As you may be aware, there has been an increase in mortgage and real estate scams in Texas, and throughout the U.S. While private homeowners are often the targets of these schemes, many businesses have also been taken advantage of in the commercial real estate market. In order to help protect yourself, and your business, it is important for you to have an understanding of real estate fraud.
Commercial real estate fraud schemes are often complex and can take on many forms. There may be multiple people involved, including appraisers, accountants and brokers. The aim of these schemes is to take advantage of, deceive or exploit you, or your business.
One of the most common types of real estate fraud is the misappropriation of funds. According to the Department of the Treasury, this happens when a borrower diverts funds obtained through a loan or payment to a project that they were not approved for. For example, you pay a property management company rent for the property that houses your business. Then, instead of paying the owner of, or mortgage on, the building, the property owner uses the funds to pay for another property. This could qualify as misappropriation of funds.
Advance fee schemes are another common real estate fraud scam. This type of scam involves offering financing without the ability or intention to provide it and it can take on a number of forms. For example, you are struggling to obtain financing for a new property. A con artist approaches you and offers to assist you in finding a financing agreement. After you have paid a finder’s fee and signed a contract, you learn that you are not actually eligible for the financing the scammer offered.
Commercial real estate fraud also frequently involves misrepresentations. This involves submitting falsified documents, making false statements or providing fraudulent statements. For example, a potential borrower gives you fabricated appraisals or financial statement. These statements bolster his or her loan application, so you provide him or her with a loan. In actuality, however, the borrower does not qualify for the loan, and may not be able to fulfill its obligations.
This post has provided a general overview of commercial real estate fraud. However, there are other situations not discussed here, which may also be considered real estate fraud. As such, this should be taken only as general information, and not considered legal advice.