Behind Bars

Real Estate Fraud And The Fiduciary Responsibilities Of Real Estate Agents

Errors and Omissions

A Hazleton, Pennsylvania realtor could serve up to ten years in prison after pleading guilty to conspiracy to commit wire fraud. The realtor was arrested in Florida after fleeing there to avoid prosecution.

The realtor preyed on mostly Spanish-speaking, first-time homebuyers, telling them he was authorized to sell to them homes that were vacant or were in foreclosure. The victims agreed to buy the homes and paid the realtor, as well as other parties, for what the victims believed to be their new homes. In fact, the realtor was not authorized to sell the homes, and the fraud began to unravel when the victims began receiving eviction notices from the true owners.

Many of the victims have filed a federal lawsuit seeking civil damages against the realtor and many of the realty companies with which he was associated. James Halpin “Real estate agent admits to scam”    standardspeaker.com (May 26, 2017).

Commentary
The realtor-client relationship is that of a fiduciary. The realtor owes the duties of loyalty, honesty, prudence, full disclosure, confidentiality, good faith, reasonable care and diligence, and accounting.

Obviously, the real estate agent in the case above did not adhere to his fiduciary duties, and his unsuspecting clients suffered for it, as well as the real property owners.

Be aware of the types of real estate fraud that might be perpetrated on your clients:

  • Foreclosure rescue companies that convince distressed homeowners to “temporarily” transfer title or “leaseback” their own home to obtain relief.
  • Mortgage elimination schemes involving “loopholes” to help homeowners eliminate mortgages within an unreasonably short time.
  • Home improvement fraud committed by unscrupulous realtors who obtain a loan in the name of fictitious people or previous clients.
  • Equity skimming: where a buyer convinces a seller to relist the house at twice its true value. The buyer gets a larger mortgage, pays seller the original list price, and skips with rest of mortgage money, leaving the house to go into foreclosure.
  • Illegal flipping: flipping for profit is fine, but flipping for a price well above appraised value is not.
  • Equity fraud happens when crooks take stolen personal information and use it to obtain fraudulent loans.
  • Fraudulent loan origination happens when realtors help unqualified buyers get mortgages they are unable to pay in exchange for a larger sales commission.
  • Predatory lending and aggressive sales pressure: beware of “no money down” or “no credit check” schemes, which usually prey on the elderly, the unsophisticated, or those who are desperate.

Protect your clients from these scams by knowing your market, the true property values, and your client’s needs and motivations. Keep a watchful eye on how everyone involved in the transaction performs his or her job.

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* Hanover Insurance Group