Tips on avoiding becoming a victim when selling

If anyone approaches you with an offer to buy your house that seems even the least bit out of the ordinary, there's a fair possibility that the money for the deal is coming from some aspect of crime.

There are no hard-and-fast statistics as to the extent criminals are using real estate to place their illegal gains into the financial mainstream. But law-enforcement authorities suspect that money laundering is becoming more common.

So much so that the Financial Crimes Enforcement Network is considering a rule requiring real-estate brokers, among other entities that don't have a direct financial interest in property sales, to file the same suspicious activity reports that lenders are compelled to file when they smell something fishy.

While mortgage fraud and money laundering are often viewed as separate criminal enterprises, FinCEN, a bureau within the Treasury Department that collects and analyzes information about financial transactions in an effort to combat crime, has found they are often interconnected.

"Despite the relative illiquidity of most real-estate assets," the agency says, "money launderers have used residential mortgage transactions -- fraudulently and legitimately structured -- to disguise the proceeds of crime."

However, unlike mortgage fraud, which is said to be committed largely in cahoots with lending-industry insiders such as loan brokers, appraisers and closing attorneys, most of those suspected of money laundering have no professional relationship with the residential real-estate sector.

FinCEN says the housing sector "may be vulnerable at all stages of the money-laundering process."

Cleaners have been found to use many techniques, but one of the most prevalent is the use of multiple straw buyers to secure mortgages. The ploy is similar to one used by many of those who commit mortgage fraud. But once the loan is funded, the actions of the launderer diverge from those of the fraudster.

The fraudster, who generally employs a dishonest appraiser to inflate the value of the property and thereby the face amount of the loan, takes the money, flips the property, and runs. The cleaner, on the other hand, will strive to project an image of normalcy by continuing to make regular and timely payments.

In a process the authorities call "layering," the launderer will not only use illicit funds -- from the sale of pirated DVDs, for example, or perhaps a string of robberies -- as a down payment to secure the mortgage, he will pocket the money from the inflated mortgage and then use more of his ill-gotten gains to make his payments.

What's more, the cleaner may live in the property or perhaps assign it to one of his henchmen. And eventually, he may resell the place, trading up to a more expensive property that affords even greater laundering and investment potential, and distancing the transaction even further from the original money source.

It is doubtful that unsuspecting sellers will find themselves in trouble with law enforcement if they unknowingly wind up on the receiving end of a money-laundering scheme. You won't be forced to take your house back and return the money to the authorities, for example.

But if there is a connection, you can be found guilty of a crime and the authorities can take your money and your house and put you in jail. So even if you are desperate to sell your place to get out from an underwater mortgage, it is best to resist the temptation.

To protect yourself from becoming a victim, pay attention to the following warning signs. Alone, one of these red flags may not mean much. But together, they could be an indication that you have been targeted as an easy mark:

No broker or agent. It's not all that unusual for a ready, willing and able buyer to show up at a seller's front door unannounced -- and unaccompanied by a real-estate agent or broker. But if that happens to you, proceed cautiously, especially if some of the other warning signs are also prevalent.

"In a lot of the fraud schemes we see, there is no Realtor involvement, no unbiased third party," said Kathy Cooke, fraud-investigation manager at mortgage giant Freddie Mac. "A big red flag is a buyer who's set up and ready to go."

Wire transfers. If the buyer's funds are being wired from another account, especially one from out of the country, or if payments are made from a third party who is not involved in the transaction, the money could be awash in criminal behavior. The same holds for bank drafts that do not state the name of the payer, third-party checks, bearer checks or other anonymous instruments.

No negotiations. If the buyer does not seem particularly interested in bargaining for a better price, especially in an economy where values in some places are still declining, something could be amiss. Ditto if he or she shows little interest in when the property will actually be handed over.

Be particularly aware of deals in which there is no intention to record the sale, or there is no contract clause penalizing the buyer with the loss of his or her deposit if the sale does not go forward.

Hurry, hurry. Beware the buyer who shows a strong interest in completing the transaction quickly. There could be a good reason for the rush, but if the buyer can't give one, beware.

No worries. If the buyer doesn't want to look around, give your place the once-over or hire an independent third-party inspector to examine the house, ask yourself what his true motivation might be. Many buyers pass on inspections in a seller's market. But it's a buyer's market now, and only a fool -- or a thief -- would refuse an inspection today.

Intermediaries. Buyers who claim to be working on behalf of minors, incapacitated individuals, groups or persons who appear to lack the economic capacity to afford your property are often not who they say they are.

Distant places. Transactions involving a person residing in known tax havens or risk territories are often funded by laundered money. So are those involving someone who refuses to reveal his current address or lists it as a post office box.

Straws. Even if someone offers a handsome "reward," don't allow your name or credit to be used as the buyer of a property. Also, if you believe the buyer is not acting on his or her own behalf and is trying to hide the identity of the real customers, or if the deal starts out in one person's name and ends up in another without a logical explanation, be careful. Your instincts are usually spot on.

Flips. If the buyer presents a scheme in which he plans to buy and sell your house several times over in rapid succession at prices significantly greater than what you are receiving, run, don't walk, to the nearest exit.

Lew Sichelman has been covering real estate for more than 30 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance-industry publications.