Identity theft. Cybercrimes. Hacking. Phishing. We’ve all heard horror stories of how scammers use these tactics to take advantage of unsuspecting individuals. But they don’t stop there. Real estate transactions are one of the most common areas that criminals target.
Why? Because there are large sums of money involved, usually hundreds of thousands of dollars. Sensitive information is being shared across multiple parties. And the average consumer may not fully understand all of the complex, legal terms used within the real estate industry. First-time home buyers can be particularly vulnerable. Meanwhile, the scammers employ increasingly elaborate and sophisticated ploys.
But we’re not here to harp on the bad news. We’re here to educate you about some of the most common real estate scams and what you can do to protect yourself and your hard-earned money – and you can get on with the business of enjoying your home.
Scams to be on the lookout for
The scam: Many homeowners have faced foreclosure in recent years and many more are still under water on their mortgages. These desperate borrowers can be easy marks for those running loan modification scams. A number of scams fall into this category, so be on the lookout for any of these terms: fake foreclosure counseling, forensic loan auditing, non-existent class action lawsuits, leaseback programs and fraudulent “government” modification programs. Most of these scams begin with a simple phone call to a distressed homeowner, promising a lifeline in the form of a foreclosure-related service. In almost all cases, you will be asked for fees to get the process started. In the fake leaseback deal, you also surrender the title or deed to your home.
How to avoid it: Again, be wary of telephone callers asking for fees upfront. Scammers have gotten better over the years and know that it may take 3-4 telephone meetings before you feel comfortable paying a fee, so keep this in mind. And know that foreclosure counseling is provided for free from agencies approved by Housing and Urban Development, a government agency. Before accepting any loan modification, contact a reputable lender to investigate your options and compare the offers. Most large lenders, like AmeriSave, are approved to offer government housing programs such as the FHA Home Affordable Modification Program or Veteran’s Affairs Home Affordable Modification. You can get a comprehensive list of government loan modification programs from ConsumerCredit.com. Additionally, your current mortgage provider will likely have guidance on resources for loan modification programs, foreclosure assistance or can refer you to housing counselors for local agency support. AmeriSave is a direct lender that has successfully helped its customers refinance hundreds of thousands of homes.
Learn more at www.makinghomeaffordable.gov.
The scam: Your lender will set up an escrow account to cover certain expenses related to your mortgage. Scammers can trick people into wiring funds to a fraudulent escrow account. They do this by sending a fake email, making a phony phone call or setting up a fake website that instructs you where to wire the money. They may even hack into your email and steal your information. These scenarios can also occur when wiring large sums of money for your down payment.
How to avoid it: Before authorizing the wiring of any funds, call the phone numbers on the original loan documentation (to avoid spoofed phone numbers that may be sent to you later in the loan process) from your lender so you can verify the wiring instructions. Confirm the escrow account number too. Look out for any communication that indicates wiring instructions have changed. After the transfer, call the settlement agent to confirm receipt of your funds.
The scam: We alluded to this one as part of the loan modification scam (i.e., fake leaseback deal). In this case, scammers illegally obtain the title or deed to someone’s property without their consent, perhaps by posing as a real estate professional or even by forging documents. Vacant and unused properties are at much greater risk, and victims could even lose their homes if the scam is successful.
How to avoid it: Pay close attention during every stage of your real estate transaction, but particularly when money and information is being exchanged. Keep an eye out for signs that anything is amiss at your property. Take comfort in the fact that a title search and title insurance are part of your transaction and serve to confirm the validity of the deed and the property’s rightful legal owner. Report anything suspicious to the Federal Trade Commission (FTC).
The scam: In this case, a predatory lender will approach a homeowner about refinancing their mortgage, and they’ll do this repeatedly so that the homeowner ends up borrowing more money every time. There will probably be high interest rates and fees associated with each loan “flip,” and ultimately, the lender could take ownership of the property if these aren’t paid. Often times, senior citizens can be more vulnerable to this type of real estate scam because they have usually built up a lot of equity in their homes and an offer to extra cash flow when out-of-work can be an attractive offer.
How to avoid it: Don’t let yourself be persuaded to take out a mortgage you do not need nor want. If you’ve just refinanced, you likely don’t need to do so again. Watch out for a lender rushing you to sign mortgage documents. Talk to a trusted real estate agent, mortgage banker or even a family member or friend before making these type of decisions. Many states have tangible net benefit forms to help borrowers review mortgage documents and make smart financial decisions. For more on preventing senior citizen and elder real estate fraud, checkout the FICO blog.
The scam: Scammers may pose as real estate professionals, or they may indicate they are a representative of a legitimate lending institution when in fact they are not. Alternatively, a real estate agent might embellish the amount of experience or expertise they have. Some scammers may try and convince you, as the seller, that they have the perfect buyer for you. They’ll take your bank account information so that the “buyer” can wire you the money and then they’ll attempt to empty your accounts.
