By Mike Colpitts
Short sales in which lenders cooperate with homeowners to sell at a price lower than what is owed on a properties mortgage is costing the lending industry an estimated 
$375 million in additional losses in 2011, according to a study by a leading real estate research firm.
The rate of fraudulent short-sale transactions are on the rise. Suspiciously fraudulent short sales are where a lender may have suffered additional losses due to the short sale transaction quickly being followed by a resale for a higher price.
In 2010, about one in every 52 closed short sales appeared to be suspicious in nature. But the number of suspicious sales has taken a drastic increase since then, according to industry analysts. Short sale volume has tripled in the past two years and with an estimated 1.7 million homes in default in the U.S. is expected to rise substantially over the next several years.
The study found that nearly one in six short sales was re-sold on the same day the transaction closed at a higher price. Identifying short sales that pose additional losses to lenders’ is crucial to banks and mortgage companies limiting their losses.
“These same-day re-sales are on average $50,000 greater than the lender agreed upon short sale price,” said Tim Grace, Core Logic analytics vice president. “The study also validates an industry perception related to Limited Liability Company buyers in short-sale transactions. While they comprise only 2% of all buyers, they comprise more than 25% of buyers in suspicious short-sale transactions.”
States that have been the hardest hit in the real estate collapse also have the highest volume of suspicious fraudulent short sales, including California, Florida, Arizona and Colorado. The study examined more than 450,000 single family home transactions that were completed as short sales in the last three years.
“Short sale volume has tripled in the past two years, and with approximately 1.7 million seriously delinquent loans I expect volume to grow again in 2011,” said Craig Focardi, senior research director at The Tower Group, a financial services advisory services firm. “Identifying risk and monitoring distressed asset sale trends is absolutely essential for lenders to preempt potential losses.”