Real Estate Council of Alberta Fundamentals Practice Exam

What is the main characteristic of a seller financing scheme in real estate fraud?

1. Targets buyers with excellent credit

2. Targets sellers who may be offering to hold the mortgage

3. Involves government loans

4. Requires upfront payment from buyers

The correct answer is: Targets sellers who may be offering to hold the mortgage

A seller financing scheme in the context of real estate fraud primarily focuses on the strategy of enticing sellers who are willing to hold the mortgage for the buyer instead of having the buyer secure traditional financing through a bank or other lender. This setup can be exploited in fraudulent activities because it allows sellers to bypass standard underwriting procedures, which means there’s less scrutiny and fewer checks on the buyer’s financial capabilities or the legitimacy of the transaction. In fraudulent schemes, dishonest operators may convince sellers to provide financing under the false pretense that it’s a favorable arrangement for them. The seller, believing they are helping a buyer in need, may unwittingly participate in the fraud without realizing the buyer may have no intention or ability to follow through with payments, or that the property’s value has been artificially inflated to mislead them. This characteristic underscores the layer of risk introduced in seller financing since sellers may not thoroughly vet buyers, relying instead on the promise of receiving mortgage payments, which can become problematic and lead to financial losses if the arrangement is fraudulent. The other options do not encapsulate the essence of seller financing schemes in fraud as effectively as this one does.