Real estate is one of the most lucrative and competitive industries in the world. However, it is also one of the most vulnerable to fraud and deception. According to the FBI, real estate fraud accounted for more than $221 million in losses in 2020. Real estate scams can affect anyone, from buyers and sellers to agents and brokers. Therefore, it is essential to be aware of the common warning signs and red flags that indicate a potential scam.
In this article, we will discuss some of the most prevalent and dangerous real estate scams that your clients need to know about. We will also provide some tips and best practices on how to avoid falling victim to these schemes and protect your reputation and business.
1. Wire Transfer Fraud
Wire transfer fraud is one of the most common and costly real estate scams. It involves hackers or impostors intercepting or spoofing email communications between the parties involved in a real estate transaction and instructing them to wire money to a fraudulent account. The scammers usually target the closing stage of the transaction, when large sums of money are exchanged.
Some of the warning signs of wire transfer fraud are:
- Unusual or urgent requests to change the wiring instructions or the recipient account information.
- Inconsistent or unprofessional email addresses that do not match the domain name or the contact information of the legitimate party.
- Grammatical or spelling errors in the email messages or the wiring instructions.
- Lack of confirmation or verification of the wiring instructions by phone or in person.
To prevent wire transfer fraud, you and your clients should:
- Verify the wiring instructions and the recipient account information with the legitimate party by phone or in person before sending any money.
- Use a secure email platform and encrypt your messages and attachments.
- Avoid clicking on links or opening attachments from unknown or suspicious sources.
- Report any suspicious or fraudulent activity to the FBI’s Internet Crime Complaint Center (IC3) and your bank.
2. Rental Scams
Rental scams are another common type of real estate fraud that target renters and landlords. They involve scammers posting fake or stolen listings of properties for rent on online platforms such as Craigslist, Zillow, or Airbnb. The scammers then lure unsuspecting renters into paying a deposit or a fee to secure the property, only to disappear with the money and leave the renters without a place to stay. Alternatively, the scammers may pose as landlords and ask for personal or financial information from the renters, such as their credit card or bank account details, social security number, or identity documents, and use them for identity theft or other fraudulent purposes.
Some of the warning signs of rental scams are:
- Too good to be true offers that advertise properties for rent at below-market prices or with unrealistic amenities or features.
- Lack of photos or details of the property or the landlord in the listing or the communication.
- Pressure or urgency to make a payment or sign a lease without seeing the property or meeting the landlord in person.
- Unconventional or suspicious payment methods such as wire transfers, prepaid cards, or cash.
To avoid rental scams, you and your clients should:
- Do your research on the property and the landlord. Check the property address, the ownership records, the market value, and the rental history. Google the landlord’s name, phone number, and email address and look for any negative reviews or complaints.
- See the property and meet the landlord in person before making any payment or signing any lease. Ask for a tour of the property and verify its condition and features. Ask for the landlord’s identification and proof of ownership or authorization to rent the property.
- Use a reputable rental platform that offers protection and guarantees for both renters and landlords. Read the terms and conditions and the cancellation and refund policies carefully.
- Never share your personal or financial information with anyone you do not trust or have not verified. Use a secure payment method that allows you to track and dispute any unauthorized or fraudulent charges.
3. Title Fraud
Title fraud is a sophisticated and devastating form of real estate fraud that involves scammers forging or stealing the title or deed of a property and using it to sell or mortgage the property without the owner’s knowledge or consent. The scammers may also use the owner’s identity and credit to obtain loans or other benefits. Title fraud can result in the owner losing their property, their equity, and their credit score.
Some of the warning signs of title fraud are:
- Unsolicited or unexpected mail from a lender, a title company, or a government agency regarding a loan, a lien, a foreclosure, or a tax assessment on your property.
- Difficulty or denial of refinancing, selling, or transferring your property due to a title issue or a lien that you are not aware of.
- Unusual or unauthorized activity on your credit report, such as inquiries, accounts, or debts that you do not recognize.
To protect yourself and your clients from title fraud, you should:
- Monitor your property and your credit regularly. Check your property records and your title insurance policy for any changes or discrepancies. Review your credit report and your bank statements for any errors or fraud.
- Secure your documents and your identity. Store your title, deed, mortgage, and other important documents in a safe place. Shred any documents that contain your personal or financial information before disposing of them. Use strong passwords and security software for your online accounts and devices.
- Purchase title insurance. Title insurance is a one-time payment that covers you and your property from any losses or damages caused by title fraud or defects. It can also help you with the legal fees and the process of restoring your title and your ownership.
