CLAIMS CORNER
Practice Tips
Identifying Fraud in Real Estate Transactions
Trust Your Instincts
Maintaining a list of red flags is one way to help honest practitioners and service providers avoid unwitting participation in a fraud. While memorizing long lists of red flags is impractical, reading and comparing such lists from time to time can help you develop fraud recognition instincts. One list published on the internet by Fannie Mae is at https://singlefamily.fanniemae.com/media/18531/display
For recognizing a possible fraud, however, nothing beats the smell test, which is another way of saying: trust your instincts.
Your instincts may tell you that something isn’t right when one or more of the following are present:
Excessive Secrecy.
There are atypical disruptions or obstacles to information flow resulting in a lack of transparency. For example,
- A necessary party communicates only by proxy.
- There is an inadequately explained use of a POA.
Sequence Oddities.
The usual sequence of a transaction is not followed, in surprising ways. For example,
- A prospective client brings an already completed title search to the first meeting asking you to represent him.
- The contract seller is not the record owner. You are asked to record a deed that has been held off record.
Value Disparities.
The numbers just look unusual. For example,
- Purchase price is significantly higher or lower than the market or property history suggests is reasonable.
- Commissions or fees are not customary.
Compressed Timelines.
- Unreasonable demands to rush the closing.
- Many frauds rely in part on allowing less time for anyone to catch on.
There are legitimate reasons that many of these elements might occur. But a cluster of them is usually a problem. Ask questions if any of these red flags occur. CATIC underwriting attorneys are always happy to assist you.