Fraud Overview
Real estate fraud has reared its ugly head in recent years and we feel that this subject is so important that we wanted to provide information as to certain types of fraud.
There are many types of fraud as outlined by law enforcement agencies. Our biggest focus at HomeSmart Reports in this area is helping consumers and investors avoid some type of real estate or mortgage "fraud for profit" scheme. We provide a multi-layered look at properties you're researching, and the underlying risks in the area surrounding it.
Fraud for profit is big business in the United States and conservative estimates place mortgage industry losses at more than $1 billion annually. Long-term, consumers pay for this through higher mortgage rates, higher origination fees and other associated transaction costs. The biggest cost to consumers may be in the neighborhoods across the United States when foreclosures come back on the market (sometimes several homes all at once) in an area, and drive down property prices due to excess supply. Our reports help you understand that these issues may exist in an area and that may help you in a property transaction negotiation.
Property Fraud
Property fraud usually involves a "great deal" that looks like you will make a lot of money on, and all in a very short time frame. BEWARE of these highly risky "opportunities." Above all else, we suggest that you always ask yourself a few questions when about to enter a real estate transaction; 1) Does this sound "too good to be true"? And, 2) If this is such a good deal, why isn't everyone doing it?
You should satisfy yourself that this particular property (or transaction) has merit. If you need to ask some other people what they think, ask people who are both trustworthy and sensible. Tens of thousands of dollars, or more, can be lost if you make the wrong decision. At HomeSmart Reports, our property analyses will help you understand the prices, trends and risks in an area and recent property transaction history. If your property has been recently flipped, or if you think something may be wrong with the property, trust your instincts and do more research. Our reports will help you stay on the right track to avoid property fraud.
Real Estate Risk
For far too long, too little emphasis has been placed on real estate risk. Consumers and investors have become conditioned that real estate investing is a "sure thing" in terms of making money. Real estate investing is not a sure thing. If it were a sure thing "everyone would be doing it", right? Consumers have also been conditioned that the only determining factor in property value is price. However, other factors weigh heavily in determining value.
These factors are market trend and local area risk factors. In considering market trend, is the market going up, or is it going down? If the market is headed up, that is a positive property value attribute. If it is going down, there is a risk that you are buying at the top of a market and may lose equity if values go down further.
The other major factor is local area risks such as foreclosure activity, property flipping, site influencing factors, specific property history, appreciation rates and other trends that could adversely affect value. Those market conditions heavily influence value, not just sales "comps".
Real Estate Fraud For Profit
There are countless stories where unsuspecting homeowners have been duped by perpetrators of real estate fraud for profit, and been bilked for part or all of the equity in their home. The perpetrators offer a higher-than-market-price to appeal to greed or need. They will ask the seller to carry a loan (called a seller carry back) and not to record the note for two or three weeks, so they can resell the home, or take out a loan and then disappear. The former owner then takes a huge loss due to that type of fraud. Don't be fooled, learn more at www.homesmartreports.com.
Neighborhood Real Estate Fraud
Local property owners around the country often ask if there is anything they can do about curbing neighborhood real estate fraud. The answer is "yes". Many times, local residents bring suspicious activity to the attention of law enforcement agencies that can crack a case of fraud wide open. First and foremost, you need to know what is going on in their local market. You can get periodic reports from HomeSmart Reports that will expose unusual appreciation, repeated sales of the same properties and other activity that is indicative of fraudulent behavior. Stay in touch with your market (not just home sales!) and report unusual activity to law enforcement authorities.
Appraisal Fraud
There are a number of similarities between valuation fraud and appraisal fraud. Remember than when we speak of fraud, it is really "fraud for profit" that we're all trying to stop. Appraisal fraud occurs on the rare occasion when an appraiser actually is working in collaboration with a fraud ring to bilk money out of lending institutions. On occasion, an appraiser will participate in artificially inflating property values by appraising properties at, or above the amount needed to qualify for the loan amount being requested. In exchange for this "work," the appraiser will receive a kick back from the fraud ring or share in the ill-gotten profit.
