Last Friday, the Los Angeles Times today ran a story entitled “Brokers to Westside elite accused of fraud,” in which staff writers Annette Haddad and Diane Wedner reported the previous day’s indictment of two “high-profile Beverly Hills real estate agents and two licensed appraisers” on multiple charges of conspiracy, bank fraud and loan fraud (another term for mortgage fraud). The quartet stand accused of conspiring to dupe lenders out “more than $40 million in fraudulent loans for homes in some of Southern California’s most expensive neighborhoods.”

Named in the indictment are Joseph Babajian and Kyle Grasso, agents with Prudential California Realty, and appraisers Lila Rizk of Trabuco Canyon and Scott Robinson of Dana Point. Babajian and Grasso were also charged with money laundering.

Although those charged are certainly innocent until proven guilty, this case draws attention to the growing problem of real estate fraud and mortgage fraud and the threat that fraud poses to the real estate industry and homeowners, as well. As I explain in my most recent book, co-author of the recent book Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership:

Most people consider mortgage fraud to be a victimless crime, but that is far from the truth. The way this type of mortgage fraud typically works is that the buyer obtains an inflated appraisal making the home appear to be worth more than it really is, so the lender will loan them more money. At closing, the buyer gets the extra money back. Some people think that there is nothing wrong with this practice. After all, the buyer must make payments on a larger mortgage, the agent receives a bigger commission, and housing values in the area tend to rise. On the surface and in the short term, it appears that everybody wins.

As my co-author Rachel Dollar and I go on to explain, however, this sort of logic simply rationalizes the very real crime of mortgage fraud. Artificially inflated appraisals and mortgage fraud eventually result in inflated housing prices, higher loan default rates, increasing rates of foreclosures, higher property taxes, and the erosion of neighborhoods.

Cash back at closing schemes, like those described in the L.A. Times story, are designed to intentionally fool a lender into approving a loan that’s higher than what they would normally have approved if they had all the facts. As I have pointed here on FlippingFrenzy.com before, every 1003 (Uniform Residential Loan Application) has a statement you have to sign claiming that the information on the form is correct to the best of your knowledge. If you sign a form that contains false information, you are guilty of committing a felony, regardless of what you decide to use that money for.

We should all be committed to getting the word out about real estate and mortgage fraud, so consumers as well as industry insiders (who happen to be involved in more than 80 percent of the cases involving mortgage fraud) will have no question of what is right and what is wrong. We ned to provide consumers and professionals with the information and tools they need to spot the signs of fraud, stop it in its tracks, and report it to the proper authorities. Only by creating a army of fraud busters can we hope to turn the tide and preserve the American Dream of Homeownership.

Robert “Bob” Bruss–a California Real Estate attorney/broker and the former director of the National Association of Real Estate Editors, but best known as a respected and widely syndicated writer and consumer advocate for all things Real Estate–just reviewed my latest book, Flipping Houses For Dummies. From Bruss’ weekend column:

Realty Broker Reveals How to Profit From Flippers
By Robert Bruss
Sunday, December 17, 2006

In good markets or bad, real estate broker Ralph R. Roberts reveals in “Flipping Houses for Dummies” how he acquires run-down houses, fixes them up, and then either “flips” (sells) them for a profit or holds for long-term investment. Roberts, a highly respected real estate author, trainer and broker, shares his techniques along with advice on how to minimize the tax bite on profits.

Every serious real estate investor who wants to earn large profits needs to understand the methods Roberts uses because he has perfected flipping houses almost to a science. He thoroughly understands and explains all the critical aspects, including locating the properties to determining if they are suitable, negotiating a successful purchase, supervising the fix-up work, and making a profitable resale.

As a longtime real estate broker, Roberts knows all aspects of the home brokerage business and he doesn’t hesitate to share his insider secrets. For example, he says, “Nothing on the MLS (multiple listing service) is the gospel truth. Sellers and real estate agents alike often estimate room sizes or make mistakes when entering details. Approach all prospects with a discerning eye.”

Even if you are not interested in “quick flip” real estate profits, this is a great book to study because the author shares so much of his real estate knowledge which he gained, starting at age 19, over more than 30 years in the real estate business.

Maybe Roberts is getting a little “salty” in his old age, but he exposes secrets most Realtors would never share with their clients. Examples include how to obtain a “listing history” of a property, how to determine what the seller paid, how long the property has been on the market even with more than one listing, and if the property is difficult to “unload.”

This is a “fun read” book in the usual dummies style, which includes features such as tips, warnings and even several sanity checks. Along the way, Roberts shares many personal examples to illustrate the topics, making the book extremely valuable so the readers don’t make the same mistakes he made.

Throughout the book there is heavy emphasis on what to look for in a potential flipper house, how to locate them, how to acquire them, and how to finance them. Roberts provides valuable insights about the importance of borrowing funds. “As a real estate investor, good debt gives you leverage,” he advises, meaning you control the property with little of your own cash.

