Sub-prime mess, foreclosures, sliding home prices - today's market conditions are causing sleepless nights for some but others are smelling the opportunity to make a quick buck. That's great for enterprising investors because in markets like this one opportunities abound. But, unfortunately, it also creates a fertile feeding ground for hucksters and sham artists waiting to defraud novices.
Your mom's advice, general speaking, was pretty good: if it looks too good to be true it probably is. But it's worthwhile to understand the mechanism of the basic real estate swindle. There are many variations to this general scheme, but if you're considering a deal that in any way resembles this shell game then hold on to your wallet.
The scam generally tends to unfold as follows:
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If you get caught up in a scheme like this your opportunities for recourse are limited. The fraudsters tend to prey on unsophisticated investors and convince them to sign loan documents that they don't understand, and the fact that the victim's signature appears all over a fraudulent no-doc loan package serves to incriminate the victim, even though he or she was acting out of ignorance.
Additionally, the victim often is too embarrassed to go to the authorities.
These schemes are bad for everyone. The criminals often strike multiple times in the same neighborhood once they find a feeding ground with the right combination of properties and potential investors. This is happening right now in Houston, and the problem has become so pervasive that the FBI has commissioned a special unit to crack down on mortgage fraud.
But by then it's too late for the victims, who lose thousands of dollars and see their credit in tatters, and the communities which start to see zooming tax appraisals (based on the bogus inflated sales prices) coupled with boarded windows popping up from all the foreclosures. That's an ugly double whammy.
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