Agents on charges for house sale fraud

Peter Thompson

Real estate agents are caught up in a multimillion-dollar mortgage hoax involving false housing contracts and over-valued properties.

The Serious Fraud Office has charged 11 people in Auckland and Christchurch with mortgage fraud and will prosecute next year.

Banks and financiers are the big-time losers in the swindles, which the Real Estate Institute has admitted involves its own member agents.

And in one immediate crackdown, Auckland's largest realtor, Barfoot & Thompson, has dismissed an agent and director Peter Thompson said at least two more could soon follow.

He is investigating what he called an "extremely serious" issue and said the dismissed agent was pleading for her job.

But he wanted to assure those who had dealt with Barfoots that no vendors or buyers had lost any money.

He is at an early stage of investigating the matter which, he said, had come to his attention only a fortnight ago.

Property developers and others charged with being involved in housing loan scams have been investigated by the SFO and now face fraud charges and court proceedings.

Real Estate Institute compliance and operations manager Christine Le Cren has issued a stern warning to more than 10,000 agents nationally, giving a list of mortgage fraud tell-tale signs.

Institute president Howard Morley and solicitor Vernon Tamatea are investigating the deceptions but have yet to complete their inquiries.

"The institute has recently received information about mortgage scams which have caused the significant loss to lending institutions and in some cases have involved unwitting institute members," Christine Le Cren said in her notice to all agents and posted on the institute's website.

"These scams are being committed by groups of individuals who are making applications for finance on fraudulent sale and purchase agreements, or on properties where the price quoted has been well above the valuation."

The institute urged members to contact their licensees or branch managers if they suspected a scam.

But Christine Le Cren feared that in most cases agents would have no idea the hoax was being pulled until it was too late.

Agents should be suspicious of people wanting copies of sale and purchase agreements, she warned.

They should also question why properties were being placed back on the market at an inflated price, immediately after a sale had settled.

People demanding immediate house appraisals and suggesting the price be elevated should be questioned.

If a fellow salesperson suggested a "dummy contract" be drawn up, the salesperson should let their manager know, she said.

The use of nominee companies and demands for settlement in less than 10 days should raise suspicions.

Any institute members found to be involved in the mortgage scams would be likely to face being taken to the Real Estate Agents Licensing Board and the institute seeking cancellation of their licence, she said.

But when asked to describe exactly how the scam worked, she refused, saying the institute feared copy-cat fraudsters.

William Cairns, of Cairns Lockie Mortgage Bankers, said the scams were endemic in Australia and on the rise here.

Some of the largest trading banks were losing money, he said, but the fraudsters involved were so clever that they were hard to catch.

Bank of New Zealand spokesman Owen Gill said the BNZ was aware of a handful of irregularities in home purchases where loans had been given out on allegedly inflated house prices but he believed no bank customers had been affected.

HOW THE MORTGAGE SCAMS WORK

Scenario one

* Contract drawn up for sale of house at inflated price: $600,000 for a $500,000 house.

* Valuation documents forged or altered to show inflated price of $600,000

* Mortgage application made for $540,000 (above the actual value of the house, but the bank thinks it is 90 per cent of the value).

* In a booming market, the property is immediately sold on for more than $540,000. Often buyers believe the house is valued at $600,000.

* Scamsters pocket the difference: $60,000.

Scenario two

* Criminals borrow the $540,000 on that same $500,000 house.

* They begin paying the mortgage but soon default.

* Bank or lender forces a mortgagee sale of the house but finds it's worth $500,000 (not $600,000) in forced sale.

* Bank sells house and loses $40,000-plus after sale.

Scenario three

* Criminals fake identity to seek finance on a house not for sale.

* They present false pay-slips and ID to bank.

* They claim they want to release equity in the property for holidays, cars, furniture.

* Bank lends money to criminals, often on a debt-free house.

* Criminals flee, bank demands payments from legitimate homeowner.

* Homeowner horrified, with no knowledge of the deal.

* Bank loses all money loaned to the criminals.