Research: Can You Explain This To Me?

[Selena_Kitt]

Okay, doing a little research on real estate scams for a story...

This article talks about a "crash and inflate" con, but I don't quite get it.

(Scammers would have a field day with me, I know... and no, this isn't an invitation, scammers - get thee from my PM box! *hanging up garlic and crosses*)

A commenter on this article says: What is the incentive for the seller to agree to sell for a higher price, and then return money to the buyer? It appears that the seller would also need to be involved in some fashion, although maybe to a lesser extent.

That's my question, too... how does this work exactly?? Can someone lay it out for me, step by step? (Real Estate Cons for Dummies style? )

TIA!

 

[neonlyte]

Okay, doing a little research on real estate scams for a story...

This article talks about a "crash and inflate" con, but I don't quite get it.

(Scammers would have a field day with me, I know... and no, this isn't an invitation, scammers - get thee from my PM box! *hanging up garlic and crosses*)

A commenter on this article says: What is the incentive for the seller to agree to sell for a higher price, and then return money to the buyer? It appears that the seller would also need to be involved in some fashion, although maybe to a lesser extent.

That's my question, too... how does this work exactly?? Can someone lay it out for me, step by step? (Real Estate Cons for Dummies style? )

TIA!

Yeh... the buyer leverages a loan based upon the inflated value, uses self-certification to obtain the loan (at a higher rate of interest). The seller receives the proceeds of the sale, returns a percentage to the buyer, who then walks away from the loan leaving the mortgage company holding an inferior valued property.

Don't try this at home.

 

[Selena_Kitt]

Yeh... the buyer leverages a loan based upon the inflated value, uses self-certification to obtain the loan (at a higher rate of interest). The seller receives the proceeds of the sale, returns a percentage to the buyer, who then walks away from the loan leaving the mortgage company holding an inferior valued property.

Don't try this at home.

okay... slooooooooowwer...

huh???

 

[drksideofthemoon]

I read a bit about the scam a couple of months ago. Basically, the buyer and seller have to be in collusion, along with a few other people.

An appraisal valuing the property at more than it really worth is obtained. The buyer gets a 100% mortgage based on the false appraisal. The buyer walks away from the mortgage, leaving the lender holding a piece of property that is worth substantially less than what is owed.

The buyer and seller split the profit and move on to their next scam.

 

[neonlyte]

okay... slooooooooowwer...

huh???

T h e b uyer finds a seller who needs to sell quickly. He hums and ah's (English expression) over the purchaser always leading the seller on until the seller is desperate to do the deal. At this point the seller might opt for a discount. Having settled a discounted price say, 90k instead of the original 100k, here is what happens.
The buyer says, Tell you what, I need some quick cash for a business problem/gambling debt/holiday in the Bahamas; I'll pay you more than the discount price, and we'll split the extra.

I'll buy your house for 120k instead of 90k. When the mortgage company pays you out 120k, you give me 15k.

The buyer has to 'self-certificate' his mortgage. This means he's paying over the odds on interest to avoid the mortgage company looking at his financial records. (Even in this economic climate, this remains possible as long as your 'record' is clean). The buyer takes a 100% mortgage at 4% OVER normal mortgage rates.

When the mortgage company pays out to the seller, the seller splits the 'extra' 30k with the buyer, who promptly disappears, to find another seller and mortgage company upon whom to do the scam.

Does that help?

 

[Selena_Kitt]

T h e b uyer finds a seller who needs to sell quickly. He hums and ah's (English expression) over the purchaser always leading the seller on until the seller is desperate to do the deal. At this point the seller might opt for a discount. Having settled a discounted price say, 90k instead of the original 100k, here is what happens.
The buyer says, Tell you what, I need some quick cash for a business problem/gambling debt/holiday in the Bahamas; I'll pay you more than the discount price, and we'll split the extra.

I'll buy your house for 120k instead of 90k. When the mortgage company pays you out 120k, you give me 15k.

The buyer has to 'self-certificate' his mortgage. This means he's paying over the odds on interest to avoid the mortgage company looking at his financial records. (Even in this economic climate, this remains possible as long as your 'record' is clean). The buyer takes a 100% mortgage at 4% OVER normal mortgage rates.

