Detecting Mortgage Fraud – Part 2
If you missed the previous article – Detecting Mortgage Fraud – Part 1
As a full time Canadian real estate investor, we will be exposed to many deals, both good and bad. Sometimes deals that turn out to be bad or possibly collapse at the last minute may be due to mortgage fraud. Both the veteran and the newbie real estate investor should be aware of some common frauds that happen in the real estate investing business. Sadly, there are dishonest people in every business that find ways to manipulate in order to profit.
In appraisal fraud, a dishonest appraiser that is "working" with the buyer, may provide an overestimated value for their report to the lender. It could even go so far as deliberately manipulating the appraisal system on the computer. Some groups may pretend that they are selling properties that are more expensive than they actually are, getting financing based on the higher values. They end up getting more mortgage money than is required for the actual purchase and are able to essentially walk away from that property with money in their pocket.
There is another situation called value fraud. Someone may be selling a property to you that may have been "flipped" a few times before it has actually come to you. The fraudulent people may have used a straw buyers (which is a person who is paid to act on behalf of the person, whose names and credit is being used just to utilize for mortgage application and title transfer) to buy the property. They in turn, hold it for a very short time, flip it again in to another straw buyer in order to falsely increase the value.
They could also be in cahoots with the personnel at the lending institution, lawyer’s office, appraiser, mortgage broker, etc. These people could all be working together, or working with these people singularly, in order to falsely increase the value and substantiate the false value.
Private mortgage schemes
There could be some frauds that happen through a private mortgage scheme, whereby financing is raised through private offerings. Investors invest money on the promise of a high return on a project. Returns are made possible from the ability to acquire and build the project, then sell the development at a big profit.
The problem with this is that you don’t know, quite often, where the investor funds are going. They could be invested in a "pool" where the investor doesn't get a copy of the title for the project or any significant documents pertaining to the investment. The project could be such that the promise of what the actual returns will be is based on a falsely high projected selling price for the property and the actual return is considerably smaller than promised.
World Wealth Builders offers many unique, practical, "out of the box" real estate investor trainings which offers the student hands on, in the trenches style instruction to facilitate both a different mindset as well as a successful and lucrative real estate investment business. To find out more, please go to www.worldwealthbuilders.com
For the next article in the series – Detecting Mortgage Fraud – Part 3
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