Real Estate Terms

Fraud Definition

Fraud can be described as many things. Typically fraud is intended deception to result in financial or personal gain. In real estate, fraud can occur at many points during a transaction. As a buyer, seller, or agent, it’s essential to understand fraud and how to avoid it.

What is Fraud?

Definition: Fraud is the act of intentionally deceiving another party for financial or personal gain.

Example: An example would be if you tell a client a property is 5,000 square feet when you know it is only 3,000 square feet. That is fraud.

Fraud occurs more often than you may think. Typically fraud contains an element of intent; for example, one agent may try to manipulate a buyer to make a sale, or one agent may try to manipulate a buyer to increase the asking price. It’s all about the intent.

What are the Different Types of Fraud?

Fraud can be split into different sections and types. While we already defined the general term for fraud, it’s important to know the different types.

Actual Fraud

Definition: Actual fraud is an intentional misrepresentation of fact; or in plain terms lying.

Example: An example would be if an agent told a buyer that the basement of a property was mold free when he or she knew full well that it did have mold.

Negative Fraud

Definition: Negative fraud is the act of purposely leaving out information you legally must disclose; or, in plain terms lying through omission.

Example: An example would be when an agent was showing a home with a mold problem, and the client asked, “Is that mold? What is that” and the agent quickly replies, “Hey, check out this sweet fridge?” The agent is lying through omission and purposely not mentioning the mold.

Constructive Fraud

Definition: Constructive fraud is best described as ignorance, or lying without knowing you are lying.

Example: An example would be if an agent was showing a home with a rat infestation in the basement and the client asked, “Are there any pest problems?” and the agent replied, “No, it’s fine!” While, in fact, the basement had a pest issue, but the agent authentically thought it did not.

How do you Determine if Something is Fraudulent? 

It all comes down to intent. With both actual and negative fraud, there is clear intent involved. Someone is lying to gain something, and it is not okay. 

Construction fraud is a little more complicated as someone can claim they were not aware of a fact, and that may be the honest truth. 

If you feel like you are a victim of fraud, it may be in your best interest to contact a lawyer or law professional.

Legal Action

It’s important to note that just because there may not be intent, it doesn’t mean legal action can’t be taken. In fact, if something like construction fraud occurs, it typically comes down to negligence.

Negligence is the omission to perform a required action or, in plain terms: laziness. As a real estate agent, it is your legal duty to cover all bases and work in the interest of your clients. Negligence can result in poor reviews, bad business, and, most of all, massive legal issues. As an agent, you are representing someone, so you must act in your client’s best interest; it’s that simple.

If a real estate agent is caught committing fraud (depending on the state), agents can lose their license, pay a fine, and possibly even go to jail.

If fraud occurs legally, the contract may be voided, and other actions can take place. Each state does have different rules, but usually, any cases of actual and negative fraud result in legal recourse.

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