Real Estate Council of Alberta Fundamentals Practice Exam

Which fraud type involves manipulating the contract's agreed price to deceive a lender?

1. Vendor Cash Back

2. Straw Buyer

3. Contract Kiting

4. Property Flipping

The correct answer is: Contract Kiting

The type of fraud that involves manipulating a contract's agreed price to deceive a lender is known as contract kiting. In this scenario, the perpetrator may create multiple contracts for the same property, each with varying prices, to inflate the perceived market value. This tactic misleads lenders into believing that the property is worth more than its actual market value, potentially resulting in larger loans than the property's worth justifies. Contract kiting can impose serious risks as it disrupts the integrity of transactions and misallocates funds based on fraudulent representations. By inflating values, it can create a false sense of security among lenders, leading to financial losses and contributing to market instability. Understanding this type of fraud is crucial for real estate professionals, as it highlights the importance of thorough due diligence and accurate property appraisals in the lending process. In contrast, vendor cash back typically involves sellers providing buyers with cash incentives to assist their purchase, which can sometimes be misrepresented. A straw buyer refers to someone who purchases property on behalf of someone else, often to skirt regulatory requirements or acquire loans. Property flipping generally involves buying properties and selling them quickly for a profit, but it can also involve legitimate or illegitimate practices, depending on how it's done. These distinctions help