Feb. 28, 2010

Part 1: Real Estate Scam

Real estate fraud is a quite usual thing. Lately, it has been gaining popularity. I'm pretty sure the vast majority of you have heard about that already. Still, I want to briefly summarize some of its types for you.

Foreclosure scam
Picture a situation that you have just purchased a new property, which you are really excited about. On the other hand, though, you have debt and big problems with paying it off. You might become kind of hopeless and thus ready for any help. Out of sudden, someone representing themselves as a mortgage consultant comes to your life, seemingly prepared to save the situation. They persuade you - the desperate homeowner in need, to transfer the ownership to them. From now on, your monthly mortgage payments will go straight to them. In spite of the ownership transfer to the "consultant", you still owe the monthly money to the institution lending you.

Mortgage Fraud
This is different than the foreclosure scam. It is a criminal act which aims to misrepresent personal info to be able to qualify for a mortgage loan. It involves identity theft, employment fraud, shot gunning, fraud for profit, income fraud, cash-back schemes, occupancy fraud or failure to disclose liabilities.

In identity theft, the scammer claims to be someone else (of course, without consent of this person) a uses their fake identity to obtain a loan, which they never pay off.

A situation when someone is officially borrowing for their primary place of stay, but actually use it for investing while occupying another residence, is called occupancy fraud.

Shotgunning occurs when numerous mortgage loans are obtained for the very same property, greatly exceeding its value.

Employment fraud is when a scammer claims to be in a higher position as they actually are, or they claim to own or to be self-employment in a non-existent company/institution just to prove they will be able to pay off their loan.

Income fraud is when a borrower lies about their income, claims to earn a lot more than they do in reality to be able to get a bigger loan.

Failure to disclose liabilities occurs when borrowers hide credit card debt or mortgage loans on other properties to decrease the monthly debt on the loan application.

Cash-back scheme means that a price of a home is significantly exaggerated (not in a legal way) to provide cash-back to the borrower or other transaction participants.

When the price of the home is understated or overstated on purpose, appraisal fraud occurs. To either get a bigger loan or to get a lower price on a foreclosed property.

Fraud for profit occurs when a group of people that cheats for financial gain. It also involves overstating the value of the house or condo.

This is just the first article from my real estate scam series. I am going to continue soon. Just leave a comment in case you are willing to share your experience with real estate fraud, I will be glad.

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