According to a number of news reports, Beazer Homes–one of the nation’s ten largest single-family homebuilders–is being investigated by federal authorities for questionable business practices, including the possibility that the company engaged in mortgage fraud. From The New York Times:

Beazer Homes USA, which has suffered hefty losses amid the downturn in the housing market, now faces a federal investigation into mortgage fraud and other accusations. Its shares plunged nearly 17 percent in trading after hours Tuesday.

The Federal Bureau of Investigation and the United States attorney’s office in Charlotte, N.C., as well as the Internal Revenue Service and the Department of Housing and Urban Development, started an investigation of Beazer Homes last week, a spokesman for the F.B.I. office in Charlotte, Ken Lucas, said. Mr. Lucas said the inquiry involved “fraud in general” and dealt with corporate, mortgage and investment matters.

Beazer would not confirm the investigation, but in a statement said it would “fully cooperate with any investigation by any government agency.”

Weak demand for new homes, sales at discounts and the need for inventory write-downs have taken a toll on the company’s financial results.

The Charlotte Observer reported last week that Beazer Homes had an unusually high rate of home foreclosures in many developments around North Carolina’s largest city. The paper reported that of the 2,900 Beazer homes built in Mecklenburg County between 1997 and 2006, at least 388 have foreclosed–a rate above 13 percent.

Nationally, the paper said, fewer than 3 percent of buyers lose homes to foreclosure. In its series, The Observer documented four examples where the income and debts of borrowers were misstated on their applications for government-insured loans.

“The allegations by the Charlotte Observer focused primarily on one Charlotte subdivision,” said Beazer in a statement issued late yesterday afternoon. “In that subdivision, Beazer Mortgage Corporation originated the loans for the borrowers and served as a broker, not a lender. We were involved on the front end of the loan transaction process, compiling the necessary information, which we then submitted to the lender for underwriting review. The ultimate underwriting decision for the loan rested with the lender.”

Based on its own internal investigations to date, Beazer says it has not found any evidence to support the allegations in the Charlotte Observer.

A lot has been written already here on FlippingFrenzy.com about the impending crisis in the subprime mortgage lending market. Now, after years of nothing but profits and sunshine, the nation’s nearly $6-trillion mortgage securities market is nearing catastrophe, and Congress all of the sudden wants to know why.

If you are not familiar with the term “subprime” (as it relates to mortgages), here’s a primer:

Subprime lending–also referred to as B-Paper, B-tier, non-prime, near-prime, special finance, second chance lending–describes loans to homeowners who typically have a credit score below 620. Because of the lower than ideal credit score, subprime customers are those who do not qualify for “prime market rates” due to a blemished or limited credit history. Subprime customers are therefore charged a higher interest rate, to compensate for the increased future probability of default.

Recently, many subprime lenders have gone bankrupt or stopped making loans. Why? That’s easy… the prevailing cause for their insolvency or exit from the subprime market is increased defaults from the loans these lenders have originated.

Last week the United States Senate held a hearing to talk about the deterioration of subprime lending and the fear that its impact will spread to regular mortgages and even into the broader U.S. economy by cutting into consumer spending.

Senate Banking Committee Chairman Christopher Dodd had this to say about the impending crisis and his committee’s hearing:

You cannot pick up a newspaper lately without seeing another story about the implosion of the subprime mortgage market. The checks and balances that we are told exist in the marketplace, and the oversight that the regulators are supposed to exercise, have been absent until recently.

Our mortgage system appears to have been on steroids in recent years–giving everyone a false sense of invincibility. Our nation’s financial regulators were supposed to be the cops on the beat, protecting hard-working Americans from unscrupulous financial actors. Yet, they were spectators for far too long. Risky exotic and subprime mortgages–all characterized by high payment shocks–spread rapidly through the marketplace. Almost anyone, it seemed, could get a loan. As one analyst put it, underwriting standards became so lax that “if you could fog a mirror, you could get a loan.”

Some of these loans have legitimate uses when made to sophisticated borrowers with higher incomes. But a sort of frenzy gripped the market over the past several years as many brokers and lenders started selling these complicated mortgages to lower-income borrowers, many with less than perfect credit, who they knew, or should have known, would not be able to afford to repay these loans when the higher payments kicked in.

Regulators tell us that they first noticed credit standards deteriorating late in 2003. By then, Fitch Ratings had already placed one major subprime lender on “credit watch,” citing concerns over their subprime business.

In fact, data collected by the Federal Reserve Board clearly indicated that lenders had started to ease their lending standards by early 2004.

