Dollars and Sense: Take steps to avoid real estate fraud

The number of cases of mortgage and real estate fraud continue to soar, and law-abiding buyers and sellers across the country are inadvertently getting pulled into fraudulent deals without realizing it. Often the first clue an innocent buyer or seller has that something is wrong is when the authorities show up at the closing table and arrest everyone.

Here are the possible players in a fraudulent real estate transaction:

“Appraiser — Inflates the value of the house or hides the true value from the mortgage company.

“Lender — Alters income, employment and credit documents or creates false ones for unqualified buyers; or works with appraiser to increase the value of the house. Often the lender gets a kickback on the inflated loan amount.

“Title company — Misrepresents current and previous ownership and produces forged deeds.

“Buyer — Lets someone else use their name and credit information in exchange for cash, or who takes cash back at closing, never intending to make any of the mortgage payments.

“Seller — Raises the price of the house and gives cash back at closing or agrees to a silent second mortgage that the lender doesn’t know about.

“Real estate agent — Pulls comparables in a neighborhood to justify the higher price of a house, or steers unqualified buyers to lenders who will handle “creative” loans.

“Notary — Notarizes documents without adequate evidence of who’s signing the paperwork.

Even the most vigilant buyer or seller can inadvertently be sucked into a real estate scheme. Before you buy or sell, take a look at “Protect Yourself from Real Estate and Mortgage Fraud,” by Ralph R. Roberts and Rachel Dollar (Kaplan 2007). Due out this summer, the book walks you through every possible scenario and shows how you can protect yourself.

Rules of Thumb

“If it isn’t in writing, it’s probably illegal. If every dollar in a transaction isn’t accounted for on the HUD-1 Settlement Statement, it’s evidence of fraud.

“If cash exchanges hands after closing, it’s evidence of fraud.

“If you’re pressured to lie about anything at all, it’s evidence of fraud.

As an indication of the seriousness of real estate crimes, a bill has been introduced in Congress to make available $65 million to state and federal regulators for the prosecution of the criminals.