There’s serious money to be made in real estate. And, like all big business, it attracts its fair share of scammers, cheats and fraudsters. These criminals are getting ever more sophisticated in how they target potential victims. Here are four of the most common real estate scams and what you can do to avoid them.
1. Wire/payment fraud. Electronic payments have made transferring money, and closing sales, much easier. These payments are often for very large amounts, making them very attractive to scammers.
The fraud typically starts with an email, phone call or text from what looks like your real estate agent, escrow agent or attorney, telling you that their bank account details have changed. You’re instructed to make payment instead to this new account.
It looks genuine because often the scammer knows that you’re about to make a significant payment on a specific date, to make a stage payment or close a sale. But the reason they know that is they have hacked yours, your agent’s, escrow agent’s or attorney’s email.
Sophisticated scammers can make it look as if you’re getting a call or email from your agent or attorney. They may even set up a fake website. Sometimes, one letter or number might be off. That’s easily missed if you’re busy or distracted.
Once you send the money to the “new” bank account, the scammers drain the account and do a bunk. There’s little you can do other than report the fraud.
To avoid falling victim to this scam, always call your agent or attorney (on a number they have previously given you) or meet them face to face to verify bank account details, before wiring money.
2. Title Fraud. This usually involves some form of identity theft. It can be perpetrated by strangers—or those close to you, like spouses or business partners. It might be a straight up theft, with the property transferred from the legitimate owner using forged documents, signatures and impersonation. But more commonly the scammer will take out a high-value mortgage secured on the property and will then disappear with the funds.
Title insurance can help protect against this scam. You should also keep all forms of identification secure and only share them with those you trust on a needs-must basis. Also ask your attorney or real estate agent, and anyone else you share personal data with, if they have proper security (both physical and electronic) to keep your information secure.
3. Loans, Re-Mortgages and Foreclosure Bailouts. When you’re in a cash crunch, you’re often so desperate you’ll listen to any offer of assistance that comes your way. Scammers take full advantage of this. They may contact you out of the blue, tell you that they are affiliated with bona fide financial or government institutes and wave the promise of a quick fix at you.
Mostly, what the scammer asks for is an upfront fee to secure their services…and that’s the last you’ll see of them. Other times, they’ll pocket the loan, along with your fee, and disappear. Sometimes, they will arrange a loan—and then encourage you to flip the loan to other lenders multiple times. That may not be in your best interests, but it nets them multiple fees.
How to avoid this scam: If you’re having difficulties paying back a mortgage or you’re facing foreclosure, talk to your lender about re-structuring the loan. There are usually official advisory groups you can approach too, who will give you free and independent advice.
4. Rental Rip-offs. We’ve all seen the horror stories of folks who arrive at the chic seaside villa they booked for their vacation…only to find it doesn’t exist. And, the folks who hand over deposits and upfront rental payments on long-term leases to “owners” that have nothing to do with the property.
The scammers will take photos and details from legitimate listings and then set up a fake ad. They may impersonate the owner or property manager. There are some red flags to watch for. With long-term rentals, these include not being able to view a long-term rental, not meeting the owner or manager in person, paying upfront when you haven’t signed an official lease. For short-term rentals, the “owner” may ask for payment direct rather than via the rental listings site.
To protect yourself, try to use an established rental management company or agent if you’re looking for a long-term rental (and check that they’re licensed and legit). With short-term, some listings sites will reimburse you if you get scammed, so check their terms and conditions. And Airbnb for example will allow you to pay via them, so your credit card details are not shared with the owner/manager, and the owner/manager only gets paid by Airbnb after you have checked in to the property.
Wishing you good real estate investing,
Ronan McMahon, Real Estate Trend Alert