Buyer Beware of Builder Bailout Scheme
By Andy Miofsky, Illinois Consumer Law Attorney on Oct 3, 2009 in Crime, Mortgage Issues
The 2007 FBI Mortgage Fraud report explains how an unscrupulous real estate developer commits mortgage fraud with a seller in a builder bailout scheme.
Say the developer built a house that normally sells for $200,000. In a declining market, the builder fears a fair market sale will not cover the bridge loan for construction costs. The builder offers a no money down incentive to encourage a cash poor buyer to make an bid. The builder inflates the house price from $200,000 to $240,000 and promises to secretly discount the price to the buyer.
The builder sends the buyer to the bank for a $200,000 loan. The bank believes the buyer paid the builder $40,000 down, creating equity in the home and the bank makes what it thinks is a safe loan even though the loan actually is a riskier 100 per cent loan. The builder pays off the construction costs, pockets a profit and forgives the $40,000 phony down payment.
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