Beware of New Fraud Schemes
Although we had all hoped that the fraud related to the "subprime mortgage meltdown" was behind us, perpetrators of fraud seem to create new schemes with each new moon, and some of the more "lucrative" schemes of the past remain a risk today.
Fraudulent Promissory Note & Bonds
The U.S. Treasury, Office of Inspector General (OIG), has recently published an alert regarding a new fraud scheme. Real estate professionals should be aware of the scheme and its potential impact on a purchase or sale transaction.
According to an alert issued by Treasury OIG, under the scheme, "individuals use fraudulent promissory notes and bonds to attempt to purchase vehicles and real estate." The OIG has been notified of numerous occurrences throughout the United States where fraudulent documents were used to attempt to purchase vehicles. Treasury OIG has also been made aware of incidents in Arizona and Colorado where similar fraudulent documents were used to attempt to purchase homes and an office building."
The fraudulent documents are not referenced as "U.S. Treasury" bonds or promissory notes. They are referenced as "personal promissory notes" and "private offset bonds"; however, they have the name of Henry Paulson, Secretary, U.S. Treasury, on the face of the documents.
Treasury OIG has learned that the only type of hard-copy bond issued by the U.S. Treasury that a citizen can purchase today is a savings bond. All other bonds are electronic and the buyer would not receive a hard-copy document. "In addition," states the Treasury OIG alert, "Secretary Paulsons name should not appear on any document listed as a private bond or promissory note; these items are not backed or guaranteed by the U.S. Treasury."
The effect of accepting such a fraudulent note or bond could be disastrous, since the party offering the document as security or payment will likely have "disappeared into the wind" by the time the fraud is discovered, leaving the recipient of such a document with little recourse against the perpetrator of the fraud. Even worse, the recipient may be liable to other parties for funds issued based upon the fraudulent documents or other "collateral damage," leaving the recipient in an even worse position that simply being duped by the perpetrator.
If your client is involved in a transaction involving these potentially fraudulent documents, you should encourage him or her to contact the U.S. Department of Treasury, Office of Inspector General (OIG), Office of Investigations Hotline, at 800/359-3898 or e-mail hotline@oig.treas.gov. Your client should also contact his or her local law enforcement agency immediately.
Common Fraud Schemes on the Rise
According to data provided by the Internal Revenue Service (IRS), federal investigators have identified an increase in frauds and schemes in the real estate business. These schemes victimize individuals and businesses, including low-income families lured into home loans they cannot afford, legitimate lenders saddled with over-inflated mortgages and honest real estate investors fleeced out of their investment dollars.
Some of the common real estate fraud schemes include:
- Property "Flipping" A buyer pays a low price for property, and then resells it quickly for a much higher price. While this may be legal, the quick turnover and quick rise in apparent value are generally suspect. Certainly, when it involves false statements to the lender, it is not legal.
- Multiple Settlement Statements One settlement statement, accurately reflecting the true selling price of the property, is prepared and provided to the seller. A second, fraudulent statement is given to the lender showing a highly inflated purported selling price. Based upon the fraudulent settlement statement provided, the lender provides a loan in excess of the property value. After the transaction is completed, the proceeds are divided among the conspirators.
- Fraudulent Qualifications Buyers who would not otherwise qualify for a mortgage loan fabricate their employment history, credit record or other documentation provided to lenders in conjunction with the loan approval processsometimes even with the assistance of the mortgage originator or other parties involved in the transaction.
Where fraud is suspected, skilled IRS investigators "follow the money" to gather evidence of illegal activity. Such activity may lead to civil and/or criminal action against the perpetrators of the fraud. Real estate professionals can use their experience and expertise to recognize the signs of possible fraud:
- Buyers who do not seem to be aware of any of the particulars of the transaction, particularly with regard to financing terms. This is more than simple first time home buyer inexperience rather, signs of fraud would include inconsistencies in the documents, buyers who assert that terms or conditions stated in the documents are different than those explained to them or provided to them prior to closing, etc.
- Use of powers of attorney, especially by sellers who may be married, but the marriage is in distress
- Pressure to get the deal done very quickly demands to take "shortcuts" or assurances that "we can take care of that post closing"
It is no secret that the perpetration of fraud has already had a significant adverse impact on the economy in general, but on the real estate market in particular.
Whether clients admit or acknowledge it, they look to their team of professional advisors not only for advice and guidance, but also for protection from "shady deals." Therefore, anything a real estate professional can do to be on the alert for such schemes and the means to avoid them could prevent a client from suffering significant damages, and will reinforce the value of using real estate professionals in every transaction.
Sources: REALTOR® Magazine online
Internal Revenue Service online
