Posted on 07/23/2006 1:40:40 PM PDT by ex-Texan
Urge to cash in on the housing bubble has spawned an industry of schemers:
Every boom has a dark side. The merger mania of the 1980s produced insider trading scandals. The '90s stock bubble was busted for biased investment research.
And so it is with real estate, the hottest market of the past eight years. The urge to cash in on rising home values has spawned a growing share of hucksters, schemers and rip-off artists.
Learn how to avoid ten of the biggest real estate rip-offs or view Video: Real Estate Rip-OffsClick Here
So far, it is tough to know exactly how widespread the problem is. Just as conflicts with stock analysts and bankers didn't come to light until after the Internet bubble popped in 2001 and investors started to get hurt, only now, as the market starts to turn, are complaints over shady real estate practices pouring in.
Internal Revenue Service figures show that the agency initiated 235 real estate fraud cases against individuals in 2005, more than double the number it brought in 2001. The IRS expects that figure to remain steady this year. The Feds are taking it seriously--they've stepped up penalties to fight mortgage fraud, doubling average jail terms to four years for those convicted, says Andre Martin, a director in the Criminal Investigations Division of the IRS.
"The market was so hot that everyone was looking to jump in and make a fast buck," says Martin. "You have a lot of property flipping and false appraisals."
On July 7, the New York attorney general's office indicted six men for grand larceny, for a scam known as "straw buying." The sellers would allegedly set up their own friends as phony buyers and inflate the value of their properties with forged appraisals. After the lending institution issued a mortgage and the seller collected his money on the inflated sale, the "buyer" would disappear, never to make even one mortgage payment. The phony deal would leave the bank holding the title to a property worth much less than the loan it had out on it, while the collaborative buyer and seller divvied up the profits. A trial date has yet to be announced.
Moderate-income home owners tempted to extract cash from the equity in their homes have been hard hit by scamsters.
In one of the most common rip-offs, according to the Federal Trade Commission, customers would sign away the deeds to their homes as "collateral" or take on loans they couldn't afford, leading to foreclosure. Another method unscrupulous lenders use is to convince desperate borrowers to fudge annual income claims on applications to qualify for a bigger loan than they can afford.
An applicant who can't make the payments can lose his property and end up in bankruptcy.
Stripping people of their home equity has become rampant in the subprime lending market.
Credit-challenged home owners who often don't know exactly how much home equity they're sitting on are easy targets, says Allen Fishbein, director of housing and credit policy for the Consumer Federation of America.
"It's pushed by mortgage brokers, who are largely unregulated," he says. "They have no fiduciary duty to the borrower."
Subprime borrowers, who typically pay 2 or 3 percentage points more than borrowers with better credit, should shop around and get at least three separate loan offers, Fishbein says. They should also ask plenty of questions on points and fees before signing on the dotted line.
Another common victim is a renter with steady income who lacks the down payment and qualification for a mortgage. Landlords sign them up with an option to buy the property--at a cost of as much as $10,000 up front, plus $300 more than fair market value each month. That extra money is supposed to go toward a down payment, should they exercise their option to buy. The deal makes a family feel like they are practically buying the house, so it can be very tempting.
The problem? In nearly all cases, the family's financial situation doesn't change much after a year or two, so they're just as unlikely to qualify for a mortgage. What's more, savvy landlords have a feel for what the house will be worth in a year or two, and they price the optional purchase at a level likely to exceed that worth, making the option to buy a bad decision anyway.
"It's like selling stock options to an old lady. It's unsuitable," says John T. Reed, editor of Real Estate Investor's Monthly and an author of numerous books on real estate investing. He adds that in the rare case when a house is priced at a level that makes sense for the renter to exercise the purchase option, the landlord, who never really intended to sell the home, is immediately on the phone to his lawyer looking for a way to weasel out of the deal.
Another thing you should know: Not all real estate rip-offs are illegal.
Laws on lending vary from state to state. And while the Truth in Lending Act, enacted by Congress in 1968, requires disclosure of all key features and costs associated with a real estate loan, sneaky practices can often skirt the law as long as terms are technically disclosed. Lenders are required to disclose the amount financed, any finance charges, the annual percentage rate, the total amount financed and the total of all payments. A creditor who fails to comply with the law can be sued by the consumer for up to twice the amount of the finance charge.
But as regulators will tell you, the best way to protect yourself from all of these dubious practices is to practice a "buyer beware" mentality. Make sure you read the fine print, ask a lot of questions and call your state attorney general's office or real estate commission if something doesn't seem right or seems too good to be true.
All in all, between the actual scams and the plethora of "get rich quick" real estate books that have hit the market, it’s enough to make once-proud real estate experts run for cover. Reed says he remembers a time when people seemed impressed when he told them he made a living writing about real estate investing. No more.
"Now it's, 'Oh, you're one of those guys,'" he says.
*Ping*!
Your "800,000 people" link is expired.
Here's another "little" problem that's not dawned on people. Rising real estate prices create rising property taxes. Taxes are based on the houses sold. So if you're in a community on a housing block where the top selling price for the last house sold, say about $200,000, the city then raises taxes commensurate for that $200,000 house sold. And for the record, taxes don't decrease but cities or towns base their increased spending on that tax money. Say that the next house sells for $300,000 then taxes rise to meet that increase. Now if the housing market collapses and people out of work, do homeowners get a decrease. Absolutely NOT! Because again, cities and towns rely on that increased tax monies to fuel pay the cost of overspending. Vicious!
The willie green of housing has spoken.
Do you mean Mr. Tom Van Riper or Mr. Steve Perlis? They wrote the article.
I always dread to wonder how much these French Normandy elephants are leveraged.
ANDAGONYONME; ANGUISH; BUYGOLD; DESPAIR; DESPONDENT; GLOOM; GRAPESOFWRATH; HELPME; ILUVWILLIEGREEN; IMTOMJOAD; MISERY; MYNAMEISDOOM;RUNAWAYRUNAWAY; SKYISFALLING; SLITMYWRIST; WILLIEGREENISMYHERO; WOEISME; WRONGSINCE2003
They must be afraid of the truth. This article pulls no punches. Wait until this time next year. People may come looking for RIPOFF ARTISTS with tar and feathers. No place to hide. Shivering in your pathetic pink booties yet?
What part of the south is this?
The rural mountainous part, with hills and lakes and rivers. All things South are not swamps and Spanish moss.
Keywords won't hurt anybody--they are not often read. They did leave out Roseofsharon.
Nobody is safe anywhere. 'Nuff said.
"Cozy fixer-upper with old-time charm on view lot." :-)
Maybe not but that's what I grew up with.
Now that I live in the Pacific Northwest with majestic mountains, glaciers, lakes and rivers, I miss my swamps and Spanish moss. :-)
Sounds like a 70-year-old, beaten-down 600-square-foot bungalow on a fairly crummy residential street in Brentwood CA on a 30'x60' lot, going for a cool $1.3 million to some 20-something hotshot.
No joke, it is absolutely true, and it's just ridiculous. Because these young producers, attorneys, editors, actors, etc. are willing to buy it, tear it down, and put up a 4-story loft home that they can bring hot chicks to. Or if not that, they'll flip it as soon as it's built for $5 million+.
Ridiculous.
But I would like to have a place like that to bring chicks to. If I were a young, dumb, rich, nauseous movie-punk puke, that is.
Jealous? Me? Why would you think that?
;>)
You've been forcasting a housing bubble burst here on FR for over 3 years. Maybe 4.
It sure seems like you are looking forward to it,
Willie Green.
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