For those of you who know me, you know I on a crusade to eliminate fraud in both the real estate and mortgage sectors. With that in mind, I'm wondering if anyone's hearing anything about real estate-related 'ponzi' schemes? The Washington Post ran an interesting article about one in the D.C. area (see link below).

If you're not familiar with ponzi schemes, a ponzi is a type of illegal pyramid named for Charles Ponzi... a New Englander who duped thousands of people into investing in a postage stamp speculation scheme back in the 1920s. According to the U.S. Securities and Exchange Commission, Charles Ponzi thought he could take advantage of the differences between U.S. and foreign currencies used to buy and sell international mail coupons. He told his investors that he could provide a 40 percent return in just 90 days compared to 5 percent for bank savings accounts. Ponzi was deluged with funds from investors, reportedly taking in as much as $1 million during one three hour period-and this was in 1921 for gosh sakes! Even though a few early investors were paid off to make the scheme look legitimate, an investigation found that Ponzi had only purchased about $30 worth of the international mail coupons.

Decades later, as we see in a recent Washington, D.C. case (see the link below to Washington Post article), ponzi schemes continue to work on the "rob-Peter-to-pay-Paul" principle, as money from new investors is used to pay off earlier investors until the whole scheme collapses.

http://flippingfrenzy.com/serendipity/in...NZI-SCHEME.html

What do you all think? Should we be concerned about ponzis in the real estate space?

I had no idea that real estate had a ponzi problem.

I'm with Greg. Didn't realize there was a ponzi problem with RE. But I do know for a fact, that the ponzi scheme does exist, and has bled many people of their money. There is currently a case being worked by the US Security & Trade Commission that involved a woman from Virginia and her partner was from NJ. Not a good situation.

Could you illustrate the ponzi problem for us?

Ralph,

I've really admired your comments on this issue.

What I've seen in my area (Southeast Idaho) are the following loan fraud schemes:

* Buyer agents who indicate that their buyer needs some "help" on the transaction. Then, they propose that the seller deed the property over to the buyer, stating that will allow the buyer to "refinance" and pay off the seller in 20-60 days. Of course, it is an attempt deceive the underwriter into thinking the transaction is a refinace, rather than a purchase money one. It gets really fun is if the buyer can't "close". Often, the buyer will refuse to deed the property back. That's a really fun conversation to have with an attorney!

* Double-contracting. Buyers are short cash to close. The buyer's agent suggests that seller carry-back the amount the buyer's need. That is done at closing with a simple understanding --- that the seller will forgive the carry-back after closing. Buyer gets the home. Seller gets its sold. The lender gets the loan. The underwriter is deceived.

We haven't had the appraisal fraud so common in much of the country. Nor have we had much flipping fraud.

But, what I have seen can only happen with lenders and agents turning a blind eye. I watch my files like a hawk but many offices do not.

I think the risk to the system is substantial.

Ralph, keep up the good work!

Regards,