Contract kiting typically results in which outcome for lenders?

Contract kiting is a practice in real estate where a buyer uses multiple contracts to artificially inflate the value of a property, often leading to a discrepancy between the market value and the price agreed upon. This activity can mislead lenders about the true value of the asset they are financing.

When lenders encounter situations involving contract kiting, they risk being misinformed about the actual worth of the property. As a result, the potential overvaluation of properties becomes a significant outcome for lenders. This inflated perception of property value might lead them to approve larger loan amounts than warranted, increasing their exposure to financial losses if the true value is less than the loan amounts.

Although lenders may implement measures such as increased scrutiny or enhanced verification processes after encountering kiting incidents, these actions are reactions to prevent future occurrences rather than direct outcomes. The primary concern remains the financial implications of misvalued properties, making potential overvaluation the most direct result of contract kiting for lenders.