The flourishing real estate market has helped increase mortgage fraud and other spurious real estate related schemes. The perpetrators of these system range from mortgage brokers to drug dealers laundering their ill-gotten gains. Each year, these deceitful schemes abuse individuals and businesses from many walks of life, including low-income families enticed into home loans they can’t afford.
A Ponzi scheme usually offers abnormally high short-term returns in order to entice new investors. The high returns that a Ponzi scheme advertises (and pays) require an ever-increasing flow of money from investors in order to keep the scheme going.
The system is doomed to collapse because there are little or no underlying earnings from the money received by the promoter. However, the scheme is often interrupted by legal authorities before it collapses, because a Ponzi scheme is suspected and/or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases.
The scheme is named after Charles Ponzi, who became notorious for using the technique after emigrating from Italy to the United States in 1903. Ponzi was not the first to invent such a scheme, but his operation took in so much money that it was the first to become known throughout the United States. Today’s schemes are often considerably more sophisticated than Ponzi’s, although the underlying formula is quite similar and the principle behind every Ponzi scheme is to exploit lapses in judgment arising from investor naïveté.
Flipping houses is not illegal if it’s done in an ethical manner. House flipping occurs when a house is bought then sold for a profit after several months or years. Sometimes the house gets renovated before the resale to increase its value. Illegal house flipping is a form of real estate fraud. This is when the seller provides misleading information about the value of the property to earn a profit. This also includes falsifying tax receipts or bribing an appraiser so that the house is appraised at a value higher than what it is actually worth. Covering up any defects of the house to the buyers and lenders is also a part of illegal house flippping.
Flipping houses is legal as long as there is no fraud statements made in the contract. If you are buying a flipped house, make sure that the contract does not have any false statements.
Landlords who become victims or renter’s fraud lose thousands in rent and damages. Fraud occuprs when the facts landlords rely on to give up their legal right to the property are false or deceptive. When a renter applies to rent a unit, the landlord grants some sort of credit to the renter. Fraudalent applications usually have common characteristics that landlords should be wary off.
Unusual name arrangements or names of known personalities like Tiger Woods.
Unusual job titles like lion tamer or if the salary is out of range for the job.
Social security number is omitted or mismatched.
Bank account numbers are omitted, or credit references come from unknown companies.
Use of P.O. box addresses for references
First four digits of the credit card do not match with the bank’s tax ID number.
Refinancing your mortgage can save you a lot of money – if you don’t fall prey to a scam, that is. Protect yourself from losing your hard-earned cash and watch out for these signs of refinancing fraud.
Failure to provide you with terms, rates, and closing costs. When making financial decisions, arm yourself with information. A legitimate lender will give you loan estimates and other pertinent information like closing fees and rates before you send in your application. A scammer will not tell you when locked-in rates run out. During the closing, you’ll be given a new rate that’s a point or two higher.
Request to sign blank forms. Never sign blank loan forms. This will give the scammer license to draw up whatever loan term they want, and you will end up with balloon payments or even signing away your house’s title.
Makes you agree to high payments or balance. Be wary when a lender tries to make you agree to borrow more so that you get forced to go in foreclosure.
Here are some more tips to avoid real estate scams.
Make sure that the professionals you’re dealing with have the right qualifications. If you’re talking to a buyer, make sure that he or she is honest about his or her credit history and employment. Scam artists usually invent elaborate credentials or backgrounds in order to impress you.
Don’t be afraid to ask a lot of questions. If you are getting an offer that’s too good to be true and your questions don’t receive satisfactory answers, walk away from it. Any transaction should benefit you as well as the other party. Find out what the other is getting if the deal seems to tip in your favor.
Watch out for your credit scores. In a lot of cases, real estate fraud leads to identity theft. Scam artists might end up using your personal information to open accounts.
There are many scam artists who use the real estate industry as a cover for their game, even if they know little about real estate. They simply use properties to extort a lot of money from their victims. But as long as you stay informed, you can protect yourself from real estate scams. Here’s how.
The most simple way to stay safe from a scam is to assume that no deal is concrete until everything is written down and signed. Any verbal promise is not valid unless it is written in a legally binding contract. Do not assume that you will get a follow-through from a verbal promise unless it’s in a contract.
Get the advice from a real estate agent before you invest in a property or buy a home. But make sure that the agent you’re consulting is a qualified agent! Ask your friends to refer you to the best professionals they know.
The good thing about real estate scam artists is that they use the same scams over and over again. Find out about the most popular scams today from the IRS or the media and stay informed.
Mortgage fraud is simply when you lie in your real estate application, even if you think that the lie is completely harmless. Here are some common examples of mortgage fraud.
Undisclosed kickbacks. This is when you make a deal with the home seller asking him or her to give you money to do repairs and the lender doesn’t know about it because you failed to disclose it in the purchase contract.
Silent second mortgage. You can commit this mortgage fraud by borrowing a down payment from the seller in exchange for giving him or her an unrecorded second mortgage that the lender does not know about.
Claiming occupancy. Lenders usually give less favorable terms and higher interest rates to non-owner occupants because the lender has higher risk in the deal.
Inflating the purchase price. If you send a false contract with a higher sales price in the hopes of getting a higher appraisal, you are committing mortgage fraud.
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There are many ways to counteract real estate frauds to avoid being victimized. One of the most common ways is by consulting a lawyer or expert before entering into any real estate loan contract. However, one should make sure the lawyer or expert consulted is a truly trusted and knowledgeable professional with regard to law and real estate transactions. You don’t want to be doubly victimized by scheming professionals who clothe themselves with a false “you can trust me” cloak, do you?
If you really want to feel secure and safe when transacting real estate business but you are wary about the trustworthiness of your agent or lawyer, you can seek assistance from BasePoint Analytics. BasePoint Analytics is a firm that provides full-service fraud diagnostics and custom analytic services that help you measure losses and minimize exposure. They do this by deploying advanced analytics and optimizing your processes within the existing production environment. Now isn’t that smart?
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Real estate frauds will not be as rampant as they are today if people are more militant in combating these unlawful practices.
Sometimes, in our eagerness to get a nice deal, we tend to forget the simple and basic tenet of transacting business. Then of course, we tend to be over confident and over trusting we neglect our sensibilities. We give away confidential information. We even get careless with our documents. And worse, when we see we are halfway through the deal already, we entrust the rest of it to our agents or sellers. Then we become willing victims.