Despite those warning signals, in February of 2004 the leadership of the Federal Reserve Board seemed to encourage the development and use of adjustable rate mortgages that, today, are defaulting and going into foreclosure at record rates. The then-Chairman of the Fed said, in a speech to the National Credit Union Administration, said:

“American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage.”

Shortly thereafter, the Fed went on a series of 17 interest rate hikes in a row, taking the fed funds rate from 1% to 5.25%.

So, in sum: By the Spring of 2004, the regulators had started to document the fact that lending standards were easing. At the same time, the Fed was encouraging lenders to develop and market alternative adjustable rate products, just as it was embarking on a long series of hikes in short term rates. In my view, these actions set the conditions for the perfect storm that is sweeping over millions of American homeowners today.

By May 2005, the press was reporting that economists were warning about the risks of these new mortgages.

June of that year, Chairman Greenspan was talking about “froth” in the mortgage market and testified before the Joint Economic Committee that he was troubled by the surge in exotic mortgages. Data indicated that nearly 25% of all mortgage loans made that year were interest-only.

Yet, in December 2005, the regulators proposed guidance to reign in some of the irresponsible lending. And we had to wait another seven months, until September 2006, before that guidance was finalized.

Even then, even now, the regulators’ response is incomplete. It was not until earlier this month — more than 3 years after recognizing the problem — that the regulators agreed to extend these protections to more vulnerable subprime borrowers. These are borrowers who are less likely to understand the complexities of the products being pushed on them, and who have fewer reserves on which to fall if trouble strikes. We still await final action on this guidance, which I urge the regulators to complete at the earliest possible moment.

Let me explain why these new rules are so important. The subprime market has been dominated in recent years by hybrid ARMs, loans with fixed rates for 2 years that adjust upwards every 6 months thereafter. These adjustments are so steep that many borrowers cannot afford to make the payments and are forced to refinance, at great cost, sell the house, or default on the loan. No loan should force a borrower into this kind of devil’s dilemma. These loans are made on the basis of the value of the property, not the ability of the borrower to repay. This is the fundamental definition of predatory lending.

Frankly, the fact that any reputable lender could make these kinds of loans so widely available to wage earners, to elderly families on fixed incomes, and to lower-income and unsophisticated borrowers, strikes me as unconscionable and deceptive.

And the fact that the country’s financial regulators could allow these loans to be made for years after warning flags appeared is equally unconscionable.

We have invited the top five subprime lenders to testify today to explain these practices to us. Unfortunately, New Century declined to appear, even as they face a blizzard of loans going into early default. Their absence from this hearing is regrettable. New Century played a leading role in pushing unaffordable subprime loans and they should be here to explain their actions.

How many homeowners were sold loans they could not afford in the time that the regulators delayed? How many of these borrowers are still receiving these loans?

The people paying the price for the regulators’ inaction are homeowners across America struggling to maintain their piece of the American Dream. Homeownership is supposed to be a ticket to the middle class. Predatory lending reverses the trip.

A study done by the Center for Responsible Lending estimates that up to 2.2 million families with subprime loans will lose their homes at a cost of $164 billion in lost home equity. In the words of former Federal Reserve Board member Edward Gramlich, “We could have real carnage for low-income borrowers.”

These are numbers. I hope we can stay focused on the human tragedies behind these numbers. We need to keep in mind Ms. Delores King, the elderly, retired woman who testified before us last month. Ms. King was advised by her mortgage broker to take out a new loan whose payments quickly shot up beyond her means, simply to pay off a $3,000 debt.

We need to keep in mind Amy Womble, our other witness, a small businesswoman and widow with two children, who was promised a mortgage at $927 per month and ended up with a mortgage costing her $2,100.

Both these women are now struggling to keep their homes. We should not let them struggle alone. We need to let them know, and the American people know that we intend to fight for them.

We will hear this morning from another victim, Ms. Jennie Haliburton, about how these practices cause so much hardship.

The challenges are clear. In my view, we need to take several steps.

First, we need to put a stop to abusive and unsustainable lending. The regulators must finalize the recent subprime guidance as quickly as possible.

Second, the Federal Reserve should exercise its authority under the Home Ownership and Equity Protection Act (HOEPA, pronounced HOPE-A) and the FTC Act to prohibit these abusive practices and products for all mortgage market participants, regardless of what kind of charter they have.

Third, I intend to work with my colleagues and all interested parties to introduce legislation to attack the problem of predatory lending. Passing such legislation will be tough – there are still plenty of market players out there who stand to lose if we provide decent protections for consumers. But we must try to push forward.

