Real Estate Council of Alberta Fundamentals Practice Exam

What is a key indicator of bankruptcy fraud in real estate?

1. Acquiring revenue-generating property

2. Buying properties with cash

3. Conducting regular market analyses

4. Investing in distressed properties

The correct answer is: Acquiring revenue-generating property

A key indicator of bankruptcy fraud in real estate is acquiring revenue-generating property. This behavior can raise red flags because it may suggest that the individual is attempting to conceal assets or divert income from creditors. When someone is declaring bankruptcy, they are typically in a position where their financial obligations exceed their assets. Purchasing properties that can generate income during a bankruptcy proceeding might indicate an effort to protect or hide these assets from the scrutiny of creditors or the bankruptcy court. The other options can be common practices in real estate transactions but do not inherently signal fraudulent activity. For example, buying properties with cash is a legitimate way to make purchases and may actually simplify transactions without the need for financing. Conducting regular market analyses is standard practice for making informed investment decisions and doesn’t pose any risk of fraud. Investing in distressed properties is a strategy often used by investors looking to maximize their profit by improving properties in need of repair; it does not correlate directly with fraudulent behavior. Thus, focusing on acquiring revenue-generating properties during bankruptcy stands out as a significant warning sign for potential fraudulent intentions.