The process of purchasing or renting a home can be stressful. The last thing anyone wants to think or worry about when searching for a new place to call home is the risk of becoming another victim of a real estate scam. Unfortunately, real estate scams happen every year, and they all don’t look the same.
Real estate fraud victims also don’t all look the same. Fraudulent activity occurs when someone intentionally misleads another person in a deceitful interaction. Therefore, there are many ways that fraud can occur in the real estate sector. Buyers, sellers, renters, even lenders can fall victim or be an assailant for real estate crime.
Real estate fraud schemes are as real and as numerous as the hairs on (most) of our heads. Anyone involved or may be involved in the future in real estate is at risk of becoming a victim of real estate fraud. It’s time to take a look at some of the most common forms of real estate fraud and how to avoid them.
Buying a home can be a long and detailed process. Below are some of the ways that a homebuyer can become a victim of a real estate scam.
Incorrect Home Value: Lying about a home value is called value fraud. Most of the time, this happens when the home seller gives the prospective buyer incorrect information about their home’s estimated value. When a seller purposefully omits essential information that can greatly affect a home’s value, they are this type of seller fraud is known as value fraud.
Predatory Loans: In the real estate sector, people will take advantage of buyers by trying to sell them predatory loans. Predatory loans in real estate are a type of loan that involves unfair loan terms for the borrower. In a predatory loan scheme, the borrower is somehow convinced o take out a loan that they probably don’t need, want, or, in some circumstances, can’t even afford. Unfortunately, predatory loans aren’t always illegal.
Predatory loans often have:
Ridiculous fees, including but not limited to high penalty fees for not paying on time.
Wire Fraud: Wire fraud typically occurs when a con artist pretends to be a buyer’s real estate agent and then tricks them into wiring funds to a fraudulent account. These types of scams are sometimes hard to spot because con artists know how to use special software that looks similar to an agent’s email address and/or phone number.
Sadly, once money is wired, it’s almost impossible to get the money back.
Not Updating The Status On Sold Properties: This happens when a real estate agent knowingly keeps sold properties listed on their website, not updating the status as “Sold”. This action will cause more buyers to go to their website, and thus, the agent will get more leads. A purposeful misrepresentation of available homes is a waste of any buyer’s time and a truly misleading tactic performed by some so-called “professional” agents perform.
Selling a home can also be a long and detailed process. Below are a couple of ways that a home seller can become a victim of a real estate scam.
Fraudulent Or Dishonest Real Estate Representatives: Realtor fraud happens all of the time! In this particular scam, a con artist who pretends to be a real estate professional (or at the very least they embellish their experience and credentials to convince a seller to work with them). They often convince the seller that there is a buyer for the property and ask the seller for their personal information, such as their bank account and routing number.
It is important to note that it is pretty simple to check a real estate professional’s credentials to verify that they are who they say they are. An agent’s license status can be searched for online (For example, here is how to verify an agent’s credentials in Minnesota: License Lookup Directory.
An agent’s history and customer feedback can also probably be found by performing some simple internet sleuthing by doing a Google search or checking review sites.
Open House Burglary: Opening your door to strangers also opens opportunities for burglary and theft. There have been plenty of theft cases by patrons who visit during open houses, and important items such as jewelry and even prescription drugs can be stolen.
Anyone hosting an open house should discuss with their agent how to safely host an open house, as well as tips for preventing theft before and after the open house takes place.
Additionally, an open house may not be needed for a homeowner to sell their home. Omitting the open house is also something that can be discussed with an agent.
Fake Buyers Knocking At The Door: Con artists have been known to knock on doors, telling home sellers that they want to view their homes. Then they will either try to convince the home seller to buy something once they are inside the home or steal and/or do some other form of criminal activity.
The safest way to sell a home to avoid buyer fraud is to always have an appointment set up with an agent present. It is not a bright idea to open the door to anyone, even if they claim they are interested in the home for sale or have another good excuse.
Targeting For Sale By Owner Homes: Scammers know that people selling their homes without an agent are easier targets than those who choose to work with an agent.
Agents typically monitor their listing properties. If a prospective buyer is interested in a for sale by the home property, the chances are that the seller doesn’t ask for identification from them.
Most sellers don’t want to leave a stranger alone in their home, but that doesn’t mean that a scammer can’t still take advantage of viewing the property by coming back later after learning everything about the house.
The “Double Commission” Trick: This is a clever trick performed by real estate agents that get a hot lead on prime real estate that is typically hard to get. Once the agent has the listing, they will call their most loyal clients who would be interested in purchasing the property.
When other agents try to make an offer, they will typically tell them that offers aren’t being reviewed yet, and make other excuses for why offers aren’t currently being looked at and/or accepted. The agent will then do all of the proper steps to make it appear that they are fair, but then hold an open house even though they already found a buyer through one of their loyal clients. Once the agent closes the deal with their client, they get a double commission.
Lenders can also fall victim to real estate scams. Below are a couple of examples.
Buy and Bail: The real estate market can turn on a dime. The value of a home can vary significantly based on the real estate market. If a buyer purchases a home and then the market tanks shortly after, they may be able to locate a similar property for sale that they can purchase for less than they owe on the loan.
Additionally, their current property will most likely be worth less than they owe on the loan.