Finally, we need to deal with the problem of the millions of homeowners who may face foreclosure after being hit with the payment shocks built into their mortgages. The solution to this problem may not be legislative. Instead, I intend to ask leaders from all the stakeholders — Regulators, investors, lenders, GSEs, FHA, and consumer advocates — to come together and try to work out an efficient process for providing relief to homeowners. I hope to have more to say on this in the next couple of weeks. One thing I know for sure – we cannot simply sit back and watch as up to 2.2 million families lose their homes and, with them, their financial futures.

Sadly, subprime loans are forcing more and more homeowners into foreclosure and out of their homes. Only time will tell if Congress can do anything about it. Here’s wishing them good luck!

As a part of Fraud Awareness Month, some Toronto, Ontario, homeowners will awaken this morning to find “Stolen/Not for Sale” signs planted in their front lawns. The Consumers Council of Canada, along with First Canadian Title, is staging the event to warn homeowners that Canada’s busy real estate season can be a breeding ground for real estate scams, often costing homeowners as much as $300,000 per case.

As most Flipping Frenzy readers know, real estate title fraud can take several forms, and it often starts with identity theft. A basic scam can be as simple as: a fraudster targets a house, forges a transfer deed using a stolen identity, registers in his or her own name, forges a discharge of the existing mortgage and borrows against the clear title.

While today’s event will take place in the Don Mills / Lawrence neighborhood, the Consumers Council of Canada and First Canadian Title conducted similar events last week in both Vancouver and Calgary. Over the past three years, First Canadian Title has embarked on a number of high-profile consumer campaigns and partnerships to raise awareness of the issue of title fraud. This includes participating in the Fraud Prevention Forum, a group of private and public sector firms, consumer and volunteer groups and law enforcement organizations whose mandate is to educate consumers and businesses on the effects of fraud across Canada.

A Washington state loan officer convicted of stealing nearly $50,000.00 from homeowners as part of a scheme to pay off their mortgages, last week received a five-and-a-half year sentence, $70,600 in restitution and a $10,000 fine. The Financial Crimes Unit of the Washington state Attorney General’s Office brought charges against J. Anthony Hansen, 42, of Tacoma, WA, in August 2005 at the request of the Washington State Department of Financial Institutions.

Hansen was convicted in February of this year of one count of theft in the first degree, 67 counts of theft in the second degree, and one count of money laundering. A jury returned a special verdict designating the case “a major economic offense.”

The State reviewed more than 16,000 total pages of materials, and presented 230 trial exhibits and 17 witnesses from all over the state, plus two witnesses from outside of Washington.

According to court documents, Hansen was an independent contractor with Country Home Finance for a little over two years, during which time he charged 68 customers, on average, $600 for a Mortgage Payment Acceleration Program (MPAP). Hansen used advertising materials obtained from Equity Corp., of Florida, and claimed he would enroll customers in the MPAP. In fact, none of the customers was enrolled.

One of the interesting things about this case is that was investigated and prosecuted thanks to a special pool of funds earmarked for mortgage fraud. Washington’s Mortgage Lending Fraud Prosecution Account was created by the Legislature in 2003 to aid prosecutors in bringing mortgage lending fraud cases. Funding is generated through a $1 fee for each recording of a deed of trust.

A Prior Lake, Minnesota, mortgage broker has been indicted on federal charges related to mortgage fraud. Ronald Joseph, age 49, was charged last week with two counts of mail fraud, one count of wire fraud, and one count of money laundering in connection to a scheme to defraud mortgage lenders out of $2,500,000.

According to U.S. Attorney Rachel Paulose, between 2004 and 2006, Joseph, a licensed mortgage broker who worked for LHS, Inc., submitted numerous fraudulent loan applications to  to potential lenders. Like many mortgage fraud schemes, Joseph’s applications misrepresented the terms of the proposed transactions by, among other things, overstating property purchase prices.

After Joseph’s loans was approved, the proceeds were provided to a title company. According to the indictment, Joseph then worked with a closing agent at the title company to disburse some of those proceeds in a manner contrary to the understanding of the lender. Specifically, loan payments were made to the property buyer and other third parties as well as to Joseph. In order to conceal the scheme, Joseph mailed fales settlement statements to the lender.

Joseph participated in his schemes as a property broker as well as a buyer and seller. As one might imagine, Joseph and LHS, Inc. received substantial fees for arranging fraudulent transactions. The indictment states that through approximately forty separate real estate transactions in which Joseph was involved, about $2.5 million in concealed payments were made.