When the mortgage company pays out to the seller, the seller splits the 'extra' 30k with the buyer, who promptly disappears, to find another seller and mortgage company upon whom to do the scam.

Does that help?

Ah... okay... so then the buyer lets it sit there, doesn't pay anything on the mortgage, and it goes into foreclosure. And he gets away with 15K. But the seller got away with 15K, too...

so my question then, is, if this scam is prosecuted... does the seller get into trouble, too?

 

[neonlyte]

Ah... okay... so then the buyer lets it sit there, doesn't pay anything on the mortgage, and it goes into foreclosure. And he gets away with 15K. But the seller got away with 15K, too...

so my question then, is, if this scam is prosecuted... does the seller get into trouble, too?

Not necessarily. The prosecution would have prove collusion between the two. If it's all word of mouth, there is limited risk. I would imagine the buyer takes the lion's share of the profit. He/She is taking the bigger risk.

PS: Tell me if we need to erase these posts

 

[Selena_Kitt]

Not necessarily. The prosecution would have prove collusion between the two. If it's all word of mouth, there is limited risk. I would imagine the buyer takes the lion's share of the profit. He/She is taking the bigger risk.

PS: Tell me if we need to erase these posts

LOL, no it's honestly for a story... I want to be able to have the buyer totally con the seller, and the seller not end up in trouble...

I also want a con where the buyer can get caught, too... not one of those no-paper-trail con-artist gets away scott free sorts of cons...

I wonder what the buyer would say to the seller to convince them to give him/her the ENTIRE profit? I guess the seller would do it if they were really really desperate to sell?

 

[LoquaciousLady]

You hit the nail on the head. If a seller is desperate enough, say if he/she has been paying double mortgages for quite a while and is in a huge financial bind, I could see a fairly naive person falling for it without taking a cut.

 

[neonlyte]

LOL, no it's honestly for a story... I want to be able to have the buyer totally con the seller, and the seller not end up in trouble...

I also want a con where the buyer can get caught, too... not one of those no-paper-trail con-artist gets away scott free sorts of cons...

I wonder what the buyer would say to the seller to convince them to give him/her the ENTIRE profit? I guess the seller would do it if they were really really desperate to sell?

Ok... I believe you, anyway, I always prefer it when you tell me to go slower

That's a difficult call. He'd have to be able to exert some pressure over the seller since the seller is the one who receives the money, initially.

Any form of coercion risks exposing the seller as an accomplice... which might just be plausible if the coercion was sufficient... say a kidnapping?

I'd believe the story line more if the seller received some pay off, it hangs a nice guilt angle on him/her. Will he/she be exposed as an accomplice? The problem arrives when the investigation catches up with the buyer - what reason do they have for NOT involving the seller? Lover? Family member? Incriminating evidence of some kind?

 

[Weird Harold]

LOL, no it's honestly for a story... I want to be able to have the buyer totally con the seller, and the seller not end up in trouble...

Not going to happen. At least not in any kind of kickback scam, whether the buyer defaults on the mortgage or not.

The Seller might be convinced that they're not doing anything wrong by "helping out the buyer with a cash flow problem" but will run into the "ignorance of the law is no defense" when details of the scheme come to light.

A possibility for story purposes is authorities enlisting your Seller to gather evidence on a con-artist running some sort of kick-back scam so that the Seller is protected from prosecution.

 

[Agnol]

I don't think it is uncommon for a seller to offer a buyer 'money back' in certain situations. Say the house you are looking to purchase has significant issues with the carpeting and the seller does not have the cash to replace them and you as the buyer are strapped for cash yourself, having to finance nearly 100% of the cost of the home.

The seller could offer you $1500 at escrow closing to replace the carpeting, the money coming out of any cash the seller would be receiving at the close of the deal. I think this is legal.

In regards to the scam you are suggesting I would have to ask this: Why would the seller be held liable for the buyer agreeing to buy a house at an inflated price? Even if the seller gave all of the money back to the buyer, isn't the buyer still the one on the hook for the mortgage? Is it the seller's fault that the buyer never had any intention of meeting the mortgage payments in the first place?

