What is Kiting in Real Estate Mortgage Fraud?
Real estate transactions should be straightforward and honest, but some bad actors use deceptive practices that harm everyone involved. One such practice, known as kiting, creates serious problems in the real estate market and puts both buyers and lenders at risk.
Kiting: A fraudulent practice where a buyer creates two different purchase contracts for the same property - one showing the actual price and another with an inflated price to deceive lenders into providing a larger loan. This deceptive scheme is illegal and constitutes mortgage fraud.
The Anatomy of Real Estate Kiting
The mechanics of kiting might seem simple, but they create complex problems. The fraudster creates two separate purchase contracts - one reflects the true price agreed upon with the seller, while the second shows an inflated price for the lender. This deception tricks the lender into offering a larger mortgage than they would approve based on the actual property value.
For example, a property might sell for $200,000, but the fraudulent contract shows $300,000. The buyer then requests a loan based on the inflated amount, pocketing the difference after closing.
Common red flags include:
Multiple versions of purchase agreements with different prices
Large price discrepancies between recent sales and current asking prices
Missing or inconsistent documentation
Legal Implications and Consequences
Kiting violates several federal laws, including wire fraud statutes and bank fraud regulations. The penalties can be severe:
Prison sentences up to 30 years
Fines reaching millions of dollars
Permanent loss of professional licenses
Real estate agents, mortgage brokers, and title companies caught participating in kiting schemes face career-ending consequences. Their professional reputations suffer permanent damage, and they may never work in the industry again.
Protecting Yourself from Kiting Schemes
You can protect yourself by taking these precautions:
Review all documentation thoroughly
Question any pressure to sign multiple contracts
Verify property values through independent sources
Watch for these warning signs:
Sellers or agents pushing for quick closings
Different prices appearing on various documents
Requests to sign incomplete paperwork
Related Fraudulent Practices
Kiting often appears alongside other types of fraud:
Straw buyers who purchase properties for others
Inflated appraisals that support fake values
Identity theft used to obtain mortgages
Industry Response to Kiting
The real estate industry fights kiting through improved verification systems and better training. Many companies now use digital tracking systems to spot suspicious patterns in property transactions. Professional organizations offer regular training updates on fraud detection.
Frequently Asked Questions
Q: Is kiting ever legal? A: No, kiting always constitutes fraud and breaks multiple laws.
Q: What if I unknowingly participate? A: Report it immediately to authorities and seek legal counsel.
Q: How do I report suspected kiting? A: Contact the FBI or your state's real estate commission.
Protecting Your Real Estate Investment
Work with licensed professionals who maintain clear communication throughout the transaction process. Read every document carefully before signing, and keep copies of everything.
Making Safe Real Estate Decisions
Legal compliance protects everyone involved in real estate transactions. Professional guidance helps navigate complex situations safely.
Bellhaven Real Estate maintains strict ethical standards and helps clients avoid fraudulent schemes through careful transaction oversight. Our team stays current on fraud prevention methods and maintains transparency throughout the buying or selling process. Contact us for guidance on your next real estate transaction.