Real estate fraud is a major threat that can victimize everyone from buyers and sellers to lenders and real estate professionals. This type of fraud is not only expensive but also has the power to leave people without a place to live. In 2018 alone, the FBI reported real estate fraud losses of almost $150 million, and that number rises a little every year. If you’re not sure what real estate fraud is or how to prevent it, here’s what to know about the most common scams of this kind.
Wire Fraud
One of the most common types of real estate fraud is wire fraud, which usually targets home buyers. With this type of fraud, a cybercriminal poses as someone from the escrow company and convinces the home buyer to wire money to an account. The buyer assumes it’s the escrow account that he or she is supposed to wire the down payment or closing costs to in order to buy a home. But instead, it’s the cyber criminal’s account.
Buyers who fall prey to this type of real estate fraud end up not only losing the thousands of dollars they wired to the scammer, but also could lose the house they planned to buy unless they can quickly recoup what they lost. This is why it’s so important to take steps to prevent this type of fraud.
The first way to do so is to never respond to or comply with email requests to wire money. You just never know who is behind the email address, as scammers can hack your personal information to make it seem like they’re a real estate professional you’ve been working with. So don’t send money anywhere until you’ve personally spoken to your real estate agent and lender. And if you get an email or text giving you directions to wire the money or updates on which account to send money to, don’t click on any links inside the message. Instead, call your lender or agent to confirm the next steps and verify the escrow account number you’re supposed to send money to.
Rental Home Scam
Another type of real estate fraud is when a scammer tries to rent out a home that isn’t even his or hers to rent. So how does this work? The scammer chooses a house that’s usually empty—such as a vacation home or investment property—and gains access to it, typically by breaking in. Granted, some scammers don’t even go to this much trouble, as they never actually go in the house or let potential renters go in either. They usually cite some excuse as to why no one can go inside, and instead show pictures of the interior of another house to entice renters.
Either way, the scammer then puts up a rental listing for the home online, usually for a very low price. When you express interest in the house, he or she claims the house is highly desirable by many other people, so you need to wire a lot of money right now—such as a few months’ rent and a huge security deposit—if you want the home. This tactic is meant to pressure you into paying a lot of money right away without really thinking about it because you’re afraid you’ll miss out on the seemingly amazing deal.
Of course, it’s not the scammer’s house to rent out. So shortly after you wire the deposit, you’ll find you either can’t get into the house, or the real owner will show up shortly after you move in. This sounds like an expensive, humiliating experience, and unfortunately, it’s happened to over 5 million people in the US as of 2018. Of those it’s happened to, about one third lost over $1,000 in this type of scam.
To prevent this from happening to you, be cautious about any rental listings you see online. Look up the listing agent to make sure he or she is an actual agent, first. A qualified real estate agent should have an online presence, such as a website, social media pages, and online reviews. Most also have an office you should be able to visit during business hours, as well as a real estate license you can view.
Once you’ve verified that the agent is legitimate, make sure you’re allowed to tour the property and actually go inside before you pay a deposit. And when you make that deposit, avoid paying cash. It’s better to use an online payment system or check so you have proof of your payment. Finally, don’t pay someone you’ve never met over the phone. It’s safer to pay in person at the agent’s office, or at least wait until you’ve met to make your payment online or by check.
Cheap Fixes on Major Home Problems
Fraud isn’t always committed by scammers you’ll never meet. Sometimes, it’s the seller who is dishonest with unsuspecting buyers in order to make quick money. For instance, the house might have major issues that will be expensive to fix—and that would cancel the sale altogether if buyers were aware of them. Knowing this, the seller might try to cover up the problems until the closing paperwork is signed.
Some examples include toxic mold, sinkholes on the property, or foundation issues. Sellers desperate for a quick sale might try to cover these problems up with cosmetic fixes, such as fresh paint or new floors. And then they’ll try to rush the sale so you don’t have time to bring in a property inspector to uncover these issues. Some sellers claim they already had an inspection done, and they’ll present the results—which of course leave out the major issues with the house. Others might tell buyers there’s no time for an inspection and that they should take their word for it.
Either way, don’t fall for this scam. Make sure to hire your own property inspector before signing the closing documents. There’s always time to make sure you’re not committing to a money pit that will be very expensive to fix!
Loan Modification Scam
One type of mortgage fraud targets current homeowners who might be struggling to make their mortgage payments. In this case, a scammer poses as a bank representative and calls or emails the homeowner. They work out a deal that would lower the mortgage payments, saving the homeowner from foreclosure or short sale.
Of course, this means the homeowner has to give the so-called bank representative access to sensitive information, including the social security number and bank account numbers. This makes it possible for the scammer to withdraw money from the account. And in some cases, the scammer convinces the homeowner to transfer the title of the home to them, promising it is only temporary. But then the scammer—now armed with the title—turns around and sells the house to someone else, pocketing the profits of the title fraud.
The best way to avoid this type of mortgage fraud is to never respond to people who contact you out of the blue to modify your loan. Anyone having trouble making mortgage payments should contact their lender to work out a plan, as that’s typically the best way to solve the problem without risking becoming the victim of fraud.
Home Buyer Beware
If you’re in the market to buy a house, you might be targeted by a scam in which you purchase real property—only to find out that it won’t be yours for long. In some cases, it’s about to be foreclosed on and will belong to the bank very soon. In other cases, it’s slated to be torn down, as the city bought it from the homeowner, who turned around and made even more money from the deal by selling you a house that’s about to be leveled.
To avoid this type of real estate fraud, make sure you do your homework on any house you’re about to buy. Of course, a thorough title search by your escrow company before closing should uncover these issues before you sign the paperwork. But sometimes, a detail slips through the cracks, or you find out about the home’s problems too late. You can avoid this complication by researching the property and the area around it before you agree to start the closing process.
Another way to prevent being a real estate fraud victim is to stick to tools you can trust as you buy, sell, or make mortgage payments on a home. Using paymints.io for any real estate transactions is a good example, as this online payment tool lets you pay securely while avoiding the threat of wire fraud and other risks. To learn more about this payment tool, please contact us to schedule a demo today.
