World's Biggest Dollar Scam? The Proof of Funds Racket, Perhaps

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Services for Real Estate Pros with Digital Content Creator

It started years ago and it still continues. An agent comes to me with a client who has a POF letter from a "real bank". Usually a foreign bank and usually $10,000,000 to $100,000,000 is mentioned.

Their real value? Not even tissue paper - and that's putting it nicely.

If you are reading this and you know me and you have been offended by my response - too bad. I make no apologies for my treatment of people who waste my time by approaching me with a POF letter or even a Letter of Credit drawn on a bank in which I do not have a personal contact.

But I would not have you ignorant. What is a Proof of Funds letter?

In commercial deals we do occasionally get a POF letter and we do call and verify the letter. We never call the person who signed it and we never call the branch where it was created. If it is on an investment company account we ask for specific verbiage that the letter gives us recourse and full access to the funds.

Here is the thin line between a real POF letter and the much more common FRAUD version: A real proof of funds comes from a legitimate bank or investment firm and the person in who's name it is issued has unfettered access to those fund. The fraud version is issued on a bank letterhead or from an investment firm and is either completely fabricated or the person in who's name it is issued does not have access to the funds. In the latter case it is possible to "rent" a Letter of Credit or a Proof of Funds. This is fraud. (Sue me mud-breath - let's go to court.)

If you do a search for "proof of funds letter" on any major search engine most of the results you get are the scam variety - especially the ones at the top of the page who spend money advertising for it. Why? Because if the author of the letter is legitimate the funds already exist and the person to whom they belong already has a relationship with the entity holding the funds therefore no advertisement is needed. Especially the ones who pay brokers a fee for bringing a client to renta proof of funds for the specific use of influencing a real estate transaction. Like I said, sue me mud-breath, let's go to court - give me that platform. My attorney's name is IAN FALCONE.

When are proof of funds letters or letters of credit actually required? 1. When you are about to be scammed the crook will ask for a proof of funds. Right, go ahead and show Guido Corleone your fake letters. 2. When you are a legitimate cash investor into a legitimate transaction. 3. When you are a crook and a scammer who rented one wasting the time of more important people.

What to do if a prospect shows you a proof of funds:

(A) Don't automatically assume it is a rented or faked document. Automatically be suspicious. I have seen hundreds of rented or faked letters of credit over the years and a handful of real ones.

(B) Do not accept an offer based on the document until you have verified it. If it is on a foreign bank forget it.

(C) Ask the prospect/client how they met the issuing company - the "correct answer" should be something like, "What do you mean? This is my investment bank where my funds are." Any other answer is highly suspect and even that answer doesn't mean you are good to go. Ask if they have a website address and if it looks like this one - http://tinyurl.com/5agz79 just tear it up.

(D) I have actually received a proof of funds on a serious sounding "domestic" company and called to verify but still knew that it was a rented document. How? One look at their credit. People who have $10,000,000 in the bank don't generally have bad credit and almost always spend more than $35,000 per year on credit. Not always but usually.

Final Statement: A rented Letter of Credit or Proof of Funds used to influence a transaction constitutes fraud the same as a faked one. (Not dissimilar from renting seasoned credit lines - the use of which can land you behind bars.)

Become A Fraud Fighter - Improve Your Community!

 

See you at the polls in November. I dare you to vote for inexperience in a time like this.

 

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THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.

EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.

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Copyright©2008 Ken Cook. Georgia and Florida real estate investment loans, FHASecure and FHA Home Loans, nationwide commercial hard money and small business loans, non-recourse loans for real estate investors

Novation Mortgage, 2501 E Piedmont Road, Suite 201, Marietta, GA 30062 Georgia Residential Mortgage Licensee 20014. Florida Mortgage Broker Business MBB 0703760 FHA Lender - Equal Housing Lender

 

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I started writing on Active Rain in 2006 when I was representing the mortgage industry. I am no longer in that industry and many of the older posts contain outdated information. Please do not contact me for LENDING or MORTGAGE questions but rather contact a licensed mortgage professional from your area. I have always been in marketing and branding and that is still what I do. Thanks for reading!

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Show All Comments
Rainmaker
674,696
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

The most valuable information on any of these letters is the phone # for the person who signed it.  Everything else is pretty much worthless.

September 10, 2008 04:26 PM #1
Rainmaker
271,173
Ken Cook
Digital Content Creator - Marietta, GA
Writer For Hire

Rob - very true and even then ... argh. Vicious world. Thanks for commenting!

September 10, 2008 04:55 PM #2
Rainer
32,230
Evelyn Panning
Property Connections Realty Inc. - Alturas, CA

The world of autmomation, technology and reproduction/graphics accessibility makes it possible for anyone to produce convincing looking documents.  Caution is always the best course of action. ~ Evelyn

September 10, 2008 05:16 PM #3
Rainmaker
271,173
Ken Cook
Digital Content Creator - Marietta, GA
Writer For Hire

Evelyn - you are absolutely right. Very few understand the tens of thousands of dollars every year - or month for a busy lender - we spend just examining document authenticity. And people think closing costs are too high? No problem, let's start putting the anti-fraud and compliance costs on the HUD-1, I don't have a problem with that!

September 10, 2008 10:42 PM #4
Rainmaker
225,023
Gene Wunderlich
1st Action Real Estate - Murrieta, CA
Realtor & Legislative Liaison

I love that line - Become a fraud fighter - improve your community. Great work Ken.

September 12, 2008 02:07 PM #5
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Rainmaker
271,173

Ken Cook

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