If convicted, Joseph faces a maximum potential penalty of twenty years in prison on each mail fraud and wire fraud charge. He also faces a maximum potential penalty of ten years in prison for money laundering.

Recommended reading from this morning’s Wall Street Journal:

Recommended Reading for March 12, 2007
By Keith Huang – The Wall Street Journal

Detroit-based realtor Ralph Roberts has been selling real estate for more than 25 years. In recent years, Mr. Roberts has turned his attention to real-estate and mortgage fraud.

Mr. Roberts has even worked with federal officials to educate state and local law enforcement, regulators and financial institutions on how to detect and avoid common real-estate scams.

Some of the more common schemes include property flipping with false statements to lenders, or the use of fraudulent qualifications, such as a buyer fabricating an employment history or credit record.

Mr. Roberts says con artists have increasingly been turning to the Web to perpetrate their scams. To combat this rise, he has helped nurture an online network of fraud busters.

According to a recent report by the Internal Revenue Service, the booming real-estate market has been complemented by an increase in real-estate-related schemes. In fact, the IRS said the number of real-estate fraud investigations the agency initiated doubled between fiscal 2001 and fiscal 2003.

Mr. Roberts, who has written numerous books on the subject, runs FlippingFrenzy.com, a blog about real estate fraud. He’s also a contributing author to “Flipping Houses For Dummies.” More recently, he and Rachel Dollar co-wrote Protect Yourself Against Real Estate and Mortgage Fraud,” which is scheduled for publishing this summer.

Here is a selection of Web sites from Mr. Roberts.

MortgageFraudBlog.com, MortgageFraudBlog.com

“Hosted and maintained by nationally recognized mortgage-fraud expert, Rachel Dollar, this blog delivers the daily buzz on mortgage fraud. Visitors can also learn about what mortgage lenders, real-estate professionals, law enforcement agencies, legislators, and community activists are doing to stop it.”

Georgia Real-estate Prevention and Awareness, GREFPAC.org

“Georgia is the first state to have officially declared mortgage fraud a crime, and one of the key driving forces behind the legislation was Georgia Real Estate Prevention and Awareness (or GREFPAC). Here, you can learn more about the group and find out what you can do in your own community to curb real-estate and mortgage fraud.”

Stop Mortgage Fraud, StopMortgageFraud.com

“This is an excellent site for consumers who may suspect that they’re about to become the victim of predatory-lending practices. The site features a borrower’s bill of rights, a list of warning signs that commonly indicate abusive lending practices, as well as information on how to report suspected incidents of predatory lending.”

Freddie Mac’s Don’t Borrow Trouble, DontBorrowTrouble.com

“On behalf of mortgage lenders and homeowners, Freddie Mac has created this site to promote its ‘Don’t Borrow Trouble’ program. Homeowners who have trouble maintaining their monthly mortgage payments can learn how to regain their financial footing without falling prey to predatory lenders. This is also an excellent Web site for homeowners who are facing foreclosure.”

U.S. Department of Housing and Urban Development (HUD), HUD.gov

“HUD provides a vast amount of reliable information about renting, buying, owning, and financing the purchase of homes. The site also features articles on fair housing, foreclosure, subsidized housing and home improvements. This site is excellent for first-time buyers and established homeowners.”

Realty Times, RealtyTimes.com

“Realty Times is the leading Real Estate News site on the Internet for both consumers and real-estate professionals. Although the site’s offerings are not exclusively dedicated to topics related to real-estate and mortgage fraud, it regularly features articles about the overall health of the real-estate industry.”

Inman News, Inman.com

“Inman News features articles and commentary from a wide selection of the top residential and commercial real-estate experts across the country. Articles cover everything from current mortgage-interest rates to tips for real-estate professionals and investors. The site also includes regular features on real-estate and mortgage fraud.”

RISMedia, RISMedia.com

“Founded in 1980 by CEO and Publisher John E. Featherston, RISMedia is committed to being the definitive source for news and information pertaining to residential-real estate. The site’s content is primarily directed toward residential real-estate professionals and includes regular features on real-estate and mortgage fraud.”

Conference of State Bank Supervisors, CSBS.org

“Whether you’re in the mortgage loan industry or a consumer, this site shows how CSBS and other mortgage banker associations are working together to curb abuses in the industry.”

