What is Fraud?
Let’s begin at the beginning: At common law – the vast legal tradition of court rulings and precedents we inherited from antiquity – fraud has three basic elements:
1. A false statement
2. Reliance on that false statement
Special Real Estate Considerations – Duty to Disclose
Burden of Proof and Available Defenses
Never Skimp on Due Diligence
In some cases, victims did not receive the properties because they simply did not exist. In other cases, the properties were condemned or other issues with the titles meant victims were not able to take control of the properties. Of those victims who did receive titles, some found that the titles were encumbered by tax liens, fines or building code violations. Furthermore, the indictment alleges that investor funds were immediately disbursed upon receipt, rather than being held in escrow. [Emphasis added – Ed.]
If the DOJ’s characterization of the facts of the case is accurate, the flippers who got conned had an opportunity to head the danger off at the pass. Escrow could have protected the buyers. A drive-by would establish a property that doesn’t exist. And the encumbrances for tax liens, fines and code violations are a matter of public record – easily obtained by checking with the office of the county recorder, or simply checking with a title insurance company.
… And Speaking of Your Mother …
The FBI recently obtained an indictment of an Oklahoma man on four counts of wire fraud involving a property flipping scheme. His modus operandi? He would buy properties, own them for a couple of months, and then sell them to his mother and stepfather – without their knowledge or consent. He just worked the transactions out on paper. The Justice Department alleges that between 2005 and 2007, this 39-year old signed fraudulent mortgage applications on as many as 20 properties. The motive: He could obtain the mortgages himself and profit from their sale. The stakes: This man faces up to 20 years in prison and up to $250,000 in fines, plus mandatory restitution … on each count.