Fraudsters Target Home Buyers and Home Sellers

Home Buyers and Sellers Find Wolves at Their Doors 
 
Appleton, WI - May 15, 2006 - Beware of the wolf in sheep’s clothing, promising to make home ownership dreams come true – especially if you’re strapped for cash or wishing to be charitable while also trimming your tax bill when selling a home. Mortgage fraud is on the rise, according to the Federal Bureau of Investigation (FBI), with reported cases quadrupling from 4,225 reported cases in 2001 to over 17,000 last year.

 

There are several tactics used when perpetrating home buyer and seller fraud. Common scams involve such characteristics as:

 

• Creating an illusion that by using their services, you will receive a larger-than-average tax deduction.

 

• Over-inflating housing prices and then offering kick-backs of cash;

 

• Convincing you that you can afford a more expensive home than you really can, which increases property taxes, their commission, and the amount you need to borrow;

 

• Addition of extra charges, credit insurance, encouragement to borrow more money, offers to refinance, or an interest-only payment structure with an often shocking “balloon” payment at the end (where you need to pay the entire original cost of the home at once or lose your home);

 

• Presenting one loan structure when selling you the loan, but then substituting different, less than advantageous terms when signing;

 

• Asking you to prepare a tax return showing higher income or fewer deductions than you really have. Don’t do it!

 

According to Kevin C. Huston, enrolled agent with Blue Ridge Tax Advisors Inc. in Asheville, NC, "It is common for the ultimate mortgage-holder to request copies of the tax returns you filed with the IRS. If these numbers differ from the tax return you used when applying for a loan you could end up in jail for either mortgage fraud or for tax fraud. The mortgage-holder will have already been paid their commission, so don't expect them to defend you," added Huston.

 

Not only do these scams often put the buyers in over their head financially and cause many to later lose their homes, but one type of scam leads sellers to believe they will receive increased tax deductions because they worked through a “charitable” organization.

 

As an example, after selling her home, a Michigan woman, who intended to help a charity as well as her tax liability, was told by an organization claiming to be a tax-exempt charity that she would be delighted with the charitable tax deduction amount she would be able to claim when she filed her income tax return. The charitable-minded woman “gave” the buyer the down payment through the charity and planned to take a charitable deduction for the down payment amount. However, buried in her paperwork in fine print was a disclaimer saying the amount was not tax deductible but, rather, would only reduce the sales price.

 

While several charitable organizations are tax-exempt and legitimately help homebuyers through such helps as tax-excluded down-payment assistance, there are many fraudulent imitators that work to deceive by appearing as helpful, humble, and honest. “The IRS is increasingly concerned with organizations that are taking advantage of homebuyers who need assistance for a down payment to realize the American dream of homeownership,” said IRS Commissioner Mark W. Everson. “So-called charities that manipulate the system do more than mislead honest homebuyers and ultimately jack up the cost of the home. They also damage the image of honest, legitimate charities.”

 

If you are a prospective homebuyer considering using the services of a down-payment assistance program (where the down-payment amount is excluded from taxable income), or a home seller who would like to help the less-fortunate achieve the American dream of home ownership, check out the organization you’re considering working with on www.irs.gov (click on Charities & Nonprofits, then Search for Charities) before going any further. Other websites that offer guidelines in recognizing legitimate vs. illegitimate organizations include http://www.ftc.gov/bcp/conline/pubs/alerts/eqtyalrt.htm (or call 877.FTC.HELP) and http://www.hud.gov/offices/hsg/sfh/buying/loanfraud.cfm (or call 800.569.4287). Your local tax professional is also an excellent source of information in determining which organizations are tax-exempt and legitimate. They understand the tax laws and share information within the profession.

 

Mortgage companies, refinancers, and home equity lenders, are among the guises used by fraud perpetrators. They often prey on the elderly, those with low-incomes, and good-hearted people who support charities. They promise to “help you realize your dream,” and say it may be your only chance of owning a home or gaining cash in a home equity situation (or helping others to do so). Instead of making dreams come true, they create nightmares. Don’t fall for their bait. Do your research, make calls, and proceed cautiously.

 

To find a professional tax preparer, look to NATP. NATP maintains a listing of professionals in your area at www.taxprofessionals.com. For a FREE brochure on how to find a tax professional, visit the NATP Press Room at www.natptax.com and download a copy of NATP’s “Finding the Right Tax Preparer” brochure.

 

Members of the National Association of Tax Professionals (NATP) assist over seven million taxpayers with tax preparation and planning. NATP is a nonprofit professional association founded in 1979 and provides professional education, tax research, and products to its members. The national headquarters, located in Appleton, WI, employs 43 professionals and 25 instructors.

 

NATP exists to serve professionals who work in all areas of tax practice and has more than 17,500 members nationwide. Members include individual tax preparers, enrolled agents, certified public accountants, accountants, attorneys, and financial planners. The average NATP member has been in the tax business for over 20 years and holds a tax/financial designation or a college degree. Learn more at www.natptax.com. # # end # # 
 
Char De Coster (cdecoster@natptax.com)
Copywriter / Communications Editor
National Association of Tax Professionals (NATP)
720 Association Drive, PO Box 8002
Appleton, WI   54912-8002
Phone : 800.558.3402 ext. 1172
Fax : 920.968.7472 
 
National Association of Tax Professionals (NATP)