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Here's how inflated inflated-sale-and-crash schemes work in more detail.

Let's say the true value of a home is $600,000. Under this scheme, an appraiser will fraudulently declare the value of the home to be more than this price. In this example, let's assume that the appraiser inflates the value of the home by an extra $100,000 to $700,000.

Without knowledge that any fraud is taking place, a lender will agree to a $700,000 loan based on the false appraisal. The seller of the home will then agree to sell the home at the higher price and give back $100,000 in cash to the buyer at the close of escrow.

When the lender pays the money to the seller, he or she will keep the $600,000 and give the extra $100,000 to the buyer, who will split this money with the shady appraiser and anyone else involved in the scheme.

In a couple of months, the buyer will stop making mortgage payments until the bank declares fault and begins to foreclose. While the buyer may ruin his or her credit, he or she profits in this scheme with much money in his or her pocket.

A Real estate appraiser and mortgage fraud investigator said that a buyer involved in these schemes will typically buy three to six properties at once with the goal of running with the extra money from the inflated home appraisals.

An FBI agent in the story said that reported cases of mortgage fraud doubled from approximately 17,127 to 35,617 cases from 2004 to 2006. The story detailed other data citing that federally insured financial institutions reported 37,614 Suspicious Activity Reports of mortgage fraud nationwide in 2006. It added that 36.6 percent of those filings were filed in California. (In related news, the state of Ohio recently sued 10 real estate companies for allegedly forcing appraisers to inflate home values).

Improperly inflating home appraisals have also been claimed to cause the prices of other homes in the area to boost. Specifically, legitimate appraisers will use these inflated appraisals (which they don't know have been compromised) as comparable baselines for other properties in respective areas.

As this article depicts, inflated-sale-and-crash schemes can not only cause massive headaches for financial lending institutions but also prospective buyers who are looking to purchase a home at a reasonable price but are ultimately affected by properties that are being unknowingly inflated by honest appraisers.