4. Home Improvement Scams
Home improvement scams are a type of real estate fraud that target homeowners who are looking to renovate, repair, or upgrade their properties. They involve scammers posing as contractors, inspectors, or appraisers and offering their services at low prices or with high-pressure tactics. The scammers may then perform substandard or incomplete work, charge excessive or hidden fees, damage the property, or steal the homeowner’s money or belongings.
Some of the warning signs of home improvement scams are:
- Unsolicited or unlicensed offers from contractors, inspectors, or appraisers who show up at your door or call you without a referral or an appointment. They may claim to have leftover materials, to be working in the neighborhood, or to have noticed a problem with your property.
- Lowball or vague estimates that do not include the scope, the timeline, the materials, or the warranty of the work. The scammers may also ask for a large upfront payment or cash only.
- High-pressure or scare tactics that urge you to sign a contract or make a payment without giving you time to think or compare. The scammers may also create or exaggerate a problem with your property and offer to fix it immediately.
To avoid home improvement scams, you and your clients should:
- Do your homework on the contractor, inspector, or appraiser. Ask for their name, address, phone number, license number, and references. Check their credentials, reputation, and reviews with the Better Business Bureau, the local consumer protection agency, or the online platforms.
- Get everything in writing. Request a written estimate, contract, and invoice that detail the work to be done, the cost, the payment schedule, the start and completion dates, and the warranty. Read and understand the terms and conditions before signing anything.
- Pay wisely. Never pay the full amount or a large deposit before the work is done. Use a credit card or a check that can be traced and disputed. Do not pay cash or wire money.
5. Loan Modification or Foreclosure Relief Scams
Loan modification or foreclosure relief scams are a type of real estate fraud that target homeowners who are struggling to pay their mortgages or facing foreclosure. They involve scammers pretending to be lenders, lawyers, or government agencies and offering to help the homeowners modify their loans, reduce their payments, or save their homes. The scammers may then charge upfront or monthly fees, ask for personal or financial information, or instruct the homeowners to stop paying their mortgages or to sign over their deeds.
Some of the warning signs of loan modification or foreclosure relief scams are:
- Guaranteed or unrealistic promises to lower your interest rate, cut your payments, or stop the foreclosure process. No one can guarantee these outcomes without knowing your specific situation and negotiating with your lender.
- Requests for fees or information before providing any service or assistance. You should not pay any fee or share any information with anyone who claims to help you with your loan modification or foreclosure relief. You can get free or low-cost help from HUD-approved housing counselors or legitimate government programs.
- Instructions to stop or redirect your payments. You should never stop paying your mortgage or send your payments to anyone other than your lender. Doing so can put you at risk of losing your home and damaging your credit.
To prevent loan modification or foreclosure relief scams, you and your clients should:
- Contact your lender as soon as possible if you have trouble paying your mortgage or receive a foreclosure notice. Your lender may be able to work with you to find a solution that suits your needs and situation.
- Seek legitimate help from HUD-approved housing counselors or government programs that can provide you with free or low-cost advice and assistance. Avoid any company or individual that charges a fee or asks for information before helping you.
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6. Equity Skimming or Leaseback Scams
Equity skimming or leaseback scams are a type of real estate fraud that target homeowners who have equity in their properties but are facing financial difficulties or foreclosure. They involve scammers offering to buy the homeowners’ properties for a low price and rent them back to them until they can afford to buy them back. The scammers may also promise to pay off the homeowners’ mortgages or taxes. However, the scammers do not make any payments and instead pocket the rent and the equity. The homeowners end up losing their properties and their credit.
Some of the warning signs of equity skimming or leaseback scams are:
- Unsolicited or aggressive offers from buyers who claim to have a solution for your financial problems or foreclosure situation. They may contact you by phone, mail, or online.
- Lowball or unfair offers that do not reflect the true value or equity of your property. The scammers may also ask you to sign over your deed or title without paying you anything.
- Complex or confusing contracts that contain hidden fees, penalties, or clauses that allow the scammers to evict you, raise your rent, or sell your property to someone else.
To avoid equity skimming or leaseback scams, you and your clients should:
- Consult a lawyer before signing any contract or agreement with anyone who offers to buy or rent your property. Make sure you understand the terms and conditions and the risks and consequences of the deal.
- Explore other options to save your home or your equity. Contact your lender, a HUD-approved housing counselor, or a legitimate government program to find out if you qualify for any loan modification, forbearance, or assistance programs.
- Report any suspicious or fraudulent activity to the FTC, the state attorney general, or the local consumer protection agency.
7. Property Flipping Scams
Property flipping scams are a type of real estate fraud that involve scammers buying properties for a low price and then selling them for a high price after making cosmetic or superficial improvements. While property flipping is not illegal per se, it becomes a scam when the scammers use false or inflated appraisals, fake or forged documents, or straw buyers to obtain loans or mortgages that exceed the actual value of the properties. The scammers then pocket the difference and leave the lenders or the buyers with properties that are worth less than what they paid for.
