A top-performing realtor was recently arrested for allegedly defrauding lending institutions and clients out of millions of dollars by using so-called ‘straw buyers’ to falsify loan applications. Sadly, it’s one of many similar stories that I’ve been hearing throughout this industry lately.
Last month, there were two real estate agents who would approach owners facing foreclosure of their homes. The agents were able to induce the owners into selling their homes to straw buyers that would apply for loans to “save” the home from foreclosure. The agents promised the owners that once the straw buyers obtained the loan, the proceeds would be used to pay off the homeowner’s old debt.
In addition to using documents that provided false or misleading information to the lending organizations to show better credit worthiness to the lenders, the agents also misrepresented to the lenders that these ‘straw buyers’ would intended to reside on the property. The end result was the original owners lost the title to their home, and straw buyers were left with loans that they were unable to pay, and the lenders left with losses from the defaulted loans.
According to the recent FBI Financial Crimes Report for Fiscal Year 2007, the over 1,200 pending real estate and mortgage fraud cases resulted in 321 indictments, 206 convictions, almost $600 million dollars in restitution orders, and over $21 million dollars in recoveries. They also report that over eighty percent of the crimes committed within the industry involve collaboration or collusion from industry insiders.
In identifying trends for such crimes within the industry, it should be noted that both real estate fraud and mortgage fraud run parallel courses. The FBI’s report goes on to state that rising trends in these areas include equity skimming, property flipping, and mortgage-related identity theft.
According to the FBI, as a method of committing real estate fraud, equity skimming involves the use of corporate shell companies, corporate identity theft, and the use or threat of bankruptcy to defraud homeowners and investors. Where property flipping is involved, the FBI notes that property values are artificially inflated through false appraisals, where that property would be repurchased several times for higher prices. After several sales by and to associates of the original purchaser, the properties are foreclosed on by the victim lenders. In fact, it is not uncommon for flipped properties to be repurchased for 50 to 100 percent of their original value.
Clouded judgment? That’s what one realtor suggested during a conversation I overhead at a recent realtor’s conference in
What kind of excuse was that? In fact, if I can stand on my soap box for a moment…THERE IS NO EXCUSE! I’m no legal analyst by any means, but I’m pretty sure that the “I made a ton of money several years ago and now I’m not making any money so I defrauded home owners and lenders so I could make money again” defense simply would not stand up in a court of law.
The real estate horror stories are easy to find these days. Everyone has a story, and if not, many of those stories are easy to find without too much trouble.
For those that remain somewhat leery of the real estate industry, I offer the advice often heard given to those looking for protection from further damage due to fraud. Simply, if it seems too good to be true, it probably is. A second or third opinion on any real estate program is probably a good idea these days as well. Finally, though crimes similar to these seem to be on the rise, so is the awareness of the general public. Question any program presented to you and always ask for references.