Mortgage Fraud

By Bruce Firestone | Uncategorized

Feb 17

Years ago, Las Vegas star Wayne Newton apparently got stung by a threesome of rip-off artists. 

Here’s his story as told to me by all-seeing, all-knowing Century 21 Explorer Realty Inc broker of record Ralph Shaw.

First, you have a single Arabian horse worth $1,500. It’s owned by “Chad”. Chad sells it to Bill for $1 million. Bill then sells it to Sally for $1,000,000. Finally, Sally sells it to Chad for another $1 million.

So now they have three recent “trades”, three bills of sale establishing a FMV (fair market value) for this sort of horse of $1m. So Wayne, possibly thinking that this is a good, safe place to store some spare cash, buys a $1,500 horse for $1,000,000. Chad, Bill and Sally split the dough–$333,333.33 each.

The reason that this scam works is that each of these transactions look like they’re arm’s length; ie, it isn’t, say, Chad, trading his horse to Bill for $1 million, and then Bill trading it back to Chad for the same amount. There doesn’t appear (from the outside) that there is any connection between the three trades, because no two parties are involved in a second trade with each other.

Here’re my notes on what it might look like:

image

Recently, I came across two multi residential buildings in a small rural Ontario town where the market value for the two buildings is probably around $2 million but the registry office (land titles) was showing that each building was traded individually for $2 million. Hence, the seller and her agent claimed the buildings were worth $4 million. To top it off, they could point to the fact that the two buildings had $3.5 million in debt registered against them.

This is likely the result of mortgage fraud, and a similar train of events as in the above “Wayne Newton Arabian Horse Scheme.” 

The ownership (probably a troika) along with a compliant lawyer, mortgage broker, realtor, appraiser, and maybe even a manager and underwriter at a lender can make money first by over-financing the two buildings and then still more if they can sell them to a gullible Wayne Newton or some other sucker.

I have two recommendations for you when you come across something like this: 1) do your homework on anything you are going to acquire–horses, real estate, art, jewelry, any collectibles, and 2) 

stay at least 100 kilometers away from any deal with these people.

As in the immortal words of then Edmonton Oilers GM Glen Sather, “The best deals you will ever do, Bruce, are the ones you don’t do.”

@ profbruce

please note: some numbers, names and facts have been changed for privacy reasons. 

postscript: more about mortgage fraud at http://profbruce.tumblr.com/post/157358988624/oklahoma-offer.

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