Types of Real Estate Broker Fraud

March 6, 2020

Real estate brokers provide a helping hand and years of experience and knowledge to their clients on a daily basis. These professionals help in every part of the real estate transaction and activities dealing with property, either in one area or in multiple states. But even with trusted experience and plenty of knowledge in the real estate field, brokers can make mistakes, including real estate fraud, just like every professional can in any industry.

However, if a broker commits a fraudulent activity on purpose, knowingly trying to take advantage of a client or multiple clients, they could be on the hook for major penalties and legal issues related to fraud.

It’s a broker’s duty to act with a code of ethics and professional conduct that puts their clients in the best position during a transaction. Yet there are instances where a broker may commit fraud either on purpose or without their knowledge. Some can lose their job or their license, or face stiff financial and legal penalties.

Here are some types of fraud that real estate brokers commit and what to look out for.

Misrepresenting a Sale

A homebuyer is right to thoroughly comb through every aspect of the property they are buying. If a broker misrepresents the property in any way, be it something physical or something in the contract or financial aspect, they can be tagged for misrepresenting a portion of the sale. Also, if the broker has misrepresented themselves in any way, such as their own work history and experience, in order to land a new client, they can be found to be acting fraudulently.

Brokerage fraud happens when the whole firm engages in the same kind of fraudulent activity. Some in a brokerage may not know certain actions are crimes and they could be acting without knowledge of their misrepresentations. In any case, it’s important for real estate brokers to make sure they are acting under the code of ethics they took on when they initially began their career. It’s also important that these professionals protect their future in the industry with Real estate insurance, which provides resources and help for brokers needing legal representation that can protect their reputation.

The Devil is in the Details

Real estate brokers are no stranger to scams that can really harm their clients. A broker may engage in certain illegal activities through a scam and continue to charge a client for different issues that are more ambiguous or misrepresent a property through the age, dimensions, or defects of the property. They may even use a false license or link a buyer or seller with fake credentials in order to continue on in their scam.

Brokers are also responsible for the full details in a disclosure. It is the responsibility of a broker to provide all necessary information and to keep everything transparent and honest during a transaction. The client is placing trust in the broker during this expensive and life-changing event of buying or selling a property.

Client Problems

The major concern during real estate broker fraud is how the act affects the client(s) involved. If a client suffers in some capacity through a scam the broker was overseeing, then they will most certainly hire a lawyer to help their cause and pursue damages against the broker. This is where having real estate insurance will come in to help the broker, even if the claims turn out to be false.

If the property in question has more than one loan attached to it, the new homeowner will have to reverse some of the processes or push for the broker to pay back the money through a legal court order. Criminal charges may be a possibility depending on how severe the issue is and how much damage the broker caused against their clients in the process.

About Associations Liability Insurance Agency (ALIA)

The ALIA Team (part of the Riverton Insurance Agency Corporation), specializes in helping real estate professionals find the affordable and comprehensive liability insurance they need, without the hassle. ALIA dates its roots to 1991 with the founding of FREA, Foundation of Real Estate Associates. In 2013, ALIA was created to work with multiple insurance companies thereby broadening the portfolio of products to customers. For more information about our products and services, contact us today at (800) 882-4410.