The 2008/2009 stock market failure and the ever increasing consumer economic crisis is causing both federal and state enforcement agencies to actively investigate and prosecute real estate agents, brokers, appraisers, lending brokers and private purchasers of real estate where there has been evidence of the following types of real estate fraud and related white collar crimes.

 

 

Property flipping is best described as purchasing properties and artificially inflating their value through false appraisals. Associates of the “flipper” then repurchase the artificially inflated properties numerous times for a higher price. After three or four sham sales, the lenders usually foreclose on the properties. Flipped properties are often ultimately repurchased for less then its original value.

 

Property flipping typically involves such activities as fraudulent appraisals, doctored loan documentation, inflating buyer income, kickbacks to buyers, investors, loan brokers, and appraisers.  Lets take a look at some of these:

 

 

The buyer of a property borrows the down payment from the seller through the issuance of a non-disclosed second mortgage. The primary lender believes the borrower has invested his own money in the down payment, when in fact, it is borrowed money. The second mortgage may not be recorded to further conceal its status from the primary lender.

 

An investor may use a straw-man buyer, false income documents, and false credit reports to obtain a mortgage loan in the straw buyer's name. Subsequent to closing, the straw buyer signs the property over to the investor in a quit claim deed which relinquishes all rights to the property and provides no guaranty to title. The investor does not make any mortgage payments and rents the property until foreclosure takes place several months later. The identity of the borrower is concealed through the use of a nominee who allows the borrower to use the nominee's name and credit history to apply for a loan.

 

A fictitious/stolen identity may be used on the loan application. The applicant may be involved in an identity theft scheme: the applicant's name, personal identifying information, and credit history are used without the true person's knowledge.

 

 

An appraiser acts in collusion with a borrower and provides a misleading appraisal report to the lender. The report inaccurately states an inflated property value.

 

The perpetrator identifies homeowners who are at risk of defaulting on loans or whose houses are already in foreclosure. Perpetrators mislead the homeowners into believing that they can save their homes in exchange for a transfer of the deed and up-front fees. The perpetrator profits from these schemes by remortgaging the property or pocketing fees paid by the homeowner.

 

 

This is a non-existent property loan where there is usually no collateral. An example of an air loan would be where a broker invents borrowers and properties, establishes accounts for payments, and maintains custodial accounts for escrows. They may set up an office with a bank of telephones etc…with each player playing their role of employer, appraiser, credit agency, and any other person who could play a role in falsely verifying a buyer’s creditworthiness.

 

Avoiding Troubled Loans – KnowThe Borrowing Pitfalls To Avoid:

 

Say NO to "easy money." Borrowers should beware if someone claims "credit problems won't affect the interest rate." If a solicitation for a loan sounds too good to be true, it probably is. If a solicitation is really interesting, get it in writing!

Shop around. Borrowers should talk to several lenders to find the best loan for which they qualify. A loan product or lending practice may not seem predatory until compared with a similar loan product offered by other lenders.

Understand the loan terms. Borrowers should compare loan terms from different lenders. Understand the best loan terms available in the marketplace and compare the APR (annual percentage rate) of loans from different lenders. The APR takes into account both the interest rate and the points and fees of the loan. A nonprofit housing counselor or a lawyer can review the information with a borrower.

Find out about prepayment penalties. Borrowers should know if the loan offered to them has a prepayment penalty. Prepayment penalty should be a choice, not a requirement.

Make sure documents are correct. Be cautious of someone who offers to falsify a borrower's income information to qualify for a loan. Borrowers should never falsify information or sign documents that they know to be false.

Make sure documents are complete. A borrower should not sign documents that have incorrect dates or blank fields. Be wary of promises that a lender will "fix it later" or "fill it in later."

Ask about additional fees. Borrowers should question any items they didn't ask for. Borrowers should also beware if they are told that single premium credit insurance is required get a loan, or that purchasing it will help loan approval. Review every fee and compare different lenders' fees to ensure the most competitive loan terms.

Understand the total package. Ask for written estimates that include all points and fees. The situation may not seem abusive until when everyone gets to the closing table. If any fees or charges differ from what was previously disclosed, delay the closing until all terms of the loan are clearly understood.

Work with credit counselors. A borrower should get all the facts before deciding to combine credit card or other debts into a home loan. Beware of scam credit counseling/ credit consolidation agencies – unfortunately, not all credit counseling agencies are acting in your best interests. Talk to a community-based consumer credit counseling agency or housing counselor before signing the loan documents.

Protect home equity. If borrowers are taking equity out of their property, they should take out the minimum amount needed. The equity in a home is a source of wealth, which builds up slowly over time.

If you’re not sure, don't sign! Get advice first! Talk to a community-based consumer credit counseling agency or housing counselor.