Real Estate Fraud: How to Spot a Scam

Real estate and mortgage fraud cases may be the latest fallout from the recent real estate bubble. Two recent California court cases demonstrate the lengths that white-collar criminals will go to in order to deceive buyers, banks and investors.

In Orange County, a former real estate broker stole clients' identities, forged signatures and falsified documents with two other suspects in order to obtain loans -- and then stole the funds. According to the Los Angeles Times, another fraud case involved a Hermosa Beach real estate investor who recently pleaded guilty to defrauding clients of more than $7 million,

Mortgage fraud is not a new scheme. White collar criminals have long devised elaborate scams to defraud buyers and banks of loan money. A November 2009 Maryland case, resulting in a 42-month jail term for Terrence White, involved White and others paying "straw buyers" $10,000 to purchase properties. False mortgage and settlement documents were created resulting in more than $19 million in loans. Most of the funds have not been paid back and the properties have gone into default.

But if banks and other lenders are not savvy enough to see through these scams, how can consumers?

If a deal sounds too good to be true, it probably is -- a maxim that potential real estate investors and buyers should always consider. In the Hermosa Beach mortgage fraud case, as reported in the Los Angeles Times, former real estate broker Mary Elaine Perkins, who owned Carlton Financial Enterprises Inc., used money from more than 90 investors for her scheme. She claimed to be making hard-money loans (short-term, high-interest loans) to buyers who could not otherwise obtain financing. As with Bernie Madoff's scam, Perkins repaid some early investors with money obtained from others who later bought in. But no one received a return on investment as promised.

Buyers can protect themselves from this kind of fraud-for-profit. With Google and other Internet search sites, references should be checked prior to investing any funds. Ralph Roberts and Rachel Dollar's book "Protect Yourself From Real Estate and Mortgage Fraud," is another resource, as is common sense. HUD offers concise tips regarding what a homebuyer should do in order to protect themselves from real estate fraud or predatory lending.

In the Maryland incident
, and another California case involving former slasher movie producer James McConville, phony buyers were paid to front transactions -- a costly mistake, as McConville kept the falsely obtained funds and the phony buyers were left with real ruin to their credit.

In the Orange County case, as detailed in the Orange County Register, former real estate broker Kathy Chen used fraudulently obtained personal and credit information to fabricate false loan applications for phony buyers, including a 92-year-old.

Protect yourself from identity theft by obtaining free credit reports on an annual basis. If these victims had kept tabs on their credit history, they might have been alerted to the fraud earlier. The government site suggests spacing out requests for free credit reports over the year, just to be safe. And if you have become a victim of identity theft, another U.S. government website also offers solutions.

Find credit information at
AOL Real Estate's Credit Center.

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