To me this sounds like a real estate agent scam. An agent convinces a customer to buy a house, take out a mortgage for more than what the house is actually worth (or in this case, owed for the purchase of the house) and then pocket the extra cash. If you can sell the first property off for what is owed you walk away with the extra cash pretty easily. Rinse and repeat. In all of this the agent makes his commission and he is not liable for anything. During the real estate boom a coworker and I spent an hour trying to convince another coworker that this deal was doomed to send him to bankruptcy.

 

[3113]

Selena, I think you need a different type of scam if you're going to make this a situation where the seller is innocent and the buyer totally to blame (or vice versa). As it is now (i.e. how it's been described with the seller in league with the plot), you're going to have to find ways to contort story, characters and scam to suit that need. I'm sure there exists real estate scams where you can have your cake and eat it, too, rather than using one which requires that you twist and turn the story/characters into knots in order to keep your seller innocent and the buyer evil.

From a storytelling perspective, I think it'd be better to keep researching--and asking here--for a scam that suited to your needs from the onset rather than trying to hammer this square peg into a round hole...

Either that, or surrender the idea of the totally innocent seller. I'm a sucker for characters that repent their evil ways--might it not be more interesting for the seller to be in cahoots on this scam and feeling guilty or repenting their crime later on? They come clean at the end and swear to sin no more?

 

[Selena_Kitt]

Selena, I think you need a different type of scam if you're going to make this a situation where the seller is innocent and the buyer totally to blame (or vice versa). As it is now (i.e. how it's been described with the seller in league with the plot), you're going to have to find ways to contort story, characters and scam to suit that need. I'm sure there exists real estate scams where you can have your cake and eat it, too, rather than using one which requires that you twist and turn the story/characters into knots in order to keep your seller innocent and the buyer evil.

From a storytelling perspective, I think it'd be better to keep researching--and asking here--for a scam that suited to your needs from the onset rather than trying to hammer this square peg into a round hole...

Either that, or surrender the idea of the totally innocent seller. I'm a sucker for characters that repent their evil ways--might it not be more interesting for the seller to be in cahoots on this scam and feeling guilty or repenting their crime later on? They come clean at the end and swear to sin no more?

Maybe, 3113... I'm still looking... anyone know any good scams? lol A last will and testament scam is a possibility, too...

The seller really IS innocent... 80 year old grandmother... can't exactly turn her into an accomplice... without it becoming crazy and ridiculous anyway...

ignorance is no defense, but her age... might be?

the plot (so far, ha) is along the lines of our con-man (the buyer) comes in to save the day, buy grandma's house, so she can move in with our heroine (because grandma is ill) and of course, our heroine falls in love with our con-artist-hero and is clueless he's scamming them. Until he makes away with the money (and her heart... awww)...

of course, I could use some other scam... I'm still brainstorming...

 

[neonlyte]

Try a straightforward little auction scam. He sees something valuable in Grandma's house, persuades grandma, through the heroine, to sell it at auction. He'll get it valued and arrange everything. Instead, he has a copy made and the copy is put for auction. The fraud is spotted but he's disappeared with the original.

 

[Selena_Kitt]

Try a straightforward little auction scam. He sees something valuable in Grandma's house, persuades grandma, through the heroine, to sell it at auction. He'll get it valued and arrange everything. Instead, he has a copy made and the copy is put for auction. The fraud is spotted but he's disappeared with the original.

hmmm maybe...

gotta have something where our con-man goes ahead of our heroine to g'mas house to cinch the deal...

 

[3113]

The seller really IS innocent... 80 year old grandmother... can't exactly turn her into an accomplice... without it becoming crazy and ridiculous anyway...

It looks like in most of these cases that the sellers are, indeed innocent:

Buyers who see a chance to make a quick buck fuel the fraud. They typically work with appraisers, mortgage brokers and title agents to present phony documents to lenders, investigators say. For mortgage brokers, the paydays are generous: subprime lenders pay hefty fees to brokers who bring them business. Although nothing is illegal about cash-back-at-closing deals in which all the details are disclosed to lenders, the arrangement veers into fraud when the sale is arranged to trick mortgage companies into lending far more than the house is worth.

