A reader sent me this excerpt from the Fraud Examiners Manual (2006 edition), published by the Association of Certified Fraud Examiners:
Real Estate
Real estate scams are easily recognized. There is almost always an element of time pressure, with the victims being convinced they are participating in a “once-in-a-lifetime, now-or-never” deal. The investors are led to believe there is no time to investigate the venture, and that if they hesitate, they will miss the opportunity to make a fortune. Promises of big profits for little or no involvement are the norm in real estate scams.
Oh snap, America… you’ve been scammed.
Joel » Apr 24, 2009 at 11:28 am
Whocoodanode?
Oh, everyone I guess.
pfft » Apr 24, 2009 at 1:02 pm
unbelievable.
Hugh Dominic » Apr 24, 2009 at 1:10 pm
Tim, you are so right! Would be funny if it werent so sad.
The new mantra is “get a deal now while it is good….” trying to play into the greed side of the fear/greed equation. But, patience will win out.
It would have to be a screaming deal for me to buy before unemployment stops declining and house prices bottom out (6 months of flat Case Shiller). Otherwise it is trying to catch a dropping knife….
uwp » Apr 24, 2009 at 1:25 pm
Haha. Nice.
One Eyed Man » Apr 24, 2009 at 2:48 pm
Aren’t those the things that 75% of all sales people say (unless of course its a car sales person in which case 100% say them).
Buying something when the price is dropping isn’t fraud, its stupidity or lack of concern for price.
As to whether true real estate frauds are easy to spot, I personally know of two true frauds in real estate. Both were Ponzi schemes. One was on the east side and one was in Orange County CA. Both were in the late 1990’s. Both involved buying a fractional interest in a pool of Deeds of Trust and both were facilitated by the advent of desk top publishing. The east side guy killed himself when his fraud scam was about to come to light. I think the total fraud was about 12 mil.
Among those ripped off were a doctor I know, the doctor’s father and a real estate attorney with a major Seattle real estate firm. The perpetrator had created bogus documentation, including but not limited to title policies and recorded documents. Because all the documents were stamped with recording numbers and the title policies appeared legitimate, even the attorney accepted them. But no one ever called the title company to double check that the policy was real and no one pulled up the recorded documents through the auditor’s office or a title company to make sure they were actual recorded documents. Now it seems ridiculous that no one checked, but before desk top publishing it probably wasn’t necessary.
The Orange County fraud was the same scam. Among those who got burned was a 60 yr old real estate attorney who had graduated in the top ten of his class at the Univ of Virginia School of Law which is commonly considered a top ten school. He and I worked at the same Orange County firm in the 1980’s. He had invested himself and had some client’s invest. He had even discussed the investment as the moderator on a call in radio real estate talk show in the 1990’s.
Are all scams easy to spot? If the high priced legal talent you would hire to protect you gets burned then who’s safe?
b » Apr 24, 2009 at 3:07 pm
RE: One Eyed Man @ 5 –
I think you are missing the point.
S. Marty Pantz » Apr 24, 2009 at 4:23 pm
Saw this a few minutes ago, and thought I’d post it here, although it does not necessarily constitute a “scam.”
http://maps.google.com/maps?f=q&source=s_q&hl=en&geocode=&q=willoughby+street+juneau&sll=58.398833,-134.571533&sspn=1.721411,5.822754&ie=UTF8&t=h&z=16&iwloc=A&layer=c&cbll=58.299323,-134.408404&panoid=49wpmCj23OrTltJsUeN2tA&cbp=12,157.8732577907225,,0,5.169811320754718
Jillayne » Apr 24, 2009 at 4:46 pm
Juneau is so cold. I will never forget my plane flight. As we landed, I was sure I was going to die. Don’t think I could ever live in a place that’s so isolated. But the people who live there sure seem to love it. Great pic, S.Marty Pantz.
One Eyed Man » Apr 24, 2009 at 5:12 pm
RE: b @ 6 –
It wouldn’t be the first time. I’ve only got one eye ya know.
My only real point was that sales BS by agents isn’t necessarily fraud. And even simple fraud isn’t always easy to spot. I don’t think the bubble was created by real estate agents. But they certainly didn’t do anything to stop it or to keep their clients from making bad financial decisions.
