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Those who work on fraud risk assessments and forensic investigations in real estate know that successful fraud is rarely a one-time act. It is usually enabled by systemic weaknesses. To protect your firm and your investors, lenders, and buyers, you must understand not only where fraud is most likely to occur, but also the checks and practices that can prevent it.

Where fraud tends to emerge

Fraud in real estate can occur in every phase of a project’ s lifecycle. During capital solicitation, for instance, bad actors may raise funds by promising ownership interests or outsized returns, only to misdirect the capital or use it opportunistically to finance unrelated ventures. Warning signs include aggressive fundraising without transparent documentation, repeated demands for more capital with little justification, or ongoing delays that are explained away with overly optimistic assurances. Builders and developers that find themselves raising capital or working with outside partners should insist on audited reporting and independent oversight of disbursements.

Another area of concern arises when funds from one project are used to prop up another. This co-mingling of funds is sometimes disguised as efficient cash management, but it becomes outright fraud when it is designed to hide underperformance or cover shortfalls. Maintaining separate accounts for every project and requiring justification for any transfers helps prevent this practice from taking root.

Construction-phase risks

Once construction begins, the opportunities for manipulation multiply. Inflated labor and material costs, questionable change orders, wage fraud, and material substitution are all common schemes. Contractors may bill for more hours than worked, create unnecessary change orders to inflate revenues, or use cheaper materials while charging for premium products. These practices not only drain resources but also jeopardize the quality of the build and increase liability. Strong invoice review processes, vendor audits, and periodic site inspections are effective ways to catch inconsistencies. Clear contract terms that require lien waivers, certified payrolls, or independent validation of change orders can further discourage fraud at this stage.

Fraud during ongoing operations

Fraud does not disappear once the building is complete. During ongoing operations, property managers may skim rent payments, collude with vendors to inflate maintenance costs, misuse their disbursement

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