“There is absolutely nothing fraudulent about a homeowner withholding better offers in a short sale situation.”

Quite possibly this doesn’t meet the legal definition of fraud. Presumably the listing agent represents the seller, not the bank. But in this case, the bank (and the actual owner of the mortgage, and the taxpayer, who are the ones taking the loss) should have independent representation.

“Now if the bank specifically inquires regarding other offers and they are told no other offers exist, that is probably fraud.”

I hope the bank does inquire. But even with disclosure, it’s easy for an agent and/or current occupant to badmouth other offers, with little paper trail, and induce the bank to accept the “inside” offer. The fundamental problem is misaligned incentives.