The investor negotiates a short sale with the lender by convincing the lender that the price it is offering is the market value of the property. The investor then finds a buyer for a much higher price. The sales happen simultaneously, and the lender pockets the difference.
The problem is that "the original lender is not told that the buyer is flipping the property on the same day for thousands more than the lender has been told is the market value of the property," the letter states.
The fund's decision could have a major affect on short sale flips because many investors use attorneys to close deals when traditional title companies won't.