This practice is illegal and if caught and convicted, the appraiser and other participants in the fraud ring will go to jail. HomeSmart Reports constantly harps on buyers and sellers to understand their market and to question those things that do not make sense, or sounds "too good to be true." Most importantly, if you discover unusual activity in your market, you should report it to law enforcement so it can be investigated. Appraisal fraud is a terrible form of deception because appraisers enjoy a certain "trust" from buyers, sellers, real estate agents, and lending institutions. However, since you are the principal in a transaction, you should seriously consider doing your own research to play it safe. After all, you are the one investing your hard earned dollars.
Foreclosure Fraud
People who are in financial trouble and looking for a way out, regularly fall prey to predators promising to help them out of the jam they are in at the moment. These predators feed on the anxiety and stress that these owners feel and when the opportunity comes to ease their pain, owners too often jump at that opportunity.
The predator will offer up a certain sum of money in return for the owner's "power of attorney" to execute all of the necessary loan documents. Instead of asking an attorney or perhaps a real estate agent (for fear of looking silly or stupid or not wanting people to know their financial situation), they launch into the transaction so they look like they know what they are doing. This is generally a huge mistake.
It is a very prudent idea to consult with an attorney or real estate agent about your options. Lenders are sometimes willing to help borrowers with some type of "workout" situation, provided the borrower lets them know early on that problems may be looming. Most lenders don't want to take properties back and if there's a way to work through things it will be found; if you address the situation early on. Don't be fooled by foreclosure fraud perpetrators!
Property Flipping
One of the hottest money making ideas in the U.S. today is property flipping for profit. Basically, the objective is to buy a property, fix it up and sell for a profit as quickly as possible. This is not a new concept. The big challenge is to purchase a house for an affordable price, spend a budgeted amount of money to fix it up to maximize attractiveness, and then place it on the market at a price that will allow a gain. Some of the bigger mistakes people make are not accounting for certain expense and other assumptions. Things like:
As a buyer of such properties, you should understand what fix-up work has been done and be sure it has been done properly. If not, you may have additional costs in your future that weren't anticipated. Beware of property flipping. As an investor, you need to create a budget and stick to it. As the buyer, make sure that fix-up work has been properly done.
There are many types of fraud as outlined by law enforcement agencies. Our biggest focus at HomeSmart Reports in this area is helping consumers and investors avoid some type of real estate or mortgage "fraud for profit" scheme. We provide a multi-layered look at properties you're researching, and the underlying risks in the area surrounding it.
Fraud for profit is big business in the United States and conservative estimates place mortgage industry losses at more than $1 billion annually. Long-term, consumers pay for this through higher mortgage rates, higher origination fees and other associated transaction costs. The biggest cost to consumers may be in the neighborhoods across the United States when foreclosures come back on the market (sometimes several homes all at once) in an area, and drive down property prices due to excess supply. Our reports help you understand that these issues may exist in an area and that may help you in a property transaction negotiation.
Property Fraud
Property fraud usually involves a "great deal" that looks like you will make a lot of money on, and all in a very short time frame. BEWARE of these highly risky "opportunities." Above all else, we suggest that you always ask yourself a few questions when about to enter a real estate transaction; 1) Does this sound "too good to be true"? And, 2) If this is such a good deal, why isn't everyone doing it?
You should satisfy yourself that this particular property (or transaction) has merit. If you need to ask some other people what they think, ask people who are both trustworthy and sensible. Tens of thousands of dollars, or more, can be lost if you make the wrong decision. At HomeSmart Reports, our property analyses will help you understand the prices, trends and risks in an area and recent property transaction history. If your property has been recently flipped, or if you think something may be wrong with the property, trust your instincts and do more research. Our reports will help you stay on the right track to avoid property fraud.
Real Estate Risk
For far too long, too little emphasis has been placed on real estate risk. Consumers and investors have become conditioned that real estate investing is a "sure thing" in terms of making money. Real estate investing is not a sure thing. If it were a sure thing "everyone would be doing it", right? Consumers have also been conditioned that the only determining factor in property value is price. However, other factors weigh heavily in determining value.
These factors are market trend and local area risk factors. In considering market trend, is the market going up, or is it going down? If the market is headed up, that is a positive property value attribute. If it is going down, there is a risk that you are buying at the top of a market and may lose equity if values go down further.