Some of the warning signs of property flipping scams are:
- Inflated or unrealistic prices that do not match the market value or the condition of the properties. The scammers may also use multiple listing services or online platforms to create artificial demand or competition for the properties.
- Rushed or pressured sales that do not allow the buyers to inspect the properties, conduct due diligence, or obtain independent appraisals. The scammers may also use bait-and-switch tactics to change the terms or the price of the deal at the last minute.
- Shady or dishonest agents who work with the scammers or receive kickbacks from them. They may also misrepresent the properties, the sellers, or the buyers, or conceal any defects or liens on the properties.
To prevent property flipping scams, you and your clients should:
- Do your research on the properties, the sellers, and the agents. Check the ownership records, the sales history, the appraisal reports, and the inspection reports of the properties. Verify the credentials, reputation, and reviews of the sellers and the agents.
- Get a second opinion from a trusted and qualified professional. Hire your own appraiser, inspector, or lawyer to evaluate the properties and the contracts. Do not rely on the recommendations or referrals of the sellers or the agents.
- Negotiate wisely. Do not agree to any deal that sounds too good to be true or that requires you to pay more than what you can afford. Do not sign any document that you do not understand or that contains blank spaces or errors.
8. Escrow Fraud
Escrow fraud is a type of real estate fraud that involves scammers posing as escrow agents or companies and offering to handle the funds and the documents of a real estate transaction. The scammers then collect the money from the buyers or the sellers and disappear without completing the transaction or transferring the title. Escrow fraud can also involve scammers hacking or spoofing the email accounts of legitimate escrow agents or companies and instructing the buyers or the sellers to send the money to a different account.
Some of the warning signs of escrow fraud are:
- Unsolicited or unverified offers from escrow agents or companies that contact you by email, phone, or online. They may claim to be affiliated with a reputable or well-known company or organization, or to offer lower fees or faster service than other escrow agents or companies.
- Unprofessional or unsecure websites that do not have a valid domain name, a secure connection, or a clear privacy policy. The websites may also contain grammatical or spelling errors, or request personal or financial information from you.
- Unusual or suspicious requests to send the money to a foreign or personal account, or to use a specific or unconventional payment method, such as wire transfer, prepaid card, or cash.
To avoid escrow fraud, you and your clients should:
- Verify the escrow agent or company before entrusting them with your money or your documents. Check their license, registration, and accreditation with the state or the national regulatory agency or association. Confirm their contact information and their physical address.
- Use a secure and reputable website to conduct your escrow transactions. Look for a valid domain name, a secure connection, and a clear privacy policy. Do not enter any personal or financial information on a website that you do not trust or have not verified.
- Confirm the payment instructions with the escrow agent or company by phone or in person before sending any money. Do not rely on email communication alone, as it can be hacked or spoofed. Use a traceable and disputable payment method that allows you to recover your money in case of fraud.
9. Timeshare Scams
Timeshare scams are a type of real estate fraud that target timeshare owners who are looking to sell or rent their timeshares, or timeshare seekers who are looking to buy or rent timeshares. They involve scammers posing as timeshare brokers, agents, or companies and offering to help the timeshare owners or seekers with their transactions. The scammers may then charge upfront or hidden fees, ask for personal or financial information, or fail to deliver the promised services or results.
Some of the warning signs of timeshare scams are:
- Unsolicited or unrealistic offers from timeshare brokers, agents, or companies that contact you by phone, mail, or online. They may claim to have a buyer or a renter for your timeshare, or to have a timeshare for sale or for rent that suits your needs and budget.
- Requests for fees or information before providing any service or assistance. You should not pay any fee or share any information with anyone who claims to help you with your timeshare transaction. Most legitimate timeshare brokers, agents, or companies only charge a commission after the transaction is completed.
- Lack of transparency or accountability from the timeshare brokers, agents, or companies. They may not provide you with a written contract, a receipt, or a confirmation of your transaction. They may also avoid or ignore your calls, emails, or questions, or give you vague or inconsistent answers.
To prevent timeshare scams, you and your clients should:
- Do your homework on the timeshare brokers, agents, or companies. Ask for their name, address, phone number, license number, and references. Check their credentials, reputation, and reviews with the Better Business Bureau, the state attorney general, or the online platforms.
- Get everything in writing. Request a written contract, receipt, and confirmation of your transaction that detail the terms and conditions, the fees, the services, and the timeline. Read and understand the contract before signing it and keep a copy of it for your records.
- Report any suspicious or fraudulent activity to the FTC, the state attorney general, or the local consumer protection agency.
