I have been hearing a lot of buzz from friends in the area regarding a series of schemes where parties interested in selling their homes in the midst of the softening real estate market can unload them quickly for top dollar. This scheme, aside from the obvious illegality being committed on the part of those involved, has been affecting the innocent residents of our community on several fronts.
The deal, as I understand it, works something like this: Buyer offers to purchase seller's home (for at or near asking price), let's say $600,000. The buyer then arranges for an appraisal that values the Seller's home at, say, $750,000, and then mortgages 100% of the artificially inflated "selling" price. The seller gets his $600,000 and the buyer pockets the difference. As it has been explained to me, these borrowers will either flip the properties again at another artificially inflated price, or more likely, default on all the loans, keeping the $150,000 extra they borrowed above the true cost of the home. Of course, you can multiply that figure by the many homes in our area that the perpetrators have bought. That's the gist of the scam.
It might seem that the only people being screwed by these calculated acts of fraud are the banks who are falling for them. But unfortunately, that's an underestimation of the damage this type of scheme can wreak on a neighborhood's home values.
And this is how their illicitly gained windfall can affect you and your neighbors:
Artificially high home sales are now being used as "comparables" to assess your property's value (check your home's comparables here
to see if you may have already been a victim). Higher comparables mean higher taxes for all of us. Has it already happened to you?
Another way this type of scam can affect you is by increasing your homeowner's insurance premiums, which are calculated in part based on the value of our home. Your insurance company may assess the value of your home based on these fraudulent, artificially inflated home sales which may in turn artificially inflate their assessment of the value of your home.
I think most residents of the Five Towns (or all of Long Island, for that matter) would agree that we pay enough in the way of property taxes and homeowner's insurance as it is. We certainly don't need unscrupulous people who are just out to make a buck manipulating the market.
I will admit once again to basing this post almost completely on hearsay. That said, the discussion I have heard from friends, neighbors, and acquaintances on the subject of these scams has become too loud to ignore. Does anyone out there have similar concerns? Have you seen these sales on your blocks? Feel free to leave your experiences in the comment section, or email me with any stories or evidence you might have come across.
Some related links that can further explain these types of scams: I