The other major factor is local area risks such as foreclosure activity, property flipping, site influencing factors, specific property history, appreciation rates and other trends that could adversely affect value. Those market conditions heavily influence value, not just sales "comps".
Real Estate Fraud For Profit
There are countless stories where unsuspecting homeowners have been duped by perpetrators of real estate fraud for profit, and been bilked for part or all of the equity in their home. The perpetrators offer a higher-than-market-price to appeal to greed or need. They will ask the seller to carry a loan (called a seller carry back) and not to record the note for two or three weeks, so they can resell the home, or take out a loan and then disappear. The former owner then takes a huge loss due to that type of fraud. Don't be fooled, learn more at www.homesmartreports.com.
Neighborhood Real Estate Fraud
Local property owners around the country often ask if there is anything they can do about curbing neighborhood real estate fraud. The answer is "yes". Many times, local residents bring suspicious activity to the attention of law enforcement agencies that can crack a case of fraud wide open. First and foremost, you need to know what is going on in their local market. You can get periodic reports from HomeSmart Reports that will expose unusual appreciation, repeated sales of the same properties and other activity that is indicative of fraudulent behavior. Stay in touch with your market (not just home sales!) and report unusual activity to law enforcement authorities.
Appraisal Fraud
There are a number of similarities between valuation fraud and appraisal fraud. Remember than when we speak of fraud, it is really "fraud for profit" that we're all trying to stop. Appraisal fraud occurs on the rare occasion when an appraiser actually is working in collaboration with a fraud ring to bilk money out of lending institutions. On occasion, an appraiser will participate in artificially inflating property values by appraising properties at, or above the amount needed to qualify for the loan amount being requested. In exchange for this "work," the appraiser will receive a kick back from the fraud ring or share in the ill-gotten profit.
This practice is illegal and if caught and convicted, the appraiser and other participants in the fraud ring will go to jail. HomeSmart Reports constantly harps on buyers and sellers to understand their market and to question those things that do not make sense, or sounds "too good to be true." Most importantly, if you discover unusual activity in your market, you should report it to law enforcement so it can be investigated. Appraisal fraud is a terrible form of deception because appraisers enjoy a certain "trust" from buyers, sellers, real estate agents, and lending institutions. However, since you are the principal in a transaction, you should seriously consider doing your own research to play it safe. After all, you are the one investing your hard earned dollars.
Foreclosure Fraud
People who are in financial trouble and looking for a way out, regularly fall prey to predators promising to help them out of the jam they are in at the moment. These predators feed on the anxiety and stress that these owners feel and when the opportunity comes to ease their pain, owners too often jump at that opportunity.
The predator will offer up a certain sum of money in return for the owner's "power of attorney" to execute all of the necessary loan documents. Instead of asking an attorney or perhaps a real estate agent (for fear of looking silly or stupid or not wanting people to know their financial situation), they launch into the transaction so they look like they know what they are doing. This is generally a huge mistake.
It is a very prudent idea to consult with an attorney or real estate agent about your options. Lenders are sometimes willing to help borrowers with some type of "workout" situation, provided the borrower lets them know early on that problems may be looming. Most lenders don't want to take properties back and if there's a way to work through things it will be found; if you address the situation early on. Don't be fooled by foreclosure fraud perpetrators!
Property Flipping
One of the hottest money making ideas in the U.S. today is property flipping for profit. Basically, the objective is to buy a property, fix it up and sell for a profit as quickly as possible. This is not a new concept. The big challenge is to purchase a house for an affordable price, spend a budgeted amount of money to fix it up to maximize attractiveness, and then place it on the market at a price that will allow a gain. Some of the bigger mistakes people make are not accounting for certain expense and other assumptions. Things like:
- 1. Assuming they are guaranteed a profit
2. Exceeding their budget for fix up
3. Unforeseen problems that exist with the home they bought
4. How long it will take to sell the property
5. Real estate commissions they often have to pay
6. Mortgage payments that must be made during the holding period prior to closing the sale
7. Maintenance costs, taxes, insurance and other miscellaneous costs
As a buyer of such properties, you should understand what fix-up work has been done and be sure it has been done properly. If not, you may have additional costs in your future that weren't anticipated. Beware of property flipping. As an investor, you need to create a budget and stick to it. As the buyer, make sure that fix-up work has been properly done.