Real estate tax fraud has been sharply increasing, but so are criminal prosecutions and prison terms for real estate wrongdoers, according to a new report from the Internal Revenue Service.
The IRS said last week that the number of real estate fraud cases opened by its criminal investigators has doubled in the past three fiscal years alone. The average prison term handed out by federal judges to convicted real estate fraud perpetrators also has soared during the same time period -- from 27 months to 41 months. Last year's number of cases that produced jail time hit a new high -- a stunning 92.3 percent incarceration rate for people convicted of real estate frauds and con games.
What types of schemes are IRS investigators focusing on most intently? The report identified three in particular:
Double sets of settlement statements. This involves defrauding lenders by preparing one set of closing documents for the property seller -- reflecting the true selling price and other transaction details -- and a second set for the lender, with an inflated selling price. This typically causes the lender to fund a loan that exceeds the property's true market value, and allows the dishonest participants in the fraud to pocket the excess proceeds.
But just as Al Capone went to the federal pokey because he didn't report his ill-gotten gains to the IRS, so too do home-sale fraudsters risk jail time when they fail to report the income they earn from their con games.
Property flips. The IRS is especially interested in transactions where real estate investors puff up appraisals to induce quick flips of properties, then fail to report their profits to the Feds.
"Fraudulent qualifications." This involves "real estate agents assisting buyers who would not otherwise qualify" to purchase a particular home because of their poor credit history or income problems.
The bottom line from the IRS to real estate investors, appraisers, and agents thinking about fraud: We are doing more criminal investigations than ever, we're getting more convictions, and more than nine out of ten are ending up behind bars.
Don't do the crime if you can't do the time.
