Last week we talked about some of the red flags to watch out for when putting your house in the hands of unethical REALTORS®. Here are a few more scams that are currently happening in the Vancouver real estate market.
As a lawyer, I find this scam most interesting. This is a fraud perpetuated against a lender. The idea is to sell a home for an exaggerated amount to a colluding partner. The home is then used to leverage a large, inflated loan. However, the true value of the home is actually lower than the price of the loan. When they default on the loan, the home is reclaimed, at a loss, and the fraudsters walk off with the difference.
For instance, a home will be sold legitimately for $600,000. It is then sold to a second buyer for $1 million soon afterward without any substantial changes or renovations occurring. A loan is then secured for $700,000. The fraudsters walk away with $100,000 while the lender is stuck with a home worth only $600,000.
This is a highly illegal practice. As an honest homebuyer, you are still not completely safe. A lot of these scammers will use an independent third party (you) as a dupe and you can get mistaken as an accomplice if you are not careful.
If the person you are buying or selling from is anxious to keep an appraiser out of the equation, you should see this as a red flag.
Another major red flag is the lack of REALTORS® involved. No agent means no commission - it also means less legitimacy.
If you are asked to misrepresent yourself in any way (to the lender, appraiser, or other seller) do not walk, run! That is a surefire sign that something very shady is going on. Even if the money is great - run!
Always adhere to the principle that “if it sounds too good to be true, it probably is.” And make sure that you align yourself with good people. I see myself as more than an agent. I see myself as your ally.
For more information about how to guard against real estate fraud look to:
Real Estate Fraud for Lawyers. Also if you suspect that there is fraud being perpetuated, read this link about fighting back against fraud.