The sellers typically are little more than innocent bystanders. Desperate to sell in a soft market, they receive strangely generous offers even as the imploding housing market has put most buyers in a bargain-hunting mode. "Everybody walks away with their coin, and the bank is left holding the bag," said John Swope, the Florida Department of Financial Services detective who arrested Cuffy. The state's investigation of Cuffy offers a glimpse at how the scam works:

Cuffy paid for an appraisal showing the inflated price. He recruited a "straw buyer," Kervyn Harris, whose name appeared on the deed and the mortgage. Then he arranged for Fremont Investment & Loan of California to lend Harris $340,000, according to police reports. When the sale closed on Dec. 30, 2005, Cuffy walked away $95,000 richer. State investigators say Cuffy divided the proceeds among his father, Sylvester, 58; his sister, Lillia, 35, (the Cuffys run BlueKap Financial of Tamarac); and another man who provided Harris as the straw buyer.

Now in foreclosure, the small house sits in a down-at-the-heels neighborhood in Fort Lauderdale. A chain-link fence guards the front yard, and the for-sale sign screams, "BANK OWNED." The Florida Department of Financial Services' fraud division arrested Johnson, Sylvester and Lillia Cuffy in July and accused them of theft....South Florida long has been a hot spot for mortgage fraud, and the chicanery comes in a variety of flavors, from borrowers fudging their income to qualify for a loan to massive scams using straw buyers to create phantom transactions. The latest brand of scam, the type that Cuffy and countless others have pulled off, combines a legitimate seller with a not-so-forthright buyer...."As with most deals that seem too good to be true, cash-back-at-closing schemes are just another way of scamming someone - in this case the lender, who's fooled into making an under-collateralized loan," write authors Ralph Roberts and Rachel Dollar.

One homeowner who's trying to sell a house in Wellington's Black Diamond development says she has been contacted repeatedly by buyers looking to do cash-back-at-closing sales. Another seller in a development west of Lake Worth said he, too, was solicited by a buyer hoping to inflate the appraisal. Wary of being involved in a shady deal, both refused to do so.

So what seems to happen, as Agnol pointed out, is that this scam is created by mortgage brokers, not the seller or even the buyer. The seller is talked into giving the buyer money back if the deal goes through. This makes sense because in a lot of cases, a seller thinks they've sold a place and along the way the deal falls through. So it doesn't sound so bad to promise the buyer that if they go the distance they'll give the buyer a "rebate" as it were. Meanwhile, the others involved in the scam make it seem like this straw buyer is worth giving all that money to, and that this property is worth all that money, so the seller gets their money, the others get the "rebate" and the lender is left holding the bag when the buyer leaves the property to be foreclosed on, a property worth far less than the lender paid.

 

[Weird Harold]

the plot (so far, ha) is along the lines of our con-man (the buyer) comes in to save the day, buy grandma's house, so she can move in with our heroine (because grandma is ill) and of course, our heroine falls in love with our con-artist-hero and is clueless he's scamming them. Until he makes away with the money (and her heart... awww)...

A straightforward rip-off sounds like it would work best for your situation -- Le Jerk offers to act a broker for grandma's house, he just needs a power of attorney and he'll take care of everything. He takes care of everything but when he heads off "to deposit the check" after closing, he just keeps going.

 

[Vermilion]

Do you want the con-man to actually rip Granma and the heroine off, or just to vanish and leave the heroine broken hearted? Cos this mortgage scam sounds like it wouldn;t actually financially hurt Granma...

x
V

 

[Selena_Kitt]

Do you want the con-man to actually rip Granma and the heroine off, or just to vanish and leave the heroine broken hearted? Cos this mortgage scam sounds like it wouldn;t actually financially hurt Granma...

x
V

actually, now that I know how it all plays out, this scheme works out perfectly well... grandma doesn't get hurt and isn't implicated, our con gets the cash, our heroine is broken hearted...

until...

Hey, 3113, thank you SO much for that info... my eyes were going buggy doing searches and my head hurt from trying to figure it out. MUCHO appreciated!

 

[Vermilion]

Good-oh. Let us know when and where to find it
x
V

 

[BlackShanglan]

Another possibility - he is the appraiser/certifier or has a "pet" one who's willing to sign off on a claim that the house has an undermined foundation, severe termite infestation, toxic mold, or similar devastating problem. When an unnamed buyer appears, willing to take the property off of her hands at a value reflecting the (non-existent) destruction, he's there to persuade her to sell it.