Oklahoma Clause

by Arran
(Toronto)

What is an Oklahoma Clause in real estate?

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Oct 07, 2015
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Sep 30, 2015
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Sep 04, 2015
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Jun 12, 2015
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Jun 11, 2015
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Apr 14, 2015
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The Oklahoma Swindle
by: Ross

Hi Arran:

Thanks for your question.

What is commonly called an Oklahoma Swindle in the real estate business, the police call fraud.

It's a dishonest scheme that involves artificially raising the sale price of a property, thereby leaving any mortgagee (lender) with potentially worthless security for its debt.

As an example, a homeowner lists their $250,000 home for sale with a realty agent, and then enters into an Agreement of Purchase and Sale for $270,000 on the advice of their agent. The $20k excess over its market value, according to the AGS, is to be paid by the buyer directly to the seller, and not to the agent or the seller's lawyer as is normally the habit.

Then an Amendment to the APS is prepared which reduces the purchase price from $270,000 to $250,000, but the first page of the APS still states a price of $270,000.

The dishonest buyer involved in such a scam then applies to a lender, such as a bank or a mortgage broker, for a high-ratio Canada Mortgage and Housing Corporation (CMHC) mortgage for 95% of the sale price or $256,500, while advising the bank that the property sold for $270,000. The bank is never informed of the Amendment.

The result is that the property officially sold for $270,000, but in reality, it sold for $250,000, and encumbered by a mortgage of $256,500 plus the CHMC insurance fee. However, since the loan is more than the actual purchase price, it's intended that the buyer will not only own a house with no money down, but will end up with $6,500 extra in their jeans.

Anyone found guilty of being involved in such a criminal offense, such as a buyer, seller, agent, lawyer or mortgage broker, can be sentenced to many years in prison. Since these schemes often come to light when one of the lawyers discovers the shenanigans, it's obviously best to avoid them like the plague.

Bob Aaron, a popular Toronto lawyer, wrote a great column for The Toronto Star a few years back that describes it in detail. http://aaron.ca/columns/2001-01-26.htm

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