You may find yourself faced with that offer some $100,000+ over your list price with a listing close to expiring and a seller that is manic to sell. Mortgage fraud evil doers scour the market looking for these opportunities, these situations make for an easy mark. The buyer and his front man ( I won’t even dignify these people by calling them an agent – they are a disgrace to the real estate industry) will insist you present the offer…”It is the law in the State of Florida to present all offers” and off you go with offer in hand to speak to your seller. Even the most honest of seller’s will come back with the question… “If the buyer wants to that and I am getting what I want – why do I care?” That feeling of dread will wash over you as you think… my seller has a point… my bank account is low, my mortgage is due and my listing that I have spent a fortune marketing is about to expire.
Been there? It’s this kind of human rationalization, which has made mortgage fraud an epidemic. Here is what to tell your clients….
Mr. Seller, I know the offer is tempting and I would like nothing better than to sell your property, BUT, mortgage fraud is a crime. And although we know the evil doers will certainly be prosecuted, there are some unsavory complications that you and I will face.
For you Mr. Seller, if somehow you escape the criminal investigation, the Internal Revenue Service may have something to say about the capital gains you will report. YES! The IRS will look at the tax record and see that the recorded sale is higher than the price you listed on your return. I don’t know about you, but I have yet to hear of someone saying they had a pleasant experience in a tax audit. The burden of proof is on YOU and our friends at the IRS will be looking for their money on the sale of your property. And by the way, income tax evasion is a federal crime.
For you my favorite agent, your bank account may have a negative balance, your listing may expire and it may seem like this is your opportunity to look the other way and make the deal. Let me be clear here, you are risking your license. Here is a real life account. An agent met a man who represented himself as a property manager for foreign investors (this is a fairly common scenario in the Miami market). He approached the agent to list the properties for rent. The agent listed and subsequently rented all 10 properties. The tax roll print out matched the Power of Attorney paperwork given on each property. (The “flip” had not been recorded at the time of the listing). About 6 months later we got a call from one of the tenants who said she had been getting letters from the bank to the owner, what should she do with them? We instructed her to forward them to the property manager. A few months later, the tenant was evicted, even though she had been paying her rent. The tenant was furious – with cause, she filed a complaint with the Florida Real Estate Commission against the agent. Meanwhile, a private investigator came to the office inquiring about the files. The PI showed us the scam. He came to the real estate office first because we would have all of the paperwork. The Title insurer had hired him, because all 10 properties had been foreclosed on and one of the lenders filed a title claim because of the fraudulent title work. To make a long story short, those 10 files remained on my desk for 3 years and we had visitors from the FBI, FDLE, various private investigators, local police and many others. The most painful for the agent and for me was the investigation by the Florida Real Estate commission. For 1 very long week, the investigator set p shop in my office and combed through those files. He interviewed the agent and it was very unpleasant. The agent was experienced and honest – but again she collected a commission and was presumed guilty by association. The letter came recommending revoking her license, not too long after the week of torture. She hired an attorney and we went to appear in front of the commission to ask for lenience. In the end, the 1 charge we could not refute was that one of the Power of Attorney’s had been signed 1 day after the listing agreement… a clerical oversight. For this, the agent received a fine, 45 hours of continuing education and a whopper bill form her attorney. The “property manager” did finally go to jail and the tile agent is now in the real estate business (he paid a big fine and can’t do title work again). The mortgage broker, continues to operate in our market under a different company.
The scam was fairly uncommon then and was a difficult lesson learned. More recently, I am seeing some other interesting consequences of mortgage fraud. Condo Association assessments – in a recently delivered condo building where mortgage fraud ran through the building like a house on fire there is a condo assessment of over $1000 per quarter to cover the operating deficits due to those fraud units never paying maintenance fees. Talk about penalizing the good guys! Not to mention, the increase tax assessments because the market value of the condos is so grossly overstated. And try to do a good market analysis when 75% of the comps are 20-30% over market because the sales all had significant sums going back to the straw buyers who never paid a mortgage payment, tax payment or maintenance fee. Don’t even get me started on what mortgage fraud does to everyone’s interest rates and availability of mortgage programs…we all pay for mortgage fraud in one way or another.
This is just one of those scenarios which we are all best served by just saying no. Having said no many, many times, I had a cooperating broker (aka evil doer) call to complain. He tells me “ we do this all the time”, “my client is a sophisticated investor” blah, blah, blah. So I asked him… “If this is legal, and we could all make millions of dollars a year just by closing on a property, why do you work? I wouldn’t! “ His answer was priceless…. I’ll never show one of your company’s listings again – like that was a crucial blow! Thank God – one less evil doer to deal with!
I would love to hear your stories and comments… please post.
Like the picture? Courtesy of my son.
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