If you are a member of the so-called “Greatest Generation” or an older baby boomer, I have great news for… you are part of the most affluent group of Americans who have ever lived. The bad news is that everybody knows it, including con artists.

While you earned your comfortable lifestyle the old fashioned way, con artists are determined to take a shortcut to their lifestyle of the rich and famous by fleecing you out of your fortune. My advice? Keep one hand on your wallet, a close eye on your bank account, and a skeptical ear whenever you hear somebody offering you a great deal on a piece of property.

Americans who are affluent enough to afford a second home are particularly attractive targets for a con job I like to refer to as the second home scam. This particular type of scam always involves the purchase (or at least promise) of a second home, but it can take a variety of forms. Here are some of the warning signs:

• Guaranteed appreciation: In real estate, appreciation and profits are never guaranteed. Housing values rise and fall.
• Preconstruction specials: Any offer of special deals, especially cash back, if you BUY NOW raise red flags. When builders are financially strapped for cash, they may be tempted to scam buyers in order to save their business by way of a builder bailout.
• Glitzy advertising: Real estate con artists often try to dazzle their victims with fancy marketing materials so people will hand over their money without looking at the details, the property, or the documents.
• Offers to manage the property: Someone selling you a property, particularly an investment property, may offer to manage everything for you–find renters, collect the rent, pay the mortgage and property taxes, and so on–and then never do it. This type of scam is commonly known as chunking.
• Pressure to buy site unseen: Anyone who discourages you from visiting a property before buying it is probably crooked. They may tell you that the property has renters, and you certainly “don’t want to inconvenience your future tenants.” They don’t want you looking, because you will see the truth.

To defend yourself against these common second-home scammers, watch out for the warning signs and take the following precautions:

• Don’t buy on impulse. People often get excited about a vacation hot spot, buy there, and then learn that it’s not quite paradise in the off season.
• Spend your time checking out neighborhoods and homes in the area. A second home is not just a purchase decision… it is a lifestyle decision.
• If you are buying the second home as a vacation (seasonal) home, consider renting a place, perhaps in different neighborhoods in the area over an extended period of time. You may rent a different place for two to four weeks every year over the course of two or three years. This helps you determine if you really want to own property in the area and which neighborhood you would find most appealing.
• Wait at least one year after the death of a spouse before purchasing a property or moving. This gives you time to adjust and make more rational decisions.
• Hire a buyer’s agent to look for homes and represent you. Don’t simply contact a builder, talk to the representative in the model home, call the number on a For Sale sign, or contact someone who is selling real estate online. If you do that, you are dealing with the seller’s agent and have nobody representing your interests.
• Don’t trust what you see on the Internet. People can post photographs and online video tours of anything they want to dazzle the eyes and make you believe that they are offering an incredible deal. A con artist can build a million dollar virtual home on the Web in matter of minutes that simply does not exist in the real world.
• Don’t trust home values that you may see online. Some home valuation sites on the Internet are better than others, but they are all susceptible to fraud. Hire an independent appraiser to give you an honest, qualified opinion of a property’s value.
• Don’t buy anything site unseen. No matter what someone tells you, you have to inspect the property with your own two eyes and have it professionally inspected (by an independent home inspector), prior to closing. It’s like buying a car, you have to kick the tires.
• Hire your own people to check it out. Never rely on the seller’s agent, appraiser, inspector, loan officer, or title company to make sure everything is legitimate. If the seller is a con artist, these people are probably accomplices or at least willing to look the other way.
• Never close on a newly constructed property before construction is complete or before your inspector has given it his seal of approval.

A second home can be one of the best investment and lifestyle decisions you will ever make, as long as you do your homework and have the proper people in place to protect your interests. Let down your guard for even a moment, and you become a prime target for a greedy con artist.

From Detroit Free Press Business Writer Greta Guest (published on Tuesday, June 26, 2007):

Sales of new homes in the Midwest rose a robust 30.8% in May, while sales in other parts of the nation shriveled, according to a Commerce Department report today.

In May, 153,000 new homes were sold, up from 117,000 in April in the Midwest. But as compared to May 2006, new home sales dropped 14.5% in the Midwest.

“Where in the Midwest?” asked local Realtor Ralph Roberts, who has offices in Warren, Southfield and Washington Township. “I don’t see an increase in new construction in Michigan at all. It’s still soft.”

New home sales nationwide were down 1.6% from April, or an adjusted annual rate of 915,000. And they were off 15.8% from the May 2006 pace of 1.1 million homes.

Other regions of the country saw declines from the April pace including the northeast, with an 11% drop, the south, with a 7.3% decline and the west, with a 1.9% drop.

The median sales price of new homes sold in May was $236,100, a drop of 0.9% from the same month in 2006.

In the market for a mortgage loan with a low interest rate? Instead of qualifying for a discount rate by earning a good credit score, you can simply buy your way to a great credit score–the kind of score that convinces lenders to loan you money at lower interest rates. You simply piggyback on someone else’s excellent credit history. Here’s how it’s done:

1. A credit enhancement company pays people who have excellent credit histories to allow others to be listed, temporarily and in name only, on their credit cards.
2. The credit enhancement company then allows people with lousy credit scores to buy positions on the credit cards of people with good credit histories.
3. The low credit scores get a boost, often allowing high-risk borrowers to qualify for loans with much lower interest rates.

What’s so bad about that? After all, people who sell their good credit profit from the good credit histories they have earned, borrowers with bruised credit have lower monthly payments (and they are the people who really need it), the credit enhancement company provides a valuable service and earns a good profit, and the lender gets another happy customer. Everybody wins, right?

Wrong!

Why? Because these piggybacking schemes are another type of mortgage fraud. Essentially, the borrower is lying to the lender–claiming to have a better credit history than they really have. This practice fools the lender into making a decision to approve a loan based on false information. I don’t know about you, but if someone who was asking to borrow money from me misled me about his or her ability to pay it back, I would get more than a little upset. Just because a bank or other institution rather than an individual is lending the money doesn’t make it any less wrong to lie.

As citizens, one of our responsibilities is to protect the American Dream, and one of those dreams is the American Dream of Homeownership. If we begin to turn the other way when people are committing obvious fraud, we place the entire system at risk. Homes will begin to cost more money, loans will be less accessible, and someday our children and grandchildren will no longer be able to afford their own homes.

Credit enhancement companies who engage in this sort of activity claim that they are not breaking any laws. But no matter what they say, using trickery and schemes to beat the system will eventually catch up with all of us, and we will get stuck with the bill–somebody always does. Borrowers need to earn credit scores that honestly reflect their ability to pay back a loan.

Fortunately, Fair Isaac Corp. (the company that computes the most commonly used credit scores) has recently decided to fight back, announcing that its next version of the FICO score “will no longer consider certain types of credit card accounts, closing a loophole that allowed strangers to coattail on a cardholder’s good credit.” See “Fair Isaac combats credit manipulation,” for more details. In essence, the adjustment removes authorized user accounts from consideration by the scoring model in FICO 08, the newest version of the Classic FICO credit score which Fair Isaac expects to become available to lenders starting in September 2007.

Piggybacking on someone else’s good credit may not qualify as a crime, but anyone looking at it can see that it is just plain wrong.