One scenario. Agent finds a straw buyer and an appraiser willing to inflate the price of the home. It gets financed 100%, no money down. Agent, appraiser, and buyer get a kickback. Buyer will end up with trashed credit, but may have gotten 100k and a house to live in for 6-8 months before the foreclosure because, of course, he never makes a payment. Some spiraling into drug addiction who still has good credit would make an ideal straw buyer, it would seem.
Bubble Tracking has been discussing this, detailing some suspicious looking deals. And they’re naming names too.
No question: real estate fraud exists. Different states have taken different measures to combat it. In Utah, they cracked down on appraisers. Now it’s so hard to become an appraiser that in our area there are not enough appraisers to serve the market. In summer, it can take six weeks to get an appraisal.
The state also cracked down on dual agency: situations in which the same agent or broker represents both buyer and seller. There are strict rules about what you can and can’t say to both parties. Do the rules get broken? I’ve seen that they do. The moral: get your own agent, one with a good reputation, who’s going to represent YOUR interests. A good agent doesn’t want to sell you a house you can’t afford, because he or she is trying to gain a lifetime client. But of course they’re not usually the ones advertising all over the place…