Star Power, GoStarPower.com

“Headed by Howard Brinton, Star Power is dedicated to bringing top producing real-estate agents [Stars] together to share their proven tips and strategies. Click the Products link to find out more about STAR POWER Systems ‘Detecting and Preventing Real Estate Fraud’ program.”

Earlier today, the FBI and the Mortgage Bankers Association (MBA) entered into an agreement they say will aid in the fight to combat Mortgage Fraud. According to the agreement, the FBI and MBA will make available to the public a Mortgage Fraud Warning Notice as a “proactive means of educating consumers and mortgage-lending professionals of the penalties and consequences of this criminal activity.”

According to the FBI, Mortgage Fraud Suspicious Activity Reports (SARs) referred to law enforcement by financial institutions increased from 17,127 in 2004 to 35,617 in 2006. Also revealed in today’s announcement: The FBI’s Mortgage Fraud investigations have focused mostly on large-scale fraud perpetrated by organized crime and industry insiders, including attorneys, brokers, appraisers, and Realtors. Since September 2002, the number and types of investigations the FBI has participated in has increased from 436 to 1,036. Of its current caseload, 51 percent of its investigations involve expected losses in excess of $1 million, and 57 percent involve federally insured financial institutions.

The FBI says it works closely with national associations such as the MBA, as well as with individual lenders, in a continual effort to define and combat the growing mortgage fraud problem. The newly developed Mortgage Fraud Warning Notice is supposed to enhance the FBI’s endeavors to put potential perpetrators on notice in an effort to stop crime before it is committed.

From Robert Siciliano, CEO of IDTheftSecurity.com:

The speed of technology in the 21st century has created a slew of opportunity for criminals. High tech crimes can consists of hacking into major networks or simply applying new technology to old tried and true criminal acts. The crime of Identity Theft can be described as using parts of someone’s identity to open new accounts or liquidates existing accounts under someone else’s identity. Identity theft can also occur when someone poses as you and lives life as you and conducts every and all transaction legal or not, under your identity.

Mortgage fraud generally occurs when someone manipulates the facts to work in their behalf or purposefully defrauds both lenders and buyers for financial gain.

Identity theft and mortgage fraud together is the perfect crime. Identity Theft and Mortgage Fraud are like peanut butter and chocolate. They go great together. There are a few types of identity theft when it comes to mortgage fraud.

1. A buyer poses as someone else to obtain a home to live in.
2. An identity thief poses as a buyer to flip a property and keep the proceeds.
3. An identity thief poses as a seller to sell a property and keep the proceeds.
4. An identity thief poses and an owner and refinances a home and keeps the proceeds.
5. An identity thief poses as a mortgage professional, appraiser, real estate agent, attorney or any other professional involved in a real estate transaction using their professional credentials specifically to defraud someone out of their money and do it undetected.

In each of these scenarios, someone along the line suffers a financial loss whether directly or indirectly when their good name and reputation is smeared because of an identity thief. Often, due to a fundamentally flawed system of identification, the thief is not caught.

Identity theft will continue to fuel mortgage fraud for four reasons:

1. The social security number has become our national financial identifier available in thousands of places. Anyone who access those none numbers can commit mortgage fraud under your name.
2. Our systems of identification provide little to no security due to advances in technology. Anyone with a PC, scanner, printer or just an internet connection and credit card can become anyone at any time by creating or buying a fake ID.
3. Till this day, we still have not properly identified who’s who. Until biometric technologies are incorporated into the system of identification, which is at least 10 years away, anyone who decides to become someone else can, simply by adopting that persons identity through forged paper work and a little social engineering.
4. Credit, and the way the system is set up, is wide open. Our credit is open to anyone who obtains our social security number. Once they have our SSN, then they simply access and open accounts using our credit with little resistance.
5. Due to wide open credit, the SSN as a primary identifier and IDs having no authenticating value, there is zero accountability when it comes to identity theft in the mortgage transaction.

The solutions to eliminate identity theft as a contributing factor to mortgage fraud is to:

1. Support and fully implement the RealID Act. Congress passed legislation to properly identify citizens requiring multiple forms of authentication when applying for an ID. The critical components of the RealID Act involves the citizen submitting to a biometric scan of a fingerprint that is then recorded and properly identifies the person from then on. These technology once available needs to be implemented into the Mortgage transaction every step of the way. No document or transaction should be valid without properly identifying and authenticating the buyer, seller or professional responsible for that next step. Here, accountability will mean something.
2. Support legislation requiring credit freezes across the board. While many in the mortgage and banking industries oppose credit freezes because it will “gum up the system”, a credit freeze is essential due to our wide-open system of credit. Unfortunately, anyone can access credit any time with little resistance. Credit and your financial well being, should be under lock and key and not wide open for anyone at anytime to access effect your credit.

