Are you involved in mortgage fraud and don't even know it?

So it's inevitable: The market is changing.

Remember those days when a listing would only remain on the market for a few days? Remember the multiple offers, the cash deals and the appraisals below purchase price that didn't make a difference because buyers had to pay the difference if they wanted to buy a home?

Well, those days are gone, but with a shift in market conditions, and sellers asking lower prices for their properties than their neighbors who sold last month, there is phenomenom taking place that has mortgage fraud written all over it.

Let's say I am a buyer looking to purchase a home. I find the perfect 3 bedroom home in the neighborhood of my choice and the owners are asking $455,000 for it. I know there are comparable homes in the area selling for $485,000 - $495,000, so this home will probably appraise for about $490,000; I offer the owners $425,000 for the home and they accept. I haven't even closed and I already have $65,000 equity in my property! Up to this point, everything is great, until I remember that my neighbor's nephew who just bought a house walked out of closing with all of his equity in his pocket, and so I decide to write the offer to the sellers instead of for $425,000, for $490,000 and include and addendum, which I will obvioulsy not send to the bank so they don't start asking questions, that states that the sellers will credit the buyer with $65,000 at closing. No harm done, right? the sellers will still get their $425,000 and I will get the equity that is mine anyways...

If this sound so great and so harmless, why is it wrong? For starters, inflating prices in this manner keeps an unrealistic sense that property values are still on he rise and doesn't allow the market to have a much needed correction. But more importantly, this practice is considered mortgage fraud and it has devastating consequences for the banking industry, buyers, sellers and realtors.

from what I have heard and read, there are a few rings in the South Florida area operating in the following manner: A buyer purchases several properties this way in a three month period (most times with stolen identities). Let's say he buys 12 to 15 homes during this period of time and cashes out over a million dollars in equity. After the third month, he fleas to the Cayman Islands and by the time the properties start forclosing, he is long gone, leaving behind an investigation that will come back to haunt those less fortunate than the buyer, who didn't go to the Cayman Islands, like the seller, the mortgage broker, the realtors...

So you can imagine what I've done in the past few months, everytime I get an offer like this on one of my listings (I've gotten four so far)... I advise the seller to tell the buyer: "the seller will either accept the lower price (the offer minus the equity) and the you can get a HELOC the day after you close, or you do it the way you propose, but we include the clause in the contract and not in an addendum (this way there is no risk of the bank not finding out) and the contract is not contingent upon the property appraising for the higher amount, but you are forced to purchase so long as it appraises for the lower amount."

This is no fairy tale, so three out of the four times I've done this, the buyers have said no thanks and gone to buy a different property. It is terible for the seller and it is terrible for me since we don't make the money, but you know what, my license is worth a lot more that a few thousand dollars I would have made in commission and so is my freedom, as this is punishable with prison time. As for the sellers, I have been lucky enough that they've appreciated their freedom more than they did the sale and I have found buyers for their homes shortly after. Should the seller have told me "forget it, we are taking the offer", this would have been a much tougher decision, since I would have probably had to resign as their Realtor and forget about getting paid.

I am sure if you live in an area that was fast appreciating last year and it is now slowing down you've seen this phenomenom, so I am really looking forward for your comments stories about situations like this one.