In this case, the buyer may be able to get a loan for the second home while still owning the first home. A second loan can be acquired by convincing the lender that they are renting out the first home and that the second home will be their primary residence.
In the buy and bail method, this is a false claim to access a new loan for the second home. Once they purchase the second property, no more payments are made on the first property. Eventually, this property goes into foreclosure. The home is likely to be worth less than what is owed on the loan, and the lender will end up losing money.
The Property Flip: Coconspirator's work together to increase a property value fraudulently. This type of fraud is usually done when a buyer purchases a home, does minor adjustments to “flip” the house, and has their acquaintance make an offer on the home, usually for much more than it is worth.
The person applying for the loan typically doesn’t live in the home. They only play a role in applying for the inflated home loan. This is why this type of buyer generally is called a “straw buyer,” as a straw buyer is a person who completes a purchase on behalf of another person.
Since the original buyer has “flipped” the house, they can make it quickly appear that the house is worth much more now, but they also need to find an appraiser to appraise the home at a higher value than they typically would.
Each person knowingly involved in the scheme typically gets paid a cut in the profit made, the original buyer getting the biggest cut in most cases. Once the scheme is completed, the lender typically loses money when the house goes into foreclosure.
Renting a property is also another event that can be a long and detailed process. Below are a couple of ways that a renter can become a victim of a real estate scam.
Using Foreclosed Properties: When times are tough, sometimes a home can go into foreclosure. Scammers will take advantage of foreclosed properties by finding a foreclosed property and pretending that they are the owner. Then, they will get a renter to pay a deposit and/or monthly rent and entices renters to pay a cash deposit to pay their “monthly rent” in cash until they are caught.
Making A Payment Before Signing The Lease (Fake Listing): Scammers can convince a victim to make their first rental payment (plus extra fees, such as a deposit) before signing a lease. This simple scam can be a successful one. A scammer just needs to simply post fake listings on Zillow, Apartments.com, and other rental websites.
Typically, a rental scammer can convince their victim to (willingly) hand over their money by offering lower rent than other locations and/or other great perks. Renters who are desperate to find a good deal or great rental space will be lured into making a payment before even confirming that the property is for rent (in these scams, it isn’t).
Scammers in these situations will make up rental listings for properties that aren’t for rent. Sometimes, the rental properties can actually be copycat versions of past or current listings.
Fake Craigslist Deals: Craigslist can be a great place to find a rental property, but it is also an easy place to become a target. Con artists use Craigslist for all sorts of scams. Rental scams are no exception. Therefore, a person looking at a rental property on Craigslist should always be wary and make sure that they protect themselves and their bank account.
My Thoughts: Not only can someone be financially vulnerable when responding to a rental post on Craigslist, but they also can be putting their personal safety at risk. People have literally died by the hand of the person’s Craigslist ad that they responded to. If you are responding to a Craigslist Ad, Craigslist has its own page on safety, which can be found here: Personal Safety
Each situation is different, so there is no “umbrella answer” that covers all situations. However, there are a few simple suggestions that work in most cases to help prevent fraud:
Question things that are too good to be true: Always question when something seems too good to be true and do your research.
Document: Always document everything, and avoid paying in cash and wire transfers if possible.
Look at someone’s reputation: Always work with reputable people, ask for proof when applicable, do a Google search, etc. Additionally, never email financial information as that is NOT secure.
Avoiding online scams: To try and avoid online scams, always check if a website is secure, never click on a link URL in an email, directly enter the URL by looking up the real URL online first.
There are many ways to be involved in an unfair real estate transaction (fraudulent or legal). Here are some examples of what could be a red flag in a real estate deal:
The seller isn’t on the title.
The documentation on the property looks odd (such as spelling errors, different styles of font, or different handwriting throughout the document), or there isn’t proper documentation.
The owner is listed differently than the seller shown on the sales contract.
The purchase price is much lower or higher than the market value.
The seller purchased the property not long ago.
If the buyer and seller have the same last name (family members often conspire together).
If renting, the renter wants payment before the lease is signed.
Asking for financial information via email.
Things just seem “too good to be true”.
Loan rates are too high and come with strict terms.
Payouts to unfamiliar parties.
Squeezed numbers from being altered on the document.
Very high real estate commission and/or fees.
There are several different avenues available online to report fraud. The FTC handles fraud, scams, and poor business practices, their website can be found here.
The FBI also has an Internet Crime Complaint Center IC3 if you think that you have been a victim of online fraud or if you want to file on behalf of someone who might have been a victim of online fraud. This sector of the FBI can be found online here.
The above websites are just an example of the many ways one can report or handle a scam safely and legally. Again, since there are so many different forms of real estate fraud, each situation is different and needs to be handled differently.
Since most real estate deals involve cash flow, there will always be crooked people who will try to take advantage of anyone involved in a real estate transaction. Although, in most cases, crooks are great at spotting people in their most vulnerable state. They are well aware of what type of person is the best victim of their fraudulent real estate practices.
Of course, there are exceptions to this rule. For example, some real estate scams happen strictly online. Anyone can fall victim to these scams.
If you work for are you earn a part in any sort of real estate deal, please watch out for the above methods of fraud and deceptive practices, and also understand that there are many other forms of fraud out there that can take place in any sort of real estate transaction. Since real estate fraud can happen to anyone, it’s always best to listen to your gut, ask questions, and always do your research before making any sort of deal that involves a large sum of money.