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Land Sale Frauds

What is Third Party Fraud?

This is a fraud committed against someone or some business by people other than their employees. They can be committed against individuals, businesses, companies, governments etc. Third party frauds are not as common as occupational frauds, but on average each fraud is for a larger amount.

Some third party frauds are not meant to remain hidden forever. Some only remain hidden long enough for the fraudster to get away. The fraudster may not care if the fraud is eventually discovered as there is no continuing relationship with the victim and they have made their getaway.

What is a land sale fraud?

This is a fraud related to the purchase or the sale of real property.

Purchasing property is not always a safe investment. Some purchasers are disappointed when they realize that their purchase is not worth the purchase price, legal title cannot be passed, or the development potential expected does not exist.

Frauds may also occur as people try to sell property. Fraudsters try to obtain advance fees for marketing and selling land and are never seen again. These are known as Advance Fee frauds.

What can be done before purchasing a property?

Add these points to your checklist of searches on the property:

1. View the property

Always view the property. Some people buy properties 'sight unseen' and some will not match the descriptions given. Some may not even exist. If it is a new development, discuss the development and the associated approvals with the local council. If you are not happy with the answers have a solicitor or an independent valuer conduct searches on the property. Talk to residents who live in the area, particularly in the same development, to see if they know something that you don't.

2. Fees and Taxes

Look into the fees and charges, such as real estate taxes, council rates, other development costs, or any other fees, regardless of how small you are told that they will be. If proceeding with the contract, make sure that all fees are capped at an amount acceptable to you. Beware of becoming personally liable for these costs if the developer defaults.

3. Get independent advice

Meet with independent real estate agents in the area to discuss the market and their opinion of the property. If the property appears to be a bargain, ask why no one else has purchased the property. Ask the independent agent how long it would take to sell the property, for what price, and how long that property has been on the market at the time.

4. Get details from the local council

Check with the council town planning department for any future development plans for the surrounding area that may affect the value of your property. It would be important to know if an airport, rubbish tip or a major road is scheduled to be built in the future. You should also check if there are any restrictions or covenants that cover the land, particularly in relation to protected structures or trees on the property.

5. Who is responsible?

If the property is undeveloped, know who will be responsible for the costs of building roads, utilities or sewers. Do not settle on the contract until the works have been completed and approved by the local council. Also consider an appropriate time period for these works to be completed before the contract may be terminated. Be able to get out of the contract if the development period extends too long.

Research the builder or sales agent

Contact your local and state agencies that regulate real estate agents and property developers to learn if any complaints have been made against these parties. Find out the length of time the developer has been in business, past developments and details of any restrictions that has been imposed on the developer by the relevant building authority. Research the public records to determine if there have been any civil actions brought against the salesperson, the developer or any associated company by other investors. Use internet search engines like Google to get more information.

Obtain a copy of the property report

Most local councils will have details of the property and plans of any development that is proposed for that land. These are usually available for comment and for objections to be raised against the development. You should ask the developer to provide a copy of any disclosure statements, plans and covenants, and these should be verified before a contract is signed. You should make sure that the objection period has expired and that the development has been fully approved.

Be wary of the hard sell

Fraudsters trying to sell land sometimes will use the hard sell. Promises of a wonderful investment opportunity that seems "too good to be true"; and that "can't fail to increase in value"; should always arouse your suspicions. If the property is such a great investment, why do they need to try so hard to sell it and why has it not already sold?

The promoters of these investments will try to create some sense of urgency, saying that the opportunity "can't last" and "someone else is interested, don't miss out". Fraudsters will try to rush people to make a quick decision as they do not want potential victims to do any research.

Always be wary of "deals". Are you being rushed into a contract without having sufficient time to think about the deal, inspect the land, conduct searches and seek proper advice? If the land is that great, why are they selling it to you cheaply, when they could be selling it to someone else?

Every investment has a risk. View slick glossy brochures that portray booming communities and charts showing increases in property values with skepticism, particularly when the development has not yet commenced.

Advance Fee Frauds

Some fraudsters work the other end of the property investment. They target sellers of properties, particularly properties that are difficult to sell, or have been on the market for some time.

If people cannot sell quickly the property using local real estate agents, they may be contacted by someone calling themselves an agent with promises of an quick sale for a relatively high amount to an investor, but an advance fee will be payable to cover costs, part of the commission etc.

The scheme is to obtain these fees in advance of a sale, then not to supply a purchaser. Br careful about paying advance fees to land sales companies who promise to sell your property to other investors, particular foreign or interstate investors, that are "just waiting to buy your property". Advance Fee Frauds are covered on a separate Fact Sheet.

LESSONS TO BE LEARNED

1. Not all land is a good investment.

2. Fraudsters try to pressure people into quick decisions to limit the time to properly consider and investigate a transaction. Purchasers should be wary of these deals and take their time to examine deals properly.

3. Always get independent advice and valuations - do not rely on information provided by the seller. Be Suspicious. A few dollars spent before the deal may keep people out of a bad deal.

Disclaimer
The enclosed information is of necessity a brief overview and it is not intended that readers should rely wholly on the information contained herein. No warranty express or implied is given in respect of the information provided and accordingly no responsibility is taken by Worrells or any member of the firm for any loss resulting from any error or omission contained within this fact sheet.

Acknowledgment
The material in this Fact Sheet was sourced from various publications including those listed in the Reading List on the Fraud Awareness page on this website.

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Last Updated: 28.3.2008