03 Oct Buyer Beware of Builder Bailout Scheme
The 2007 FBI Mortgage Fraud report explains how an unscrupulous real estate developer commits mortgage fraud with a seller in a builder bailout scheme.
Say the developer built a house that normally sells for $200,000. In a declining market, the builder fears a fair market sale will not cover the bridge loan for construction costs. The builder offers a no money down incentive to encourage a cash poor buyer to make an bid. The builder inflates the house price from $200,000 to $240,000 and promises to secretly discount the price to the buyer.
The builder sends the buyer to the bank for a $200,000 loan. The bank believes the buyer paid the builder $40,000 down, creating equity in the home and the bank makes what it thinks is a safe loan even though the loan actually is a riskier 100 per cent loan. The builder pays off the construction costs, pockets a profit and forgives the $40,000 phony down payment.
Andy Miofsky, Esq.
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