Just the mention of fraud can conjure feelings of fear and loathing among consumers. Fraud can muddy the waters for law-abiding professionals, tarnish company reputations and send customers scurrying for an exit.
Some real estate-related fraud rings have scored millions of dollars before the law caught up with them. The schemes can be complex, involving several people and companies, and the lure of quick cash has inspired many con artists to try their hand at deceptive and illegal real estate practices. The Internal Revenue Service has reported an increasing number of criminal investigations of real estate-related fraud over the past several years, and several other federal agencies – including the Secret Service and FBI – also participate in some investigations and enforcement actions.
While there is a perception that sentencing is typically light for white-collar crimes, the average months to serve for real estate-related fraud has climbed from 24 months in fiscal year 2001 to 46 months in fiscal year 2003, the IRS reported, and the number of prosecution recommendations has climbed from 69 in fiscal year 2001 to 117 in fiscal year 2003.
Still, new examples of alleged fraud schemes continue to crop up across the country. The Kansas City Star reported in August that four were indicted in a $4 million Missouri-based mortgage scam. The individuals “reportedly conspired to defraud Ameriquest Mortgage of Gladstone using fraudulent loan applications and inflated real estate appraisals,” the newspaper reported.
Industry professionals are fed up with the racket, though, and an informal Inman News survey found that 81.3 percent of respondents believe that real estate fraud criminals threaten the integrity of the entire industry. About 8.8 percent of readers participating in the survey said they do not believe these criminals threaten the industry, while 4.4 percent said they were not sure and 5.5 percent had other comments.
One survey respondent, David C. Molenaar of RAA Molenaar & Associates, said those who commit real estate-related fraud should face “the full extent of the law. They serve no purpose other than to make our jobs a mess and we have to pay the price.”
Another respondent, Bill Randall, a broker for Randall Realty in Westerville, Ohio, said the penalty for fraud convictions still doesn’t match the crime. “Two million dollars in fraudulent income payable by 48 months of incarcerations amounts to a $500,000 per year windfall. Not a bad profession. When our lawmakers and judges finally make the penalty fit the crime maybe real estate fraud will not seem so attractive,” Randall said.
Bruce Ailion of RE/MAX Communities in Marietta, Ga., in his response said that fraud “is rampant in my market. I represent banks that have foreclosed on properties and have been a victim myself.”
A mortgage loan officer who did not give a name said that conflicts of interest can arise if the same entity builds or sells a home and arranges for financing, too. “It is hard for some rules not to be bent if you stand to make money on both ends of the deal,” the loan officer said. “I remember when builders and Realtors would not get involved with the financing. Now everyone wants to be a loan officer.”
Some consumers’ willingness to make money can aid fraudsters in carrying out their schemes, said survey participant Dick Dennis, a Realtor in Sun City, Calif. “Simply put, fraud cannot exist without the victim’s sense of greed,” Dennis said.
And Mike Albert of M.H. Albert and Associates Inc., in New Hope, Pa., said that the appraisal industry is in need of a major housecleaning to rid it of fraud, and until that happens “appraisers will continue to submit false or over-inflated appraisals that start the process of killing this industry.” He added, “Enforcement starts with the individual appraiser by refusing to accept (the) values ‘requested’ by the lenders or by ‘pushing their value, just a little bit more.’ “
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