The way it works is simplicity itself.
The scam artists, usually real estate agents, will secure a legitimate bid on a home, one where the borrower owes far more on the mortgage than the home is worth. Then they arrange for an accomplice investor to make a lower offer on the home.
The agent then presents the lower bid to the lender and asks them to forgive any remaining balance owed -- without disclosing that there was a higher bid made on the home. Once the short sale is approved, the scammer then sells the home to the higher bidder, often on the same day.At heart this is what latency arbitrage is all about. Delay price quotes and get your counterparty a poor price while you know better ones are available.
For those who say this is all fair--and that anyone is capable of acquiring the software and hardware (or alternatively, that anyone who has gone to all that expense deserves the profit), please note that similar behaviour in the housing market (where it is banks who suffer) is fraud, so therefore . . .