Recognizing Fraud :: Real Estate Shell Game

By
Services for Real Estate Pros with EquityScout.com

 Volatile markets create opportunities for entrepreneurial investors.  Today's housing market is a good example.  Subprime problems, foreclosures, sliding prices - all of these factors are generating opportunities for investors who have an eye on the long term. 

On the flip side, however, the smell of money will bring unscrupulous con artists out of the woodwork and into your neighborhood.  These characters prey primarily on unsophisticated new investors who are looking for a quick buck, but they can target more expereinced real estate professionals as well. 

Do you know the warning signs?

Most professionals have a general idea of how the basic collusion scam works, but here it is laid out in its five basic steps.  There are a lot of varriations on this general setup, but this is the basic plot:

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It's not just the buyer who gets bitten, it's the whole community.  Bogus appraisals and sales drive tax values up, burdeoning nieghbors.  Boarded houses start popping up as properties fall into foreclosure.  And it gets harder and harder for the residents of the community to sell their properties as hones buyers are driven away. 

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Rainer
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Sean Allen
International Financing Solutions - Fort Myers, FL
International Financing Solutions

Hey Christopher ....Good post, But I'm not sure how we can look out for this because I don't foresee them using real estate agents in the deal or an outside mortgage broker.

Sean Allen

October 14, 2007 01:07 PM #1
Rainer
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Christopher Smith
EquityScout.com - Houston, TX

Sean/Pilar

Thanks for your comment/question.

There are three reasons why real estate professionals should care about this.

  1. Real estate agents are sometimes also real estate investors, and as investors they need to be aware of the mechanics of how these scams work.  A warning: I've seen some smart people fall into this trip - the criminals operating these rings are professionals.  The victims aren't always greedy idiots who deserve to be ripped off so everyone needs to be aware. 
  2. Real estate agents need to have their ear to the ground.  If a fraud ring is operating in your neighborhood this is a sign of bad things to come.  The bad guys might not come directly to you (like you said they don't tend to use agents or outside brokers) but you need to know how to recognize the patterns and get the authorities involved. 
  3. These guys are going to screw up your comps.  When you client gets all excited about a particular property that sold for big bucks a couple of doors down you need to know which comps need an asterisk next to them. 

 You can look out for these guys by being aware, watching out for suspicious pricing patterns, listening for questionable contacts that your peers and contacts might be getting, and by generally being aware.  Fraud doesn't just hurt the victim, it hurts all of us.  Vigilance is all of our responsibility. 

October 14, 2007 02:19 PM #2
Rainer
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Kotambu "KS" Shabazz
Quality Real Estate Services - Renton, WA
Renton, Real Estate Consultant
Christopher this is a great post. I read about this some time ago and thought the scam was worth paying attention to. Thanks for putting it here on AR.
October 16, 2007 07:28 PM #3
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Rainer
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Christopher Smith

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