One of the most important documents in detecting fraud is the original sales agreement and any addenda to that agreement.  It is the document which the real estate agent is most likely to be involved in preparing.  Thus, care must be exercised in preserving its accuracy.  Things to be sure of:

·      The property is clearly identified

·      All parties to the transaction are identified and have executed the agreement

·      The signatures are legible or properly identified

·      All riders and addendums are attached

·      There are no blanks or inconsistent information in the purchase and sales agreement

·      It accurately reflects the consideration to be paid by the buyer for the property

Other possible red flags:

·      Significant sales price adjustments that are not supported by comparable market data possibly accompanied by a request that the list price in the MLS be altered to reflect appraised value.

·      Required use of a particular appraiser

·      Down payment assistance programs that charge excessive fees or that attempt to place restrictions on how their participation is reported in contract documentation, including the HUD 1

·      Large seller contributions, possibly in the form of provisions for large decorator or improvement allowances

·      Mortgage brokers who refer pre-qualified buyers to agents

·      Statement that the buyer will occupy the property is questionable.  For example, the buyer is retaining old property or there is unrealistic commute to the buyer employment

·      Buyer has very limited credit history and existing history is with high rate consumer finance companies

·      Credit history indicates the repayment of a prior obligation did not include any interest payments

·      Unrealistic income for occupation

·      Recent drastic increase in income due to a raise or a new job

·      Sales contract, appraisal and title work disagree with respect to seller’s name and appraisal shows property or comparables previously sold in past year

If these warning signs are present in your transaction bring the situation to the attention of your broker.  While fraud isn’t involved every time one of these warning signs appear, the few minutes it will take to decide between innocent and fraudulent can save you and your broker time, money and maybe even your license, and reporting fraud will protect the communities in which you do business.

Mortgage fraud is more than just a possibility for real estate professionals.  Read the following fraud profile which describes one broker’s experience and lesson.

An agent was asked by a friend to help in the acquisition of a distressed property.  This friend was in the mortgage brokerage business with her husband.  The agent successfully assisted her friend in the purchase.  Unbeknownst to the agent, the buyers arranged a simultaneous closing for the same property to another buyer for double the original purchase price.  The issues of fraud were as follows:

·      The second buyer was a straw buyer whose loan qualifications were “enhanced”.

·      A fraudulent appraisal was obtained to substantiate the inflated second sale price to the lender funding the loan.

·      The simultaneous closing was doctored to allow the high loan to value (LTV) loan on the second transaction to close first in order to fund and close the first transaction.

·      Participation of the escrow closer is not documented but the closing sequence certainly should have raised questions.

·      Not surprisingly, the straw buyer did not perform on the loan and the lender took a large loss.

Outcome:  The mortgage broker served Federal prison time.  Unfortunately, his name has come up again following his release from prison.  The agent was not prosecuted only because there was no evidence that she had any knowledge of the fraudulent second sale to the straw buyer.

Lesson learned:  If the agent becomes aware of a short-term flip of a property for a lot more money, without justification for a higher value, the agent should be alerted that he or she could be implicated in a loan fraud investigation and take appropriate steps of self-defense.