What is a common area for construction loan fraud schemes?

Cost estimates are a crucial aspect of construction loan agreements, as they directly impact the funding provided by lenders. In construction loan fraud schemes, individuals may inflate the estimates of costs to complete a project. This inflation can mislead lenders into providing higher funding amounts than necessary, based on false projections of expenses. By manipulating these estimates, fraudsters can obtain loans that exceed the actual costs, allowing them to misappropriate the excess funds for personal use or to carry out other fraudulent activities.

While other areas such as permits and zoning, market demand analysis, and seller representations can also be relevant in the context of real estate transactions and may potentially be manipulated, inflated cost estimates are particularly vulnerable to fraud. This is because they serve as a key justification for funding disbursement in construction loans, meaning any discrepancies here can lead to significant financial misconduct and loss for lenders.