Copy for Real Estate Guide Column for 12-11-09

REAL ESTATE PATTERNS
By Ken DuVall

WARNING SIGNS

Question from a Realtor: “In reviewing the buyer’s financials, I noticed that most of their accounts showed a number of large deposits over the previous 30 days from overseas- Taiwan, Hong Kong and China.”

Answer: They might want to report this to law enforcement authorities. There are no hard, fast statistics as to the extent criminals are using real estate to place their illegal gains into the financial mainstream. But the FBI suspects that money laundering in home purchases is becoming more common.

So much so that the Financial Crimes Enforcement Network, or FinCen, is considering a rule requiring Realtors, among other entities which don't have a direct financial interest in property sales, to file suspicious activity reports that lenders have to file when they smell something fishy.

While mortgage fraud and money laundering are often viewed as separate criminal enterprises, FinCen, a bureau within the U.S. Treasury department that collects and analyzes information about financial transactions in an effort to combat crime, has found they are often interconnected.

"Despite the relative illiquidity of most real estate assets," the agency says, "money launderers have used residential mortgage transactions- fraudulently, though legitimately structured- to mask the cash proceeds of crime."

Indeed, collusion between the bad guys and Realtors, builders or contractors, has been found to be rare. But it does happen. And either way, FinCen says the housing sector "may be vulnerable at all stages of the money laundering process."

‘Cleaners’ use many techniques but one of the most prevalent is the use of multiple straw buyers to secure home loans. The ploy is similar to one used by many who commit mortgage fraud. But once the loan is funded, the actions of the launderer diverge from those of the fraudster.

The fraudster, who generally employs a dishonest appraiser to inflate the value of the property and thereby the amount of the loan, takes the money, flips the property, and runs. The cleaner, on the other hand, will strive to project an image of normalcy by continuing to make regular loan payments.

In a process the authorities call "layering," the launderer will not only use illicit funds- from the illicit sale of pirated DVDs, or perhaps a string of robberies, etc.- as a down payment to secure the mortgage, but also will pocket the money from the inflated loan, and then use the ill-gotten gains to make payments.

There could be a good reason for the buyer’s rush to close, but if the buyer can't give one, your antenna should wiggle. Transactions involving persons residing in known off-shore tax havens often are funded by laundered money.

So are those involving someone who refuses to reveal a current address or lists it only as a P.O. Box. There are a lot of creative crooks out there anymore. Be careful. The FBI could even hold you in as an accomplice to their illegal activities! You gotta know which bridges to cross and which ones to burn.

Ken owns Ken DuVall & Associates, REALTORS at 3rd Ave. & Mangrove in Chico. Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year. See Chico MLS listings and all his columns at www.KenDuVall.com. Call Ken at 345-3700 for all your real estate needs. Free consulting.