Have You Been Taken by Mortgage Fraud?

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I read a great post on the Bankruptcy Law Network. Of course, their example is exactly like a situation someone recently brought to my attention. Jonathan Ginsberg writes the following:

Here’s how one version of a classic mortgage fraud scheme works: my client is approached by a friend or acquaintance with an opportunity to participate in a profitable real estate investment. The “friend” has a friend who is in the real estate business and he knows of a neighborhood where there are good deals on rental properties. In many cases these rental properties already have tenants. The “friend” can also arrange financing in which my client does not have to put any money down and the debt service (i.e., the mortgage) will be covered by the rental income.

The “deal” works because the rental properties have appraised for thousands more than the selling price. My client attends a closing, signs a few documents and now he owns one or more rental properties.

Shortly thereafter, my client – and the bank – get left holding the bag. The tenants disappear and my client discovers that he cannot find any replacement tenants… he discovers that most [real estate] agents won’t touch the neighborhood…

Here’s what happened. The seller, the appraiser, the closing attorney and possibly a real estate agent or a mortgage broker are all working together to rip off the bank. They buy several houses in a neighborhood and perform a few minor repairs. The appraiser then writes up an appraisel showing a dramatically increased property value.

Next, its time to find a gullible “investor”. My client is recruited to buy the property at the inflated value. The seller or agent (sometimes with the help of a mortgage broker) finds a sub-prime lender who will issue financing based on the appraisal…

The sale generates thousands of dollars in profits – and these profits are distributed amongst the seller, the appraiser and the closing attorney…

Buyer beware!!! Especially when someone else is setting up everything in the deal.

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