FRAUD PREVENTION

Can appraisals be used to deceive and influence people adversely?
What are the dangers of a vendor / seller take back mortgage ( VTB mortgage )?

What are the dangers of a vendor / seller take back mortgage ( VTB mortgage )?

Real Estate Fraud is the newest crime and is dramatically increasing with identity theift.  There are many variations and factors that go into perpertating a fraud. One of the big target areas are the Private for Sales or the For Sale by Owner, the "FSBO". These fraudsters may try using the "VTB Mortgage" or Vendor (seller) Take Back Mortgage in an old fraud schema somtimes referred to the "Oklahoma Offer" that goes something like this:

Buyer "A" offers to buy a house from Seller "B" for say $400,000.00. Buyer "A" informs the Seller "B" that he will put down $50,000.00 on closing and needs the balance in mortgages.

Buyer" A" wants the Seller "B" to take back a second mortgage for $150,000.00 and to postpone this mortgage to a first mortgage of Not Less Than $200,000.00.

Let's recap:
$400,000.00 Sale Price

    50,000.00 Down Payment
  150,000.00 Second Vendor Take Back Mortgage Postponing to First Mortgage not less than $200,000.00
  200,000.00 First Mortgage
$400,000.00 Total

Fraudsters are professional cons! The Private For Sale Owner may not be savy to the tecnicalitials and it's wise that owners should hire professionals to help them with the process. Let's go on....

Postponing to a first mortgage means that the second mortgage will remain in second place even after the first mortgage is paid out so it could be replaced with another mortgage. Remenber the key words in the postponment clause was "not less than $200,000.00". Well this could happen on closing or a month or two after closing. The Buyer "A" now the Owner gets a First mortgage of $300,000.00 or 75% of the purchase price. Remember, it said "not less than".

Let's recap:
$400,000.00 Sale Price

  150,000.00 Second Vendor Take Back Mortgage Postponing to First Mortgage not less than $200,000.00
  300,000.00 First Mortgage
$450,000.00 Total Mortgages on a property worth $400,000.00
    50,000.00 CASH IN HAND TO THE BUYER or NEW Property OWNER

So the property is financed with a 112% mortgage and the buyer /new owner has his $50,000.00 cash downpayment back in his hands. This is a very simple example but could be made much more complex. The second mortgage could have been a not so savey private investor and/or the first mortgage could have obtained an 85% new first mortgage. Fraudster could overstate values by Property Flipping, include Tenants with over stated rents, there are Rent to Own Schems, Straw Buyers, Identity Theft, Forged Documents and many more twists.

As a Seller, the Buyer may offer you more to intice you into this schem. Keep professionals in your service team, Appraiser, Mortgage Broker, Real Estate Agent, and Lawyer. An Appraisal is the cornerstone of your independent review of the property's market value to ensure your investment in the market.

First you should ensure that you have hired a professional to complete the appraisal assignment.  Appraisers are not not licensed in Ontario, anyone can hang out a shingle and call themselves an appraiser.  Investigate the background and expertise of the appraiser you hire.  Appraisers from INHOUSE Appraisal are members of the Appraisal Institute of Canada.

Visit our  Electronic Reports web page for other information. 

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Appraisals
Sale prices
Rent to Own
Proprty Fliping
Sale of Mortgage to Investers
Fraud with Mortgages
Document fraud
Identity Theft
Grow houses
Environmental contamination