Real Estate Council of Alberta Fundamentals Practice Exam

What can lenders do to prevent Vendor Cash Back fraud?

1. Overlook purchase price discrepancies

2. Require detailed documentation of all transactions

3. Approve loans based on visual inspections

4. Minimize scrutiny on cash transactions

The correct answer is: Require detailed documentation of all transactions

Requiring detailed documentation of all transactions is crucial for preventing Vendor Cash Back fraud. This practice enables lenders to thoroughly verify the legitimacy of financial activities associated with a property sale. By maintaining strict documentation standards, lenders can ensure that any cash back being offered to the buyer is properly disclosed and accurately represented in the transaction. This also includes assessing how the purchase price reflects the actual value of the property and examining the source of funds used for any cash back offers. Lenders who demand detailed documentation will be able to cross-reference information, including the purchase agreement, closing statements, and any additional contracts or agreements related to the transaction. This level of scrutiny helps identify discrepancies or irregularities that could indicate fraudulent activity and thus protects the lender's investment and the integrity of the mortgage process. In contrast, overlooking purchase price discrepancies, approving loans based on visual inspections, and minimizing scrutiny on cash transactions could create opportunities for fraud, as they allow for inconsistencies and unverified claims to go unchecked.