How to avoid it: Start by asking friends and family for real estate agent recommendations or look online at client reviews. Verify that your real estate agent has a valid, up-to-date license issued by the state where the property is located. (You can do this by looking at the state’s real estate licensing website.) Check the agent’s credentials and reputation against their broker’s website and against Angie’s List, Yelp and the BBB. And if the agent pressures you to act immediately or overstates what they can do for you, consider this a red flag and avoid the risks.
The scam: Get-rich-quick schemes have been around since houses were built out of mud and stone. Historically low mortgage rates have renewed aspiring investors’ interest in earning money through real estate. Many self-proclaimed real estate investing experts advertise educational seminars (via radio, TV and online ads), promising to divulge the secret to making millions to those who pay to attend a real estate investing course. But participants leave with little more than sales pitches to attend future seminars and often having spent additional money on books, videos or “advanced” training. The options for recourse are few, as attendees usually sign a release beforehand that prevents them from taking legal action.
How to avoid it: Not every workshop is a con. Avoid being scammed by doing your homework. Ask your investment advisor, read up online and check out the investment company’s Better Business Bureau rating prior to signing up.
The scam: Who among us hasn’t seen “We buy ugly houses” or “We pay cash for homes” on a telephone pole or street corner? Homeowners who are strapped for cash, behind on their mortgage payments or even facing bankruptcy may find these signs appealing. Once you call the number on the sign, the scammer may try and convince you to sign over the deed before they pay you. If you do, they’ll lease it to a new tenant, but you’ll be left paying the mortgage.
In an example of “seller beware,” when you call the number, you may be asked whether you own your home outright and about the remaining balance on your mortgage loan. The cash buyer can then entice you with a quick close, offering you significantly less than your home’s real value and putting you at risk of losing any equity you’ve gained.
How to avoid it: Some cash buyers are legitimate. To spot them, look for a company with an office, a proper website and verifiable history of buying homes for cash. Check their BBB rating and consult a trustworthy real estate agent to assist you. Find out the true value of your home, and keep in mind that there could still be a trade-off between the convenience of selling your home quickly for cash and losing some of its equity.
The scam: Similar to the cash for homes scam, this one usually occurs through postcards or other mailers that indicate a buyer is interested in your home and can offer you quick cash for it. Here again, the scammer is looking for a homeowner who either doesn’t realize the true value of their home, doesn’t want to take the time to properly list their home, or whose personal financial situation makes selling their home quickly appealing.
How to avoid it: Beware of any mailers that include language about giving you a “fair price.” Their fair price is not necessarily yours, so know the true value of your property Think hard about whether you’re willing to sacrifice your home’s full value and equity for the convenience of a quick sale. If you are compelled to sell, we suggest speaking with a knowledgeable family member, friend or trusted advisor such as an established real estate professional for their perspective on the matter.
The scam: A home inspection is a critical part of a real estate transaction, but not if a scammer hides problems with the home you’re buying or exaggerates problems in the home you’re selling. Unscrupulous inspectors may also add unnecessary fees to the home inspection process, such as extra types of inspections they should conduct or by embellishing necessary repairs and trying to influence the contractors used for such repairs so they can get kickbacks
How to avoid it: Your real estate agent can recommend home inspectors, so ask for multiple recommendations. Research the individuals, verify their credentials, and ask about their experience. Be sure to also read over the full inspection report once it’s available and ask clarifying questions on issues they report.
The scam: Most renters search for homes and apartments online. Scammers are aware of this and take advantage of internet listing data of actual homes for rent or for sale by reposting them as their own property on popular websites, like Craigslist. The scammer then asks the renter for a security deposit or broker fee upfront. They commonly ask for a fee to perform what is a phony credit check – and then they disappear. If prospective renters do hear anything at all back from the “agent” again, it will be to issue a denial of their “application.”
How to avoid it: Be wary if you’re asked to wire any money upfront, especially if you’ve never met or signed a contract. Some scammers have actually gained access to homes, advertising and showing them at alluringly low prices, so don’t let your guard down just because the “agent” has walked you around a home. Finally (do we really have to say this?), if the person responding to your inquiry is out of the country, but asks you to wire any fees to someone, don’t do it. Read more about rental scams on the FTC’s website.
We’ve thrown a lot of information at you with these ten types of real estate scams, but ultimately it comes down to staying vigilant, keeping yourself updated on the latest scam tactics (so you can know how to avoid them) and working with qualified lending professionals. The good news is that most real estate and lending professionals are trustworthy and have the expertise to help you meet your goals. In fact, AmeriSave has a knowledgeable and seasoned team of mortgage bankers who are ready and available to help you successfully (and safely!) navigate the real estate process.