As those in the industry know, combating fraud is a constant problem. When large sums of money are on the line, greed sometimes gets in the way of ethics, or even worse, complying with the law! There are real estate scams known broadly as flipping that are related to the practices below.
Complicating matters are the developments in some of the buildings delivered at the height of the real estate boom. One in particular, Jade Condominium, has drawn headlines in The Daily Business Review for unsavory practices and an abnormally high rate of bank foreclosures. People, we’re talking about a building where most units have a view of . . . . . an office building! Yet, there are nice 1 bedroom apartments available for only about $800,000. That’s right! A pretty penny, something I might certainly NOT pay for such a small space in a mid-tier building.
They did quote this author in the article regarding the Jade Condo, but what they left out was what I have found to be some of the source of the shenanigans! (Authors note: What follows below is hearsay, but it does happen. Specific instances are not noted, but are known) I have been told, deep off the record that there were several instances of price inflation by abuse of the taxes and prices recorded on sales warranty deeds. This is a practice by which the seller may close on a sale for say $800,000 but record the warranty deed with a tax payment as on the purchase of $1,000,000. Warranty deeds for the conveyance of Real Estate to not require the disclosure of the actual sales price, only the use of “sum consideration” which is to state on a deed that at minimum some article of value was exchanged for the property (standard is $10).
What’s the point of doing such a thing?? Well, getting an 80% Loan to Value loan is far easier than getting 100% financing, which is a starting point. An even more urgent reason that this is happening is the flippers practice of buying 2 or more units in a subdivision, inflating the price on the second purchase to make more mortgage money available in the first unit. This is a practice that Fannie Mae in particular cracked down on in October 2005 by introducing detailed sales history to all residential real estate appraisals. Now all comparable properties must show 3 full years of sales history.
Sellers be ware, this practice could ensnare you legally many years down the road, such as happened recently to one former NFL player!
