How Safe Are You?

March is fraud awareness month, so we would like to take the opportunity to inform you about the hidden dangers of fraud in the real estate world.

Real estate fraud has several aspects. It can range anywhere from the sellers not purposely providing information about the home on the disclosure forms, buyers not actually applying for loans or not providing truthful sources of funds for their costs like down payment or closings costs, to agents purposefully false advertising homes. Being aware of what is out there can help you avoid needless issues.

Sellers should always disclose as much information about their home as they can to the potential buyers. Ethically and legally, it is the right thing to do. Sellers are often nervous when filling out the disclosures and feel that buyers will not want to buy their home if they tell them too many of the negative aspects. Disclosing faults or issues is not bad, it is helpful. A good rule of thumb is: what would you like to know about your new home, neighborhood, or area?  If you know something about the home, disclose it to protect yourself.

Falsifying loan information, or mortgage fraud, is one of the most common white-collar crimes in America. Cases often involve eager home buyers who are trying to improve their chances of getting a home loan by inflating their income and assets, or by lying about their sources of down payment. Another example is when second mortgages are undisclosed. Mortgage fraud is quick and easy, but terribly costly when you are caught. Aside from risking the transaction, you could incur legal fees and possible jail time.

Unethical real estate agents are also a possible stumbling block to your real estate transaction. Be watchful for agents who mislead you about the condition of the home, the needed funds, or those who use false advertising to draw you in to a fake transaction.

These are just some of the fraud traps you may encounter in the real estate jungle. Consult your agent for more information about fraud in real estate.

Mortgage Fraud
Information provided by Jary Martinson, Caliber Home Loans
 

Even though Dodd-Frank Act and Consumer Financial Protection Bureau have worked to eliminate mortgage fraud, it remains a major issue in today’s market. 
 
A major type of fraud is called “Fraud for Housing”.  This type of fraud centers around a borrower providing false information about employment, income, or assets in order to qualify for a loan. A borrower may fabricate income and/or falsify asset documents to qualify for a mortgage.  Typically there isn’t a malicious intent, but, regardless of the intent, it is still a crime.
 
Some examples of fraud for housing are:

  1. A borrower states that he/she will live in a home as a primary residence, with the intent to never move in and then rent out the home or let someone else live in the home, to gain terms more favorable than buying the home as an investment property from the beginning
  2. Depositing money in a bank account that is from a gift, or loan, from a relative, but attempting to make it look like the borrowers own funds.
  3. Creating tax returns with self-employment income that is higher than what was reported to the IRS.

 
Typically, a borrower who commits this fraud intends to pay, but lacks the proper documentation to qualify for a mortgage.
 
Below is an example of Fraud from Freddie Mac’s webpage:

Alaskan Woman Sentenced for Loan Application Misrepresentations  (September 2007,Anchorage, Alaska)

In this case, the defendant committed bank fraud by providing false information to the mortgage lender in an attempt to obtain a home mortgage.  To obtain a loan, the defendant, claiming to be employed, submitted a pay stub to document the amount of income she allegedly earned.  It was later learned that she had been terminated from her employer for unlawfully transferring funds to her personal bank account. The woman was sentenced in federal court to 37 months in prison on one count of forgery, one count of computer fraud and one count of bank fraud.


The bottom line:  Honesty is definitely the best policy.
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Title Fraud

 

Typically, title fraud takes place as follows:

  1. A fraud artist steals the identity of the legitimate owner of the property.
  2. The fraud artist uses this stolen identity to obtain mortgage financing through a bank or financial institution.
  3. The unsuspecting homeowner receiving notices from the bank or financial institution demanding payment.
  4. The homeowner is then faced with the stressful and costly burden of proving that he/she has been the victim of mortgage fraud and should not be required to repay the fraudulent mortgage.
     

Fraud in Real Estate
 

It is important to pay attention to every detail in your real estate transaction to protect yourself from phishing, identity theft, and other fraudulent situations. Below are some examples of how information is compromised:

  • Emails: Email accounts are never fully secure. Scammers can find your email account by filtering your correspondence with realtors, title companies, and loan organizers. After they have established that you are in a transaction, they will reach out to you pretending to be your realtor/loan officer/title company rep and request sensitive information. What can you do? Pay super close attention to the email addresses of those involved in your transaction. Often scammers will change a single letter or number in the email address to appear legitimate. If the address doesn't match the one provided directly by the agent exactly, it could be a trap!
  • Wire Transfers: The prince of Nigeria needs your money? He'll return it with double in interest!? Wow! That's too good to be true...seriously. Wire transfer fraud may be one of the most common types of theft since the birth of the internet. While most of us know that Uncle Joe isn't stranded in Mexico and the prince of Nigeria isn't going to return our investment, are you looking out for wire scams in your transaction? Scammers are becoming even more crafty, posing as your agent/loan officer/title company to request wire transfers that seem to pertain to the transaction. What can you do? Ask your agent if the wire transfer request is legitimate. You should also double check the phone number/email address of the person requesting the wire. Once the money is transferred it usually cannot be recovered.

Take care of yourself in your transaction by verifying contact info, communicating with your agent, and considering title insurance! Ask your agent or title company for more info on this.

Choosing the Right People

Making sure the people you're trusting your sensitive information with are truly trustworthy is the first thing you should do! Choosing to work with a good real estate agent is a great first step. As a REALTOR® Tesha is held to a higher ethical standard than average real estate agents. She works hard to ensure the agents on her team are just as trustworthy, and recommends companies for everything from loans to home inspections that have similar ethical standards as NW Real Estate Professionals.