Builder Bailout Scheme

Here's the next brilliant scheme in our library:  A builder scheme.  Check it out:
1.  A builder offers incentives to buyers: such as cash back at closing or payment for mortgage or home-owner association fees.
2.  These incentives are not revealed to the buyer's lender.
3.  The builder provides the incentives after the sale has closed.

Many lenders put a cap on the value of incentives that a buyer can accept, so the fraud is surrounding disclosure here.

Another builder scheme invloves the builders offering a buyer incentive of a mortgage with no down payment.
1.  A builder wants to sell the property for, let's say $200,000.
2.  The builder inflates the price to $240,000 when he finds a buyer.
3.  The buyer's lender funds the loan of $200,000, believing that the downpayment will be paid at closing.
4.  The builder gets the $200,000 from the sale of the home, pays off his building costs, FORGIVES the buyer's $40,000 downpayment and keeps the rest as profit.
5.  The buyer's lender is lead to believe that there is equity in the home (in their eyes, the buyer put a 20% downpayment down).
6.  If the buyer forecloses, the lender has no equity and must pay all foreclosure expenses.

So...if you are working with a builder: ASK QUESTIONS!!!!!!!!!!!!!!  Talk to other agents who  were involved in other transactions with that builder.  This is a HUGE reason why, even when purchasing a new construction home, it is important for buyers to have their OWN representation.

Agents are licensed professionals, they need to make responsible decisions.  As always: go into every transaction with your eyes open.

Up next: Reverse mortgage schemes.

Short-Sale Fraud #1

Over the next few weeks, I will share with you some of the latest frauds that are going on in the marketplace. Fraudsters are coming up with new frauds every day because the old frauds are being detected fairly easily. An amazing fact is that the FBI has investigated over 2,700 Mortgage Fraud cases in 2009, but has investigated over 3,000 in only the first four months of 2010! (Source: FBI 2009 Mortgage Fraud Report Year in Review).

Let's look at one of the schemes that is currently out there:

This scheme is a short-sale scheme:
1. The fraudster recruits a straw buyer to purchase a home for the purpose of defaulting on the mortgage.
2. This straw buyer secures a mortgage using false documentation and information.
3. Once the transaction is complete, the buyer stops making payments on the mortgage, causing it to default.
4. Prior to a foreclosure sale, the fraudster (not the buyer) offers to purchase the property from the lender through a short-sale.
5. The lender accepts this offer, not realizing that the short sale was premeditated.

What can you do to prevent becoming involved in something like this?
1. Use lenders you know and trust.
2. Research the chain of sales on each property you list.
3. If you think something is fishy, talk to the agents that were involved in the previous sales.
4. Know what your buyers can truly afford.
5. Go into every transaction with your eyes open: if it is too good to be true, it probably is.

Stay tuned next week for a builder scheme.

I'd love to hear what you think of this one!