This blog is based on an experience with a client who was from another state and wanted to buy property in Florida. Additionally, it speaks to the importance of listening to your attorney because these are the situations they can help you avoid. The specific circumstances we are referring to center around a client intent on buying a home in Florida. They lived in another state and were getting very harmful advice from their friends, who were not attorneys. They were trying to buy an $800,000 home but attempting to reduce the purchase by $300,000. The reasoning behind this was to reduce their property tax burden. Although the seller would get $800,000, the records would reflect a $500,000 home sale.
This is fraud. Transparency and honesty are paramount in any real estate transaction. Deceptive actions intended to defraud another person or entity (i.e., the state of Florida) in selling or purchasing real property have significant consequences. One type of fraud involves reducing the purchase price to evade property tax evaluations. Such practices are illegal, and we will explore why trusting your attorney is crucial in navigating the real estate market.
Real Estate & Fraud
Fraud is a multifaceted issue. As discussed above, misrepresenting the purchase price constitutes a deception of its value. It distorts the market and will lead to skewed property assessments. In an even broader sense, it negatively impacts the overall housing market. One of the reasons it will result in negative consequences—which we will elaborate on in the next section—is that the government loses out on tax revenue that should have been justifiably obtained and collected based on the home’s actual value.
Detection & Penalties
Imagine a scenario where a home goes on the market for $800,000. The buyer gives the seller $300,000 in cash that goes undocumented and then coordinates a $500,000 home sale. The seller will walk away with $800,000 in total, but the state only sees that someone bought a home for $500,000. The government is unaware of the other $300,000 given before the sale. Assessors will quickly identify potential issues when the purchase price appears unusually low compared to the property’s fair market value. Lenders, too, conduct financial assessments and could deny a loan if the purchase price is suspiciously low to protect themselves as well.
The government will get involved when there are suspected cases of fraud too. The perpetrators will face fines, and the buyer will be responsible for repaying the lost tax revenue. They will likely reassess the property’s value and charge you back taxes. A property appraiser’s office has access to an extensive database of information that can be used to determine a property’s value. For instance, looking at sales data for similar properties in the area could trigger an investigation.
Protect Yourself & Your Investment with Spectrum Title Services, LLC
To safeguard your interests and ensure a legitimate real estate transaction, it is critical that you speak with qualified legal counsel. In addition to it being illegal, an attorney would recognize the futility and short-sightedness of buyers attempting to evade their property tax obligations. By entrusting and genuinely listening to your attorney, you will have access to essential services and protection from potential legal issues. If you are ready to buy or sell a home, contact Spectrum Title Services, LLC, to schedule a consultation.