Last month on Part 1 of Real Estate - The Dark Side, we touched the topic of real estate related scams and abuse by brokers and other so-called professionals in the Real Estate arena.

In this issue, Part 2, we will focus on reader experiences as well as professional advice from some of the industry's respected speakers on the subject such as Cody Ann Moran, Realtor and on the Board of Directors for the GA Real Estate Fraud Prevention and Awareness Coalition (GREFPAC) who says, "I'm thrilled to see that you [Real Estate Pro e-News] are doing your share to make Realtors aware of the seriousness of real estate fraud, and the impact it's having on our communities and quality of life. Mortgage fraud recently surpassed identity theft as the #1 white collar crime in the country (based on total dollar amount)."

On the new GREFPAC web site, there are some interesting publications that are worth reading such as a paper released by Assistant US Attorney Gale McKenzie and the United States Attorney's Office titled, "Mortgage Fraud, The Consequences and our Commitment to Fight Back."

"The entire metropolitan Atlanta area has been attacked by dozens of mortgage fraud groups causing losses of over a hundred million dollars and immeasurable harm to neighborhoods from Gainesville to Alpharetta to Mableton to Stone Mountain through Buckhead to Griffin, Macon and beyond. These fraud groups often involve scheme orchestrators, mortgage brokers and processors, appraisers, real estate agents, bank employees, straw borrowers and sellers, counterfeit document preparers and sometimes lender employees and closing attorneys." *

The paper continues to go into the various forms of abuse in detail and explains how to avoid these scams as well as discusses the various penalties and consequences for everyone involved in the scam, even those unwilling participants. Therefore it is in your best interest as a Real Estate Professional to follow up on the latest scams and abuse occurring in the industry before you find yourself in a legal bind caused by the actions of your associates.

Beth Lube, the Ethics class instructor for the Omaha Area Board of REALTORS writes, "Each month I go over a mortgage scam which is going on in our area. It is usually the lender that suggests "raise the price, have the seller carry back a 2nd mortgage of that amount, and on a separate paper, do an addendum stating the 2nd mortgage will be forgiven at closing. The lender goes on to state that it's perfectly legal since everyone knows about it (buyer, seller, both agents, lender, underwriter, maybe the appraiser.) They don't go on to say that it's the investor buying the loan that does not know about the "forgiven addendum" since that document is never submitted to the investor."

Beth continues by describing in detail one of her experiences, "In each class of about 30-40 new licensees, I ask if any of them have been asked to participate in such a transaction. About 5 agents raise their hands each month. I'm amazed that so many agents have either participated in, or have been asked to participate in, this fraud."

"They are new and innocent and since they are told by someone in business longer than they, they believe it is all right."

"It was first brought to my attention by one of my own agents about 18 months ago. I called the manager of the buyer's agent to ask if they knew what was going on. The response was, "Yes, we do this all the time. It's perfectly okay." I called the lender saying "So you're trying to make it look like the buyer has money that he doesn't have?" The lender responded "Yes, exactly." I passed this on to the manager who still insisted that it was all right. That company's attorney then sent us a letter on behalf of the buyers threatening to sue if our seller didn't go through with the sale. We responded with the facts of the dual contract situation. This put a stop to the matter."

Buyers, new agents and even more experienced professionals need to be aware of not just the old tricks of the trade but new types of fraud popping up each year. It's important for you to be on top of the latest legal developments to assure that you are doing everything by the book. Also, you need to be aware of the actions of others you work with, they may be your associates, maybe even friends, but as Julie Sturgis writes, business is business:

"As a new agent starting in the business in 2001, I was approached by a friend of mine who was starting his own business and ask me to come and work for him. I delayed for a few months and negotiated a great commission rate (which was the same rate I had and earned with a small company prior to working for this friend). He ask me to be an onsite agent for him in a new development he just had acquired. Well, I agreed but did not agree in writing on the commission split. He assumed since I decided to work for him that all my transactions would be split equally (50/50). To make a long story short, he deducted from every sale that took place an additional 25% as well as on a contract without his name on it 75% of the commission. Of course, that led to my leaving the company and subsequently all remaining contracts and listings he took and only paid me 25% commission."

"As a new agent, please be aware of working for friends who start their own real estate company as well as brokers who are more experienced and take advantage of new agents in the business."

* Source : Mortgage Fraud, The Consequences and our Commitment to Fight Back. Published by the United States Attorney's Office.