Along the way, there are several excellent checklists such as the “profit projector” and the “home inspection checklist” so no important aspect is overlooked when evaluating a possible flipper candidate.

Especially valuable is the chapter on “The Art of Haggling: Negotiating a Price and Terms.” Having sold thousands of homes at his real estate brokerage, Roberts is a “pro” when it comes to negotiation and putting sales together. His negotiation strategies are priceless. I especially enjoyed the part about “digging up pertinent information about the seller.” If you are a serious real estate investor, this chapter is a “must read.”

Foreclosures receive extra attention because they offer special flipper profit opportunities. Acquiring these properties can be tricky, but Roberts simplifies the process as much as possible without getting bogged down in details. Of course, it helps that he has a full-time associate who specializes in acquiring these distress properties.

This book is designed for realty investors who want to profit from buying below market, making cosmetic improvements to add value, and then quickly reselling. But real estate agents and home buyers should also study it because of the valuable insights offered by a longtime, very successful real estate broker. On my scale of one to 10, this superb book rates an off-the-chart 12.

Flipping Houses for Dummies, by yours truly and Joe Kraynak is available in stock at bookstores across the country or from Amazon.com.

The day HUD released FR (Final Rule)-4615: Prohibition of Property Flipping, “flip” became a four-letter word. Utter the F word at a real estate conference or seminar, and you’re liable to be spending your lunch break at a cozy table for one. After all, flipping real estate is unethical, and according to the government, flipping is illegal…or is it?

To most people who read this blog, “flip” may very well be a four-letter word, but to the hundreds of thousands of people who tune in to reality TV shows like “Property Ladder” on TLC, Discovery’s “Flip That House,” and “Flip This House” on A&E, flipping is a shrewd, honorable, and perfectly legal way to earn a series profit in real estate.

Real estate “flipping,” or buying a property cheaply, renovating it to add value, and quickly reselling it at or near market value for a profit, is on the rise. If you want to get in the game, legally, or if you’re already in it and want expert advice and tips to become more successful, my newly published book, Flipping Houses For Dummies, can be your guide.

Flipping Houses For Dummies is a no-nonsense book that gives you the start-to-finish scoop on buying, renovating, and selling property, with plenty of time- and money-saving tips, strategies, and warnings to keep you on budget and on schedule. Topics covered include:

• Find properties to flip
• Project your profits
• Secure financing
• Draw in buyers
• Work with contractors, agents, and other real estate professionals
• Steer clear of legal gray areas, including cash back at closing schemes

Flipping Houses For Dummies will also make you aware of savvy strategies for negotiating deals, modernizing for maximum profit, marketing flipped properties, avoiding common blunders, and staying afloat in a slow market. Also included is coverage on negotiating, property inspections, mortgages, taxes, and working with contractors, brokers, and real estate agents.

Like all ‘For Dummies’ books, mine concludes with a “Part of Tens,” including chapters titled “Ten Renovation Cost-Cutting Strategies,” like hiring students over the summer and buying overstocked or discontinued building materials, and “Ten Common House Flipping Blunders” such as failing to inspect the property before closing on it. The “Cheat Sheet” in the front of the book provides lists of signs of attractive fixer-upper and potential money pit, as well as check lists for home staging and cosmetics.

Flipping Houses For Dummies is available at bookstores all across the U.S., and can be purchased online from Amazon.com.

The Chicago Crime Commission–one of the oldest and most well respected citizen crime commissions in the United States–has just published The Chicago Crime Commission Gang Book, which says in part that real estate and mortgage fraud schemes are now being used more than ever to supplement gang-related activities in and around the Chicagoland area. The 272-page book also reveals some other interesting facts, such as:

• The profile of the typical Chicago gang leader as a graying, suburban, technology-friendly convict overseeing hundreds — or even tens of thousands — of members in everything from mortgage fraud to drug dealing, according to the Chicago Sun Times
• The Sun Times also reports that many gang leaders supervise lucrative real estate and mortgage fraud schemes to supplement their traditional bread-and-butter enterprise: drug trafficking, which generates hundreds of millions of dollars in profits a year in the Chicago area.
• The report also says that Chicago’s inner-city police have become skilled at disrupting gang-related activities so much so that gang members are now moving to the suburbs where authorities do not have the manpower or experience to deal with them.
• Among the report’s findings, according to the Associated Press, is that there are up to 100 street gangs with as many as 125,000 combined members in and around Chicago. Ten to 20 of the gangs, reports the AP, including the powerful Gangster Disciples, the Latin Kings and the Vice Lords, are highly sophisticated and well-organized entities.

Let’s see… the typical Chicagoland gang leader is graying, suburban, and technology-savvy. That seems to fit right in with the real estate fraud crowd!

For more details from the The Chicago Crime Commission Gang Book, or to purchase a copy of the book for yourself, please click here.