Fraud in Real Estate Transactions

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Questions and Answers

What type of fraud involves individuals wanting a house for themselves or seeking profits from commissions?

Fraud for property (correct)

Consumer fraud

Criminal enterprise fraud

Fraud for profit

Which of the following is NOT typically associated with fraud for property?

False employment

Inflated property values (correct)

Undisclosed loans

False purchase contracts

Fraud for profit often involves a group of individuals within the industry. Which of the following is commonly included?

Real estate agents (correct)

Government officials

Homeowners

Home inspectors

What indicates potential Criminal Enterprise Fraud?

Frequent changes in property ownership Signup and view all the answers

Which of the following best describes the motivations behind Fraud for Property?

To obtain fraudulent loans or property deals Signup and view all the answers

Which scenario indicates a potential fraud concerning the seller's identity?

The seller's signature is not the same as on the title. Signup and view all the answers

What is a behavioral red flag when evaluating a loan application?

The application includes a handwritten pay stub. Signup and view all the answers

What indicates a potential issue with documentation during the processing of a real estate deal?

A letter from a private individual for verification. Signup and view all the answers

Which condition represents a credit-related red flag during a loan application review?

Multiple credit reports show different SSNs. Signup and view all the answers

What does excessive real estate commissions on a contract signify?

Indication of potential fraud or manipulation. Signup and view all the answers

Which of these is a sign of a suspicious loan application?

Inconsistent phone numbers for the borrower and employer. Signup and view all the answers

Which situation does NOT denote a probable red flag during a real estate transaction?

The buyer has established credit over several years. Signup and view all the answers

What constitutes a concern regarding earnest money deposits?

The amount is significantly larger than customary practices. Signup and view all the answers

Which scenario is a potential indicator of financial misrepresentation?

Large cash deposits appear in the borrower's bank account. Signup and view all the answers

How does the presence of multiple deposit checks with varying dates impact the transaction?

It may be a sign of potential fraud or manipulation. Signup and view all the answers

What can the use of a power of attorney imply in a sales transaction?

It may indicate that the sale is not arm's length. Signup and view all the answers

What does the identification of several recent property transfers suggest?

Potential illegal flipping or money laundering. Signup and view all the answers

Which factor does not align with a credit-related red flag in borrowing?

Frequent contact with financial advisors. Signup and view all the answers

What implication does having no real estate agent involved in a sale carry?

It suggests potential undisclosed arrangements or fraud. Signup and view all the answers

Study Notes

Fraud in Real Estate Transactions

Fraud is criminal deception for personal or financial gain, common in real estate & mortgage lending.
Mortgage loan originators have a duty to be aware of, deter, and detect fraud.
Fraud motivations aid in identification of the act and perpetrator.

Fraud for Property

Motivations include acquiring the property, or the commissions/sale proceeds.
Perpetrators can be applicants, real estate agents, or lenders (with seller complicity).
Common tactics include falsifying income/assets, false contracts, false employment, undisclosed loans, and false application statements (e.g., intent to occupy).

Fraud for Profit

Perpetrators are often industry insiders (e.g., real estate agent, loan officer, appraiser).
Involves multiple transactions with a pattern, profiting from property sales & mortgage loans.
Tactics include property flipping, inflated property values, deceptive title transfers, equity skimming.

Criminal Enterprise Fraud

Often linked to money laundering.
Characteristics include frequent/flipping transactions (sometimes at a loss), requests for cash payments, unconcerned parties.

Red Flags in Sales Contracts

Non-arm's-length transactions (seller is also broker, relative, etc.).
Seller not reflected on title.
Purchaser not the loan applicant or added/deleted.
No real estate agent involved.
Power of attorney used for sale/loan application.
Unlisted second mortgage on title/credit report.
Excessive real estate commissions.
Earnest money = downpayment, unusually large or odd amount.
Multiple deposit checks with inconsistent dates.
Deposit check name/address discrepancy.
Contract dated after credit documents.
Online/generic boilerplate contract.

Application Red Flags

Significant changes in applicant information post-application.
Unsigned or updated application.
Employer's address is a PO Box or residential.
Cash-out refinance on recently purchased property.
Applicant currently resides in purchased property.
Borrower and employer have same phone number.
Extreme payment shock (possible straw buyer).
Investment property purchaser without a residence.
Unreasonable property location vs. employment.

General Red Flags (Any Stage)

Credit-related: No credit history, invalid/discrepant SSN, altered personal data, social security discrepancies, excessive credit inquiries.
Income-related: Employer PO Box address, handwritten paystubs/W-2s, round numbers on income verification, income inconsistencies with employment, sequential paystub numbers.
Assets-related: New bank accounts, round numbers on bank statements, large deposits without explanation, private letters for asset sales/loan repayment, bank statement inconsistencies, missing customer or account details, inconsistent dates or account opening dates.

Closing Red Flags

Seller is an entity (LLC, trust) instead of individual.
Real estate commissions exceed 7%.
Sales concessions not stated in contract.
Numerous/recent title transfers.
Payments to third parties on seller's CD.
General: Altered documents (altered fonts, handwriting), unclear/fuzzy copies, illegible signatures, "squeezed" numbers, falsified verifications, specific addressed document completions, weekend/holiday completions, address discrepancies, third-party verification (VOD, VOE).
Overall Note: A single red flag may not be enough to deny an application. Multiple red flags are a strong indicator of fraud.

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Description

This quiz explores the various forms of fraud in real estate transactions, including tactics used by perpetrators and motivations for committing such crimes. It covers the roles of loan originators, agents, and industry insiders, as well as methods for detection and deterrence. Test your understanding of how fraud impacts the real estate market.