In an effort to cut down on the amount of fraud it’s finding in short sales, Freddie Mac has issued a new set of guidelines.

The problem: Working with an unethical agent, someone makes a low bid on a short sale and the agent doesn’t disclose any competing (higher) bids. When the sale goes through, the new owner turns around and sells the property to one of those higher bidders, pocketing the difference. The process is called “flopping.”

The solution: Making it clear on an affidavit to be signed by all parties that they are liable for any “negligent or intentional misrepresentations, but not those of other signatories to the affidavit.”

The new rule takes effect January 1, 2012, but, Freddie Mac said in its guidance, “Servicers are encouraged to incorporate these changes immediately.”

Read more at Housing Wire.

Read the details from the Freddie Mac bulletin.