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Some time ago I authored a column on fraudulent loan
applications. I explained my amazement that
professional people, i.e. accountants, attorneys, and
real estate brokers/agents would risk their
profession, huge attorney fees and prison time by
assisting clients in submitting fraudulent loan
applications. This column addresses a more common
problem that many of you may face in the course of
selling your house or rental property. I call this the
TOO MUCH or TOO LITTLE syndrome.
In the TOO MUCH example, imagine that you have a
four-unit building listed for $200,000. Typically the
buyer would put 25% down and would obtain a loan in
the amount of $150,000. Perhaps the buyer would ask
you to carry a second trust deed for $20,000 to
$30,000. In this scenario the buyer makes you an offer
of $275,000. They intend to get a 75% first trust
deed, i.e. $206,000 and through a variety of schemes
you, the seller, are asked to simultaneously refund
the EXTRA $75,000. No big deal – it’s done every
day. Well, banks are robbed every day and we all seem
to take that in stride. Tens of thousands of checks
are written every day with insufficient funds or on a
closed account. Though this is a crime, it’s “ho
hum” to most police departments. Although these TOO
MUCH offers are done on a routine basis by some
individuals, it is truly a Federal offense and a MAJOR
felony. I can’t recite the penal code, but it goes
something like “conspiracy to defraud a Federal
lender.” When the net drops, it doesn’t only
effect the buyer who instigated this; it effects the
seller, usually the crooked appraiser, and sometimes
the real estate “professional”. If you’re just
an innocent seller you probably will not go to prison.
The question is, can you afford $50,000 to $100,000 in
attorney fees. Criminal attorneys are not cheap. |
If you get an offer along these lines run, don’t walk, to
the nearest fire exit. If there is a real estate
broker/agent involved, I BEG you to report the incident to
the Department of Real Estate. If you’re exposed to an
offer like this and don’t know who to complain to, give me
a call and I’ll put you on the right track.
Though the TOO LITTLE concept has been around for years
and years, it is much more prevalent these days. Many real
estate professionals are faced with this problem on,
sometimes, a monthly basis. The same four-unit apartment
building is listed for $200,000 and an offer comes in for
$140,000. The offer really represents a $190,000 offer, and
$50,000 will be given to the seller “OUTSIDE OF ESCROW”
in one form or another – usually CASH. This is “theoretically”
a win/win deal for the buyer and seller. The concept is that
the buyer pays a substantially reduced property tax
year-after-year and the seller pays a substantially reduced
capital gain tax. The buyer gets rid of some hidden cash and
the seller sees this as an opportunity to have a hidden nest
egg. This has become very common and is done in some form or
another many, many times every day in California real estate
circles. Is this a Federal offense? You betcha! There is no
question this is a violation of State penal codes, but it
also constitutes MONEY LAUNDERING. The Federal Government is
REALLY SERIOUS about this.
In closing, I must add that I am not really “that
naïve”. I’m very aware of the wide scope of these “conspiracies”.
Fortunately, the vast majority of professionals give these
practices a wide berth: YOU SHOULD TOO.
Peter Rosenthal
VIP Trust Deed Company |