Real Estate Frauds
Real Estate Frauds
Again, there is no limit to the schemes that fraudsters may devise related to real estate. 4 The preponderance of real estate frauds involving lawyers fall into two categories: value fraud and identity fraud.
Value Fraud—Inflating the Property Price to Obtain a Large Loan
There are variations on this type of fraud too, but one typical scenario involves a flip to an accomplice at an inflated price. The arrangement involves a sale of property possibly from a legitimate seller, with a subsequent (fraudulent) flip for a higher amount establishing a falsely high property value. That high value is then used as the basis for obtaining an inflated loan. For example, fraudster buyer negotiates the purchase of a property from a legitimate seller for market value of $500,000. Fraudster buyer then flips the property to accomplice fraudster (or in some cases a dupe) for $650,000, and the second (fraudulent) agreement is used as the basis to obtain a high ratio loan for $585,000 ($85,000 above market value). The fraudsters then disappear with the excess value, leaving the bank holding a property worth less than the mortgage.
Another variation involves a series of flips in a short period of time, each with a rising value on the property when no improvements or other criteria would account for the rapid increase.
The fraudsters are counting on the lender not to do a proper appraisal. Although lenders are responsible for their own decisions on when to lend money and for how much, you can assist in fighting fraud if you think a value fraud is being perpetrated.
4 For an expansion on this information, see the article "Fighting Back Against Fraud—The Risks in Real Estate" by David Bilinsky, Practice Advisor, in the April-May 2005Benchers' Bulletin and the article "Real Estate Fraud—A Prevention Primer" in the October 2005 Insurance Issues newsletter prepared by the Lawyers Insurance Fund. The Law Society maintains a variety of materials specific to the issue of real estate fraud. Review of these materials is recommended.