Ira sacharoff » Apr 24, 2009 at 6:05 pm
“I don’t think the bubble was created by real estate agents. But they certainly didn’t do anything to stop it “.
.Even more than that they did everything in their power to keep it going for as long as possible. It was real estate agents who were encouraging their clients to bid over asking prices. They certainly fanned the flames and fed the frenzy. It may not have constituted fraud, but their actions were often not in their client’s best interests.
One Eyed Man » Apr 24, 2009 at 7:15 pm
RE: Ira sacharoff @ 10 –
I agree completely Ira. And that’s part of my problem with calling sales licensees “agents.” This is the same old rant you’ve heard me give before, but I can’t stop myself. The agent isn’t required by the regulations to do what’s as your comment says “in their client’s best interest.” The law requires the agent: “To be loyal to the buyer by taking no action that is adverse or detrimental to the buyer’s interest in the transaction; . . .” .
IMO that language doesn’t require a sales licensee to do any more than advise the client as to what current comparable prices are and what it will take to make a deal at the present time. It doesn’t require a licensee to tell the client you are stupid to buy now because there is a high probability you will be able to buy a very similar house for a lot less in 6 months to a year.
Although the law requires a licensee to disclose conflicts, it also says that “A buyer’s agent or dual agent may receive compensation based on the purchse price without breaching any duty to the buyer.” I don’t think anyone interprets these sections to require that the licensee disclose to the client the commission split (other than perhaps to the extent that it’s set forth in the closing statement). Correct me if I’m wrong Jillayne and any others with an interest in brokerage regulation.
I think they could change the regulations to require the licensee to disclose the SOC, but I don’t think they can realistically require an agent to disclose to buyers that they are stupid to buy in a collapsing market like that of the past 21 mos. They might as well make them wear a warning lable like on a cigarette package that says: Warning: Using a Real Estate Agent Can Be Hazardous to You Wealth.
I don’t know if it would make any difference to require them to call themselves “sales consultants” or some other term that didn’t imply they had the duties of a common law agent to do what’s “in their client’s best interest.” But using the term “agent” to describe someone whose largest personal motivation is to close deals still bothers me.
deejayoh » Apr 24, 2009 at 7:30 pm
RE: One Eyed Man @ 5 – Those examples are not ponzi schemes…straight ahead fraud.
Ira sacharoff » Apr 24, 2009 at 8:29 pm
“I don’t know if it would make any difference to require them to call themselves “sales consultants” or some other term that didn’t imply they had the duties of a common law agent to do what’s “in their client’s best interest.” But using the term “agent” to describe someone whose largest personal motivation is to close deals still bothers me.”
It’s not just you, One Eyed Man. Agents don’t call themselves agents. Very few real estate agents have that title on their business cards, probably because to the general public, real estate agents are seen as being pretty low on the evolutionary scale, somewhere between a leech and a tick.
My own card says I’m a ” Real Estate Professional” , and I’ve seen others call themselves ” Real Estate Advisor”:
( ” I advise you to buy that house.”)….But what are you gonna do? Title yourself ” Sleazebag” on your business cards and name the brokerage ” Rip-u-off Realty”?
One Eyed Man » Apr 24, 2009 at 8:47 pm
RE: deejayoh @ 12 –
I know I didn’t give the details but in both deals the perpetrator did the servicing on the fake loans and used some of the new investors money to pay the interest payments on the fake loans that the prior investors purchased an interest in. Because they were private deals they included above market interest rates. I never took a look to see if any of the rates would have been usury but it didn’t matter because there weren’t any real borrower. I hear of both deals after they ended. I don’t recall if any of the deals had a term short enough to require pay off in full, but there were multiple investors bringing in new money over time, some of which went to the old investors.
One Eyed Man » Apr 24, 2009 at 9:06 pm
RE: Ira sacharoff @ 13 –
I know in reality it probably doesn’t make any difference what licensee’s call themselve, but maybe there should be a disclosure of inherent conflict of interest because agents only make money by closing deals. And I still think that buyer’s agents should have to disclose the SOC in writing at the time the offer is written. Requiring that might actually get more agents to use Buyer’s Agency Agreements so that any rebate discussion would have already occurred and more buyers wouldn’t try to negotiate a rebate at the time the offer is written.
