Whenever we see a downturn in the housing market, we also witness a rise in real estate and mortgage fraud, and builders are not immune to it. After all, when you are carrying a large inventory of new homes and are receiving few if any offers, the crushing financial burden could be enough to tempt you into offering buyer incentives that cross the line.

I have been involved in a recent case of suspected real estate and mortgage fraud allegedly perpetrated by builder in Michigan. A concerned homeowner contacted me when she, her husband, and a few of their neighbors noticed a couple rundown homes in their subdivision -- homes without lawns, window coverings, or furniture. She was justifiably worried that these dilapidated homes were going to drag down property values in the subdivision. She and her neighbors wanted to know what was going on.

As soon as I looked at the numbers, I quickly realized what was going on. The builder first listed the home for sale at $679,000. Over time, he dropped the asking price to $659,000, $649,000, $629,000, $597,000, $549,000, and finally $529, 877. At this point, the builder received an offer of $785,000. Of course, the builder accepted the offer and sold the home -- for $106,000 more than the original asking price.

I did some additional research to find out comparable values of similar homes in the same subdivision and learned that most of the comparable properties were selling in the $520,000 to $550,000 range. So the builder was able to sell the home for at least $235,000 more than the home’s likely true market value. In other words, the lender (an out-of-state lender) was fooled into approving a loan for $235,000 more than the collateral used to secure it -- a risky loan if there ever was one.

More over, when I checked the Warranty Deed, it showed that the buyer had paid only $140,000 for the property (to keep the tax assessment low). This hints of a conspiracy to defraud the county out of a significant amount of property tax revenue.

What ultimately happens in cases such as these is that the buyers, who really have no interest in the home, default on their mortgage loans and leave a rundown house in their wake. The inflated values of these homes initially raise property values throughout the area, homeowners refinance based on inflated values, and then when the economy softens and they cannot afford their mortgage payments, we see an epidemic of foreclosures, abandoned homes, and a rapid decline in property values.

As real estate professionals, we all need to be concerned about this problem and do our part to spot, stop, and report incidents of real estate and mortgage fraud when we witness them. We make a living off of the American Dream of Homeownership. Each of us needs to do our part to keep that dream from becoming a nightmare.

Published: December 7, 2007

Use of this article without permission is a violation of federal copyright laws.

Once dubbed by TIME Magazine "the best-selling REALTOR® in America," Ralph R. Roberts, CRS, GRI is an award-winning and internationally recognized real estate agent, author, coach, and speaker. Throughout his career, Ralph has proven his commitment to helping other real estate and sales professionals build upon their past and present success, grow and expand their businesses, and provide a rich and rewarding future for themselves, their customers, their employees, and their families. As president and CEO of Ralph Roberts Realty, Ralph has personally helped thousands of consumers realize their dream of homeownership. While selling over 10,000 homes (and buying and selling over 3,000 investment properties) throughout his 30-year career, Ralph has made the time to mentor and coach hundreds of professionals in real estate, sales, and a host of other fields. Ralph is a recognized authority on Real Estate and Mortgage Fraud; Residential Real Estate; Personal Salesmanship; and, Sales Force and Office Management, Motivation, and Design. Ralph's numerous websites, blogs, seminars, and speaking engagements engage, entertain, and educate both consumers and professionals. Ralph is also an accomplished author with several successful titles to his credit, including: Power Teams: The Complete Guide to Building and Managing a Winning Real Estate Agent Team Mortgage Myths: 77 Secrets That Will Save You Thousands on Home Financing (John Wiley & Sons) Foreclosure Self-Defense For Dummies (John Wiley & Sons) Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership (Kaplan) Foreclosure Investing For Dummies (John Wiley & Sons) Advanced Selling For Dummies (John Wiley & Sons) Flipping Houses For Dummies (John Wiley & Sons) Walk Like a Giant, Sell Like a Madman (HarperCollins) Real Wealth by Investing in Real Estate (Prentice Hall/Penguin Group) Sell it Yourself (Adams Media) 52 Weeks of Sales Success (HarperCollins) To learn more about Ralph, visit AboutRalph.com or check out his daily insights on real estate and mortgage fraud prevention at FlippingFrenzy.com. You can reach Ralph at RalphRoberts@RalphRoberts.com or by calling (586) 751-0000.