Arizona has been booming for so long that sustained high growth seems like a permanent condition. The sale and resale of homes in the market have done a lot to drive the economy in the state – According to the Arizona Republic, real estate is the largest segment of the state’s economy. Because of the sustained growth in the Arizona real estate speculation has become a major component of the market there. According to Freddie Mac, in 2005 35% of all home sales in the Phoenix metro area involved speculators.

The market cooled in 2006, just as in every other area of the country. What did emerge in the area, however, is a high level of mortgage fraud. The market is full of people who are new to the brokerage business and looking to make a quick buck, much the same as the speculators that are involved in so many of the home sales there. The result has been a form of fraud that has inflated home values and put large numbers of consumers at risk.

The scam works like this: an appraiser who is part of the fraud team provides an inflated appraisal on the home. The borrower gets a mortgage at the inflated rate and kicks back a piece of the loan to the owner/speculator that offered the sale. The agent, owner and appraiser split the profits and the new owner gets stuck with a home on which he owes more that its worth. This practice has become so common that it has inflated prices on homes in entire neighborhoods. So many homes have been turned on this “cash back” basis that they become the standard for prices in the area.

Those inflated prices are not holding air now that the market has cooled and many of the buyers falling for this scam cannot sell their homes for what the owe on them. Cash back deals are so common that many people believe they are legal. Owners advertise offers openly that involve a cash back ploy. The mortgage companies get burned, often the consumer who overpaid gets burned, and entire neighborhoods of people who believe their homes are worth more than true market rate are also at risk.

If you are looking for a mortgage in Arizona, find a broker who has been in business for a while. Make sure every step of the purchase process is documented and if anyone suggests a payment over the asking price, walk away. For a well documented story on this widespread phenomenon and how to avoid it, visit

Arizona mortgages are not all instruments of fraud. For an excellent review of the process and the pertinent Arizona statutes regarding truth in lending, visit

Keep in mind that it is the lenders as well as the consumers who are being taken in these cash back deals. It might be worth considering working directly with a bank rather than a broker in order to ensure a straightforward transaction.