Big lenders and Wall Street investors are going after Arizona mortgage brokers, appraisers, real estate agents, title firms and home buyers for fraud, reports Catherine Reagor of The Arizona Republic:

Dozens of civil lawsuits alleging the gamut of mortgage fraud, from cash-back deals to lying about income on loan documents, have been filed against Valley firms and individuals during the past few months. Fraud experts and regulators say the lawsuits are only the beginning as the fallout from mortgage fraud starts to hit the Valley….

Among the lawsuits:

Phoenix-based Biltmore Bank is suing Security Title of Arizona and a group of others over a cash-back deal. The suit alleges the group worked together to get Biltmore to fund a $1.3 million loan for a home valued at $800,000 and then pocketed the extra cash. Also named in the suit are Valley appraiser Kittelmann & Associates and Tucson resident Frank Padilla, who was indicted and pleaded guilty last year to fraud and money laundering as part of a $13 million property-flipping scheme.

A Lehman Brothers investment trust in New York and Aurora Loan Services in Denver are suing the parent company of First National Bank of Arizona over 38 home loans. They say the bank misrepresented the values of properties, and the income, debt and employment of some of the borrowers. Lehman and Aurora bought the loans as investments and want the bank to buy them back.

San Francisco-based Transnational Financial Network is suing Phoenix-based Lending House Financial and a Scottsdale investor who purchased 22 Valley homes within days of each other last spring. Transnational funded loans worth nearly $2 million on seven of the homes but says it wasn’t notified the investor was buying multiple properties and his real debt level wasn’t disclosed on mortgage documents.

Tucson-based mortgage lender First Magnus is suing its former Valley loan officer, Tyson Rondeau, for fraud and negligence. First Magnus claims bad loans are costing it nearly $1 million. Separately, the lender agreed last fall to pay a $200,000 fine after the Arizona Department of Financial Institutions found several violations, including a branch manager making false promises or concealing facts in 10 fraudulent loan transactions.

Buy a $2 million dollar house for $1.5 million? That’s what some con artists would have you believe in a fairly common illegal house flipping scheme that targets novice real estate investors.

Here’s how it works. A sham company advertises a FREE real estate investment seminar in your area. All you have to do is register with your name, address, phone number, and social security number. The company uses this information to pull the credit reports of registrants and identifies registrants who have top-notch credit scores–people who are likely to be approved for big loans. These lucky winners become the targets of the scam.

At about the same time, the company does a little research to find expensive homes that have been on the market for a year or more–homes that the sellers are probably pretty eager to unload. They approach the sellers with a deal. Say the sellers have had the home listed for $1 million for the past year. One of the company’s representatives approaches the sellers and says, “We’ll buy your home and pay full price under one condition–you take it off the market for three months and then re-list it at $2 million.”

If the seller agrees, the company hires an appraiser willing to value the home at $2 million. At the FREE seminar, the speaker or one of his accomplices approaches an attendee who’s been identified as someone able to qualify for a big loan. He tells the would-be investor, “We have an excellent opportunity for you–a $2 million home you can buy for $1.5 million.” Assuming the investor is on board, all of the pieces are in place to execute the scam.

The company helps the investor obtain a loan for $1.5 million payable to the company, pays the sellers $1 million for the property, and pockets the remaining $500,000. The investor ends up owing $1.5 million on a house that’s probably not even worth the seller’s original asking price of $1 million. In an attempt to score a quick $500,000, the investor loses at least $500,000!

To avoid falling victim to such a scam, take the necessary precautions:

1. Don’t provide sensitive information, especially your social security number, to any company you don’t have reason to trust.
2. Avoid registering for FREE investment seminars online or off. They’re usually in the business of selling you their investment program or identifying potential marks.
3. Question the logic of the deal. If someone knows of a $2 million property they can buy for $1.5 million, why are they telling you about it? Wouldn’t they want that sweet deal for themselves?
4. Research the property yourself. By looking at MLS listings for comparable properties for sale in the same neighborhood, you can quickly determine whether the price is inflated.
5. Remember that if it sounds too good to be true, it probably is.

You can make money investing in real estate, but you have to do your homework. If someone approaches you with a great deal, it may be a great deal, but you can’t be sure until you’ve done some of your own research. Never buy a house you haven’t seen with your own two eyes. Have your own, independent Realtor® or appraiser provide a second opinion.