgage short sale assistance company with allegedly defrauding mortgage lenders and investors out of half a million in proceeds from short sale transactions. The DOJ also alleged the defendants’ actions defrauded Fannie Mae, Freddie Mac, and HUD. According to the announcement, from 2014 to 2017, the defendants negotiated with lenders for approval of short sales in lieu of foreclosure, and falsely claimed during settlement that the lenders had agreed to pay loss mitigation service fees from the proceeds of short sales. The defendants allegedly obtained around 3 percent of the short sale price from the settlement agent, which was separate from fees paid to real estate agents and closing attorneys, among others. In order to further deceive lenders, the defendants would then file fabricated documents to justify or conceal the additional fees being paid to the company. The defendants were charged with conspiracy to commit wire fraud, and one co-founder was also charged with aggravated identity theft.

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