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How to Avoid Real Estate Fraud Real Estate Fraud can be hard to detect but if you know some of the red flags to look for you will realize that most circumstances are easy to identify and can be avoided. The "red flags" on this page do not necessarily mean that the transaction is fraudulent. They are merely indicators that further review of the transaction may be warranted.
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Red Flags A large portion of fraudulent activities involve seven items. 1. The payment of an inflated price ($290,000 sales price for a home listed at $218,000). 2. Inflated appraisals (either knowingly by the appraiser or without the appraisers knowledge). 3. False financial statements by the borrower. 4. Contract and loan conditions that provide for purported future improvements to made to the property. 5. False and inflated estimates from contractors for these purported improvements. 6. Extraordinarily high fees to the mortgage broker or the real estate broker or both. 7. Last minute amendments to the contract inflating the sales price to a significantly higher amount.
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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 |
