Real Estate Council of Alberta Fundamentals Practice Exam

Which type of fraud often involves the misrepresentation of property value to secure a loan?

1. Air loan

2. False deposit

3. Inflated appraisal

4. Title fraud

The correct answer is: Inflated appraisal

The correct answer, inflated appraisal, refers to a fraudulent practice where the appraised value of a property is artificially heightened in order to secure a larger loan than the property is actually worth. This misrepresentation can be orchestrated by dishonest appraisers, real estate agents, or even the property seller, who collude to inflate the value in the appraisal report. Lenders rely on appraisals to determine how much they are willing to lend based on the property's value, so an inflated appraisal can lead to significant financial loss for the lender when the borrower defaults on the loan. If the property is overvalued, the financial institution is left with an asset that is worth much less than the amount borrowed, making it difficult for the lender to recoup its losses. In contrast, the other options refer to different types of fraudulent activity that do not specifically involve property valuation misrepresentation for loan purposes. Air loans involve fictitious loans where no mortgage is actually secured against real property. False deposit schemes typically involve depositing funds into an account under false pretenses, often unrelated to property valuation. Title fraud consists of schemes that involve the unauthorized transfer or use of a property title, which does not directly affect the appraisal process used to determine loan amounts. Understanding these distinctions