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If offer to buy seems fishy, the money might be illicit

Money launderers are often in a hurry to buy a house without an agent, bargaining or an inspection, experts say.

October 18, 2009|By Lew Sichelman

Reporting from Washington — If anyone approaches you with an offer to buy your house that seems even the least bit out of the ordinary, there's a possibility that the money for the deal is coming from illegal drugs, prostitution or some other aspect of organized crime.

There are no hard-and-fast statistics on the extent to which criminals are using real estate to place their illegal gains into the financial mainstream, but law-enforcement authorities suspect that money laundering is becoming more common.

So much so that the Financial Crimes Enforcement Network, or FinCEN, is considering a rule requiring real estate brokers, among other entities that don't have a direct financial interest in property sales, to file the same suspicious-activity reports that lenders are compelled to file when they smell something fishy.

Although mortgage fraud and money laundering seem to be separate crimes, FinCEN, a Treasury Department bureau that collects and analyzes information about financial transactions in an effort to combat crime, has found they are often connected.

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

But unlike mortgage fraud, which is said to be committed largely in cahoots with lending-industry insiders, most of those suspected of money laundering have no professional relationship with the residential real estate sector.

FinCEN says housing "may be vulnerable at all stages of the money-laundering process."

One of the most prevalent techniques is the use of multiple straw buyers to secure mortgages. The ploy is similar to one used in mortgage fraud. But once the loan is funded, the actions of the money launderer diverge from those of the mortgage swindler.

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

The launderer may live in the property or assign it to henchmen. And eventually, he may resell the place, trading up to a more expensive property that affords even greater laundering and investment potential, and distancing the transaction even further from the original money source.

It is doubtful that unsuspecting sellers will find themselves in trouble with law enforcement if they unknowingly wind up on the receiving end of a money-laundering scheme.

But to protect yourself from becoming a "victim," pay attention to the following warning signs. Alone, one of these red flags may not mean much. But together, they could be an indication that you have been targeted as an easy mark:

* No broker or agent. It's not all that unusual for a ready, willing and able buyer to show up at a seller's front door unannounced and unaccompanied by a real-estate agent or broker.

But if that happens to you, proceed cautiously, especially if some of the other warning signs are also prevalent.

"In a lot of the fraud schemes we see, there is no Realtor involvement, no unbiased third party," says Kathy Cooke, fraud-investigation manager at mortgage giant Freddie Mac. "A big red flag is a buyer who's set up and ready to go."

* Wire transfers. If the buyer's funds are being wired from another account, especially one from out of the country, or if payments are made from a third party who is not involved in the transaction, the money is suspect. The same holds for bank drafts that do not state the name of the payer, third-party checks, bearer checks or other anonymous instruments.

* No negotiations. If the buyer does not seem particularly interested in bargaining for a better price, something could be amiss. Ditto if he shows little interest in when the property will be handed over.

Be particularly aware of deals in which there is no intention to record the sale, or there is no contract clause penalizing the buyer with the loss of his deposit if the sale does not go forward.

* Hurry. Beware the buyer who shows a strong interest in completing the transaction quickly. There could be a good reason for the rush, but if the buyer can't give one, be wary.

* No worries. If the buyer doesn't want to look around, give your place the once-over or hire an independent third-party inspector to examine the house, something may be amiss. Many buyers pass on inspections in a seller's market. But it's a buyer's market now, and only a fool -- or a thief -- would refuse an inspection.

* Intermediaries. Buyers who claim to be working on behalf of others may not be who they say they are.

* Straws. If you believe the buyer is not acting on his own behalf and is trying to hide the identity of the real customers, or if the deal starts out in one person's name and ends up in another without a logical explanation, be careful.

Distributed by United Feature Syndicate.

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