With Congress’ recent extension of the $8,000 homebuyer tax credit, intended to boost home purchases from new and existing homeowners, Congress has surely boosted, if not encouraged, another less desirable behavior: tax fraud. At the end of September, the Internal Revenue Service (IRS) had issued almost $10 billion in tax credits to 1.4 million homebuyers claiming the credit. At the same time, the IRS’s Criminal Investigation (CI) division had found 167 criminal schemes involving the tax credit. Still more fraudulent behavior has been reported.

In the meantime, the California Department of Real Estate (DRE) reports that it currently has over 1,340 open investigations into possible loan modification scams. This is up over 10,000% from August 2008, when only ten modification programs were under investigation. So far in 2009, the DRE has issued over 330 desist-and-refrain orders in its attempt to put a stop to illegal loan modification programs.

first tuesday take: The old adage that crisis and opportunity go hand in hand is true for society’s bottom-feeders as well as the members who abide by the rules to increase their standard of living. In these times of desperation and relocation, owners, buyers and sellers must all beware of corrupt players who seek to rig the system in their favor. Knowledge about the current condition of the market, and the ability to ask questions and wait for the answers, are the best initial defenses.

Use farm letters to advise property owners to talk to their agents or brokers before doing anything that does not already involve them, as those agents and brokers are the ultimate source of insider information – a source that will give their opinion without charge, and include an understanding smile.

Re: IRS addressing erroneous and fraudulent claims for first time homebuyer credit”, from CCH; Real estate investigators looking into 1,300 loan-mod scams from the Orange County Register