From the years 2002 to 2005, Georgia has been consistent on the top among mortgage and real estate fraud cases in the United States documented by The Prieston Group. The Prieston Group is a fraud protection and prevention group. The types of fraud operations preying on Georgia real estate investors include false rent verifications, occupancy fraud,appraisal fraud,investment schemes, broker fraud, and identity theft. Because of this, the state now upholds the Georgia Residential Mortgage Fraud Act which names misstating, omitting, and misrepresenting facts and intentions in real estate deals as criminal acts. The Georgia Residential Mortgage Fraud Act continues to boom the real estate industry of state.

Source: http://www.buzzle.com/editorials/6-19-2006-99686.asp
Image source: www.filebuzz.com

COMMON REAL PROPERTY FRAUDS:

Home Equity/Identity Fraud - A forged deed is recorded to give the appearance that the perpetrator has
acquired ownership of a property. The perpetrator uses the equity in the property as collateral to borrow
money. No payments are made on the new loan(s), and the true owner could face foreclosure.

Home Renovation/Mortgage Fraud - Contractors offer to do home improvement work or lenders offer
special “low-interest” financing, but do not deliver what was promised. Homeowners are left with partially
complete or substandard construction, or a mortgage payment that is higher than expected.

Real Estate Investment/Foreclosure Fraud - Investors are lured into buying property that is supposedly
facing foreclosure for pennies on the dollar. Quitclaim deeds and other documents are forged to give the
appearance that a property is being sold to avoid foreclosure.

Source

This occurs when someone buys a property in bad shape for a cheap price. Say $50,000. They make some cosmetic repairs spending say $1,000 and then sell it at an inflated price say $80,000 to a buyer who puts little or no money down.

The seller takes a mortgage back for a large amount, say $78,000, and gets a phony appraisal based on the inflated sales price.

You are then offered the mortgage at a discount at what looks like an attractive yield.

Soon afterwards the buyer stops making payments and moves out. Leaving you with a trashed house.

The key to this fraud is the inflated appraisal. Remember that appraising is an art not an exact science. Nonetheless an appraisal should be within 10% of the true value of the property.

This fraud can be hard to spot. Many legitimate investors DO buy properties for much less than their true value and are able to genuinely sell them for a higher price.

• The key is to check out the comparable properties on the appraisal form and satisfy yourself that they are truly comparable.
• Try to specify the appraiser and not use one provided by the investor.
• Check the credit rating of the new borrower. Especially if they have only put down a small down payment.
• Be wary of mortgages for sale that have not been aged, that is, a number of payments made on them.

Source

With our busy lifestyle, we intend to give everything and trust other people. Experts says that by giving the “power of attorney”, this can be caused of swindle or fraud. At any time you give another person a power of attorney, it permits them to deal with your personal assets. One should consult first with lawyers or advisers regarding appropriate limitations.

There are 2 type of mortgage fraud.

• Fraud to get a property
• Fraud to make a profit

The first is were someone lies about facts to get a loan to buy a property.
The second is where someone lies about facts to make a profit.

Fraud is committed by falsifications in the following ways:

1. Loan application fraud. Where an applicant lies about their income or their job. Perhaps the down payment they are making was given to them by the person selling them the home and the value of the home inflated to cover it.

2. Exaggerated appraisals. Appraisal is an art, not a science. Who can really be sure just how much a better view, or a swimming pool (for example) adds to the value of the property? The buyer wants the house, the seller wants to sell the house, the real estate broker wants to make the commission, the mortgage broker wants to make a commission. There is a lot of pressure on that appraiser to massage the figures a little to create a value that makes all these people happy.

Not to mention the possibility that a crooked appraiser could be in league with a crooked seller or borrower to give appraisals that are grossly exaggerated.

3. Falsified or fake credit reports. It’s really not that hard to use modern technology to “clean up” a credit report by copying it and “losing” some bad stuff.

4. False income. Applications can give the phone number, not of the company where the person supposedly works, but of a friend. The answer, look up the phone number of the employer in the white pages. Listen out for tell tale sounds, like children in the background in a supposed office setting.

5. Forged tax returns. Easy enough to fake using products like TurboTax ® etc. The answer, ask the borrower to sign Form 4506 and get a copy direct from the IRS. Click here for a copy for form 4506.

6. Fake title insurance.

Source

Real Estate Fraud is occurring much more frequently now than ever before. It is very important as real estate professionals that do business the ethical way that this stops. Below are a few tips to protect yourself if you feel uncomfortable in a transaction.

Document the Situation: Prepare an Amendment to Contract to be signed by all parties.

Disclose Information: Disclose all changes to the funding lender and obtain their written approval.

Verify the HUD-1: Verify that the HUD-1 Settlement Statement accurately reflects the transaction and any rebates, allowances, discounts, etc.

Report: If you suspect fraud report it!

Withdraw: Before you become involved in illegal activity you can withdraw from representation.

Source

How To Avoid Real Estate Fraud

Other Red Flags

While the above “red flags” are frequently used there are many other indicators that you need to be aware of:

“Rebates” on Sales Price
“Rebates” on Broker’s Fee
Overly Inflated Sales Prices

Land Flips
Commission Based on a Sales Rice
Amended Contract to lower Than What is in Contract
Reflect New Purchaser

Multiple Transactions Between Agreements to be Performed

A “Friendly” Appraiser Affiliated Parties “Outside or After Closing”

The use of Inappropriate Comparables (mixed use vs. commercial zoning, urban vs. rural)

Increased Value as a Result of renovations with High Dollar Soft Costs (architect fees, engineering fees, consulting fees, management fees) vs. Hard Costs

Source