Does this look like mortgage fraud?
March 18, 2007 4:50 PM   Subscribe

Mortgage fraud/appraisal fraud question. Does the following transaction look suspicious?

Someone I know owned a house in a very depressed urban neighborhood in a big U.S. city. They bought it as an investment and, at the time they sold it, it was appraised at approximately $30,000. The person who purchased the home from them, for around $30,000, was an investor who turned around and sold the property two or three days later for $65,000. The house was almost certainly not worth that amount if you look at comparable sales in the neighborhood.

The warranty deed (for the $65,000 sale) does not refer to any lenders so it is not apparent how the $65,000 sale was financed. There is a signature of an appraiser on the warranty deed (certifying that the sale price is equal to or higher than what the house would have be sold for on the open market), and upon checking the records of appraiser licenses, it turns out that his appraiser license had been expired for several years (that's probably not relevant to answering this question, but I thought I would mention it).

For reasons that are unimportant here, I'm trying to help my acquaintance figure out if the person who bought their property is engaged in any kind of fraud.

I have three questions:

(1) Does this transaction look fishy?

(2) Whether it does or doesn't look fishy, what things in the transaction I have described lead you to your conclusion?

(3) If it looks fishy, what avenues should I follow to confirm whether or not there's some kind of fraud going on here? I'm planning to call the person who is on record as having purchased the house for $65,000, but I want to make sure I am prepared to ask the right questions.

(I am posting this anonymously because some people I work with know that I post to Metafilter, and my acquaintance is someone I know from work, and this needs to be handled with discretion.)
posted by anonymous to Law & Government (10 answers total)
If I'm following you....there have been some cases here in Vancouver where the realtor convinced the seller to list at a certain price and then got some sort of kickback on when the investor flipped it. I can't remember if there was dual agency, but there was definitely a kickback. In another more recent case, I believe the realtor was the investor.
posted by acoutu at 5:45 PM on March 18, 2007

It's a little hard to figure out a fraud profitable enough that it will overcome the extra property taxes on the increased value. I think the likelihood of a non-fishy explanation (i.e., the investor knowing that a business is buying up land on that block) is far greater than that of it being fraudulent.
posted by backupjesus at 6:01 PM on March 18, 2007

I had a huge post but this question makes me uncomfortable, so this is what I have cut it down to. I think that if you go looking for help on this one, a lot of the people you approach will want to step away from it. I am sorry if that comes off as dickish, it isn't meant to be.

1. Is it a fishy deal? Yes, very. But that doesn't mean anything.

2. All major lenders require the appraiser to submit a copy of a current state license with an appraisal, unless they already have one on file.

Also, the underwriters would take a look at the 3 day flip time and huge increase in sale price and kill the deal as soon as the appraisal touched their desk.

Areas that are on the border of an up and coming neighborhood can be very difficult to appraise.

That being said, I am guessing that you looked up the appraiser's license on the internet. Some state's internet database that allowed you to look up an appraiser's license also showed previously expired licenses for different levels of licensure. Unless you knew what you were looking for it could appear that an active appraiser's license was expired when, in fact, they had simply moved their active license to a different level. Are you sure you have all the information?

3. Call this person when you know what is going on, not to find out what is going on.

Consult a local appraiser or realtor who specializes in court preceding, they are cheaper than real estate lawyers and know more about how deals actually work.

Try asking here or here.
posted by 517 at 6:37 PM on March 18, 2007

There are all sorts of ways that house sales can be used to launder money, hide capital gains, make illicit transfers of funds, etc. To answer your question directly, yes, it does sound fishy.

I know you can't answer because you're anonymous, but is your friend just curious about this, or do they plan on doing something about it. It doesn't sound like your friend thinks they got ripped off, but more like maybe something dodgy happened after they were out of the picture.
posted by alms at 6:44 PM on March 18, 2007

It could be that the investor bought the property for a client who could not get financing in the traditional sense. The investor will then sell the property as "Bond for deed" or "Owner Financed" three days later to the client.

That may be why the records are not showing up. The investor is not a major lender, but is financing the property himself, because he is self financing, he will not require an appraisal.