ElPolloLoco » Apr 24, 2009 at 10:02 pm
First prize is a new Cadillac.
Second prize is a set of steak knives.
Third prize is a lucrative government bailout.
Real estate. How can you lose?
Andy » Apr 26, 2009 at 2:18 am
While shopping in Pierce County – we found aplace we could consider living in, but the price was still 30% more than I consider fair.
Our real estate agent told us that she would get us out at a higher price; just sign the paperwork…
Are real estate professionals allowed to make promises?
In finance, if you tell a client that you will make them money, you will end up in jail or in trouble with the SEC
Countless real estate professionals need to be prosecuted, but unfortunately, this is not happening
Can anyone explain this to me? Why is the NAR, :L.Yun and the rest allowed to get away with their B.S.
One Eyed Man » Apr 26, 2009 at 10:49 am
RE: Andy @ 17 –
What, are you crazy posting on Bubble at 2:00 am Saturday night? Get some sleep or visit a porn site or something.
The following comments are general in nature and not intended to be relied on as legal advice. If you need legal advice you should consult a practicing attorney. Thus ends the disclaimer portion of the following steaming heap of chocolat.
You’re comment presents a number of legal issues and I’m not going to even try to list them all, much less analyze and explain them all. But here are some general comments starting with your last question about L. Yun and NAR.
It’s my general understanding that unsolicited market forecasts like those given by Yun are considered to be general opinion and not specific advice to be relied upon by any particular person. As such its probably just free speech protected by the 1st amendment. As they say, opinions are like armpits and assholes, everybody’s got ‘em and they all stink. No one has a right to rely on Yun’s opinions, nor do they have a legal cause of action if his opinions are wrong.
But there are limits to the protections of the first amendment, especially when it comes to ecomonic related speech. For example, I think FDA regulations can prescribe to some degree what can and can’t be said by drug manufacturers about their drugs in order to protect the health and welfare of the general population.
This brings us to your question about your real estate agent’s statement that she can get you out at a higher price. This analysis probably needs to be divided into three categories. First, does her statement involve a violation of criminal law? Second, is it a violation of licensing regulations? And third, does it create some form of civil liability to you either in contract or tort?
In general, I can’t think of any criminal statute violated by the statement and I doubt that it rises to the level of criminal fraud that the prosecutor’s office would consider actionable. Whether it’s a violation of licensing regulation is probably a closer call. I’d have to pull out the regs and go through each of the duties of an agent to a client to see if I could make a case for violation and I’m not going to go to that length here. If she said this to one buyer only based upon her opinion of the individual property, I’m not sure, but I don’t think DOL would be likely to take any action. If she were saying that to all buyers as some kind of marketing tool, I think there’s a much higher likelihood that DOL would have a problem with it and it might even be a Consumer Protection Act violation.
The issue you’re probably most interested in would be civil liability. The most likely legal theory for tort liability would probably be fraud. As with criminal fraud, in my opinion, it’s unlikely that her statement would be civil fraud if she believed what she said and wasn’t saying it to all her clients.
That brings us to contract. It’s arguable that the statement is a verbal modification of her obligations to you as you agent. Even if she didn’t have you sign a buyer’s agency agreement, I think that once she has established an agency relationship with you, a contract for provision of her services has been formed and her statement may constitute an amendment to the terms of that contract. Whether this is the case would likely be contested by her. For example, she might deny that she said it, or she might say she said something slightly different which was just a statement of opinion as to the value of the house rather than a promise to get you more money for the house if you sell. Even if she said it, there is an issue of the intent of the parties. In other words did the parties intend that her statement constitute a modification of the contract for broikerage services.
In any event, if you don’t have the statement in writing, or have some independent witnesses, there are major proof problems as to what was said, what was intended, and whether it was a modification of a contract for brokerage services that you can raise when and if you sell the property. Finally, there’s no breach of contract or damages until you buy the house, sell the house, and fail to get a higher price.
In closing, the above is just a general discussion of some of the issues raised, without consulting refernce sources I would consult if providing a legal opinion and my comments might change if I were to do conduct normal research. (OK so I lied about being done with the disclaimer chocolat.)