By RAY A. SMITH
Staff Reporter of The Wall Street Journal
From Barron's
March 1, 2005
The boom in real estate has been accompanied by a boom in mortgage fraud and other real-estate-related schemes, the Internal Revenue Service said recently.
The IRS is cracking down through tax-fraud and money-laundering investigations. (The income from these schemes is often laundered to hide it from the government, the IRS said.) The number of real-estate fraud investigations it initiated doubled between fiscal 2001 and fiscal 2003, it reported, and the average prison term handed out by federal judges in those cases that ended in conviction nearly doubled as well -- with perpetrators ranging from mortgage brokers to drug dealers.
Convictions and incarcerations are on the rise, along with the number of cases recommended for prosecution and the number of indictments -- all hit a three-year high in fiscal 2004, the IRS said.
Among the more common schemes seen by IRS criminal investigators is property flipping that involves false statements to lenders. (On its own, flipping -- in which a buyer pays a low price for property and then resells it quickly for much more -- is legal.) Also on the list: the use of two sets of settlement statements and the use of fraudulent qualifications, as when a real-estate agent helps a buyer fabricate an employment history or credit record.
Cases recommended to prosecution rose to 148 in fiscal 2004 from 83 in fiscal 2002. Indictments filed rose to 102 from 71 in 2002, convictions to 89 from 57 and sentences to 78 from 64.