I've seen this happen when a person's credit is so bad, they can not get traditional financing. This is a very expensive way to purchase property. You can bet the investor has his fingers crossed that within a few years the client will default on the loan. He then forcloses on the property, keeping all the payments made thus far. He may "sell" that same piece of property several times over a decade, collectiong payments and forclosing.
posted by JujuB at 7:02 PM on March 18, 2007

Response form the OP:

I know you can't answer because you're anonymous, but is your friend just curious about this, or do they plan on doing something about it. It doesn't sound like your friend thinks they got ripped off, but more like maybe something dodgy happened after they were out of the picture.

Although the $30,000 sale from my friend to the buyer went through just fine, my friend suspects she got ripped off by the same buyer in another transaction. The buyer's explanations are highly suspect, and point to (but don't conclusively establish) a deliberate attempt to screw my friend. Because we need to evaluate my friend's options, we're trying to figure out of this buyer is a legitimate, above-board investor or whether something shady or fraudulent is going on in his business. Thanks for all the input so far.
posted by jessamyn at 8:06 PM on March 18, 2007

So this buyer is able to more than double their money in a few days. Your friend wonders if they have ripped her off on another transaction. This points to (but doesn't conclusively establish) your friend selling her properties to this buyer in particular instead of selling them on the open market.

Presumably, the sort of fraud you would be worried about is your friend recieving less than market value, not fraud involving the later buyer at $ 65k. I have to wonder why your friend is selling to this buyer in particular -- she should think about why she is doing this, and what her other options are. There are people and businesses who look specifically for those who need to sell in a hurry, and they do this to make a profit. This, however, does not mean it is fraud.

The $ 65k does look ... odd. I'd take it as a sign to look very carefully at any dealings with that person. Fraud? Depends on a lot of things that you may not know, and may never know.
posted by yohko at 12:20 AM on March 19, 2007

It smells fishier than 12th century Denmark to me.

From the details you provide, it doesn't sound as if there is any mortgage involved, and wouldn't almost any small or even medium large cash buyer be screaming bloody murder most foul if they found out they were paying more than double what a property sold for less than a week before? And how could you possibly imagine you would be be able to keep them from finding out?

The only way I can see getting away with it is if this were a tiny, tiny part of a very large package transaction backed by a private equity firm of the sort which recently agreed to buy TXU for $32B (the linked article claims TXU fraudulently and artificially jacked up power rates and dramatically increased profits, probably, in my opinion, in order to help jack up the sale price in a way which has some similarity to your friend's sale and resale).

If something like this is true, then the person who bought from your friend and the person who paid $65,000 for the property are likely to be colluding to defraud the ultimate source of the money (which might be several further intermediaries away), and so I would have to echo 517's excellent advice to call when you "know what is going on, not to find out what is going on."

I think the TXU money is coming from the vast pool of dollars which have accumulated in foreign hands because of our balance of payments deficits and national debt. Dollars are too vulnerable to a fall to be suitable for long term holdings or as an exclusive reserve currency any longer, and foreign central banks and investors will be seeking minimally disruptive ways to repatriate them and buy American things for the foreseeable future. American infrastructure and housing stock seem likely to have enduring appeal for such entities-- and such entities have more to lose from any publicity about their activities than they could ever hope to gain from pursuing fraud.

To infer so much from a single story is more than faintly ridiculous, I must admit, but you and your friend might find it edifying (and profitable) to look around a bit and see how much of what you've experienced is happening to other sellers. I have been waiting to see something of this sort too long to be surprised if you were to find a lot of it, but I certainly never expected any indication of it on AskMe.
posted by jamjam at 10:13 AM on March 19, 2007

Perhaps buyer#2 is bribing buyer#1, and this is a way to launder the money?
(something similar was done with Cunningham, I believe)
posted by niloticus at 3:00 PM on March 20, 2007

OK, it looks like this is a clear cut case of mortgage fraud. Basically, you get a false appraisal, use that appraisal to flip a property to a fake buyer, and the fake buyer then defaults on the loan. You are basically ripping off the mortgage company.

Two months later, I wonder if anyone will read this comment...
posted by alms at 8:44 PM on May 20, 2007

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