Outsmarting Dummy Money

In today’s overheated real estate market, people will do almost anything to snag a desirable apartment. Above all, they’ll lie – particularly if they can’t clear a co-op board’s financial bar.

One of the most common forms of lying is to stuff a bank account with “dummy money” – frequently a gift from a well-heeled parent – in order to meet the co-op’s requirement that the applicant have a certain amount of money in savings to cover maintenance and mortgage. Once approved by the board, the newly minted shareholder returns to gift.

To avoid such scams, many boards now require applicants to place a specified amount of money in an escrow account for a few years as a condition of board approval, real estate lawyer Andrew Jorges tells the Ask Real Estate column in The New York Times. “Housing cooperatives are only as strong as their financially weakest shareholder,” he notes.

Of course, people will continue to get away with gaming the system. Once they’re approved, the board probably can’t re-examine their financials. But that doesn’t necessarily spell disaster for the co-op. As long as the monthly maintenance gets paid on time, everyone should be happy – scammer and scammed alike.