I decided to investigate real estate scammers after preventing a potential renter from wiring money to an imposter in South Carolina posing as the owner of the property on a missionary assignment. Scammers are out there on the internet or the telephone waiting to steal your money, your credit rating, or even your property. For the Main Street “Learning issue,” here are some of the most common schemes and how to avoid them.
Real estate is an enticing target for scammers because the sums are large. The process of buying, selling, or renting can be complicated and unfamiliar – and the chances of getting caught are slim. It’s much easier and more lucrative than robbing a bank. For example, just last November the FTC shut down a $100 Million Belize real estate investment scam executed by a serial fraudster (see enticing photo on following page). Over 1,000 American retirees purchased luxury beachfront lots. The promoters claimed the value would easily double in just a few years. The development was advertised on Fox News and included a marina, a hospital staffed by Americans, a hotel, fine restaurants, and, of course, a golf course. Nothing was ever built and the investors who paid cash up front lost everything with little hope of recovery.
In our area rental scams seem to be the most common form of real estate fraud. Tenants should be very careful of any rental that looks like a bargain, especially if it is listed on Facebook or Craigslist. You are probably being set up to be conned if you are asked to sign a lease or pay a deposit or fee before seeing the property. These simple internet rental scams are common according to law enforcement officers. The scammers are usually in another state or country, hiding behind fake identities, and untraceable phone numbers. The police do not have the resources – time, skilled tech support, or jurisdiction – to pursue these scammers. Your money is transferred somewhere else within minutes of being sent and the promised key to the property never arrives.
Most rental properties listed on multiple listing services are represented by licensed real estate brokers, and will appear on www.realtor.com, although some owners can list their properties directly without a broker on Zillow. Remember, unlike New York City, the owner pays the rental commission, not the renter. There’s no reason for a renter not to use the services of a legitimate real estate broker. After viewing the property the renter should expect to complete a rental application and have credit and references checked before being asked to sign a lease. If you move in before promised improvements are completed, put rent into escrow until the work has been done.
Scammers frequently use religious language to build confidence with the victim. Recently, a waitress in Millerton, NY, came within a few minutes of sending $3,000 to a fake landlord who told her, “Praise Jesus, the Lord meant for you to live in this house.”
An even more extreme rip-off is actually moving into a house that the “landlord” you are dealing with doesn’t own. The tenant rents a vacant home and after a few months, surprise, the real owner arrives. One group of scammers collected more than $300,000 in rent on dozens of homes legally owned by an LLC registered as RHA2LLC by asking tenants to make out checks and money orders to a similarly named RHATwoLLC.
Rent-to-own schemes are scams that target consumers with poor credit who can’t qualify for a mortgage. Frequently the price of a “rent-to-own house” is above market and the scammer collects an inflated down payment. Then when a rental payment is missed by even a day, the renter is evicted and loses the down payment – and a place to live.
Although it may not be fraud, there are some homeowners who rent homes knowing that they will be foreclosed upon. It is a good idea to check on whether or not a Notice of Default or Notice of Trustee Sale has been filed on the property – you might be evicted and forced to relocate.
A hacker can take control of a real estate closing by obtaining critical information in a “phishing” maneuver. Impersonating an attorney, agent, or title company involved in the closing, the hacker sends a fake email advising the buyer or seller of last minute changes with instructions to redirect proceeds to a different account – an account controlled by the scammers. A warning from the Consumer Protection Bureau (CPB) reports that phishing scams increased by a staggering 1,100 percent between 2015 and 2017. This is real. Wire fraud is real. Before wiring any money, call the intended recipient at a number you know is valid to confirm the instructions. Additionally, please note that the sender does not have authority to bind a party to a real estate contract via written or verbal communication. Scams led to a $1 billion loss in real estate transactions in 2017 alone through these sophisticated phishing scams, which diverted closing costs and down payments by last-minute changes in wiring instructions.
Other settlement schemes involve unscrupulous attorneys, brokers or builders arranging kickback fees or inflating closing charges. The simplest is attorneys not forwarding funds to pay off the mortgage.
There are also every day real estate scams that are less expensive – such as charging homeowners $86 for a notarized copy of their deed that is available from the Dutchess County Clerk’s office for only $11.
Mortgage fraud and straw buyers
Mortgage fraud is typically perpetrated by unwitting straw buyers misstating income, employment, liabilities, etc. to obtain a mortgage. They are advised by dishonest attorneys, closing agents, mortgage brokers, appraisers, realty agents, and title insurers. The straw buyer usually ends up with destroyed credit when the mortgage goes into foreclosure because payments are never made. The victims here are the clueless straw buyers and banks. Core Logic, a real estate data and analytics firm, estimates that mortgage application fraud is at its highest level since the bubble of “liar’s loans” during the subprime housing crisis which helped precipitate the Great Recession of 2008.
Reverse mortgages can be a legitimate loan product insured by the Federal Housing Authority. While tapping into the equity in a home may allow an elderly homeowner to stay in their house, reverse mortgage offerings are rife with scammers. Senior citizens need to be vigilant when seeking reverse mortgage products and only deal with accredited organizations. According to the FBI, in many of these scams seniors are offered free homes, investment opportunities, and foreclosure or refinance assistance. They are also used as straw buyers in property flipping scams. Unsuspecting seniors are frequently targeted through local churches and investment seminars, as well as television, radio, billboard, and mailer advertisements.
This complex scam typically involves identity theft and forged signatures. False documents are created to make it seem like a fraudster is the property’s legal owner. For example, this fake owner can then take out a mortgage and disappears with the money leaving the real owner and the bank behind to sort out the mess. In one recent Mass-achusetts case, a homeowner signed off on a mortgage pay-off plan with a second signature page, which was then attached to a quitclaim deed to a straw-person. That new owner sold the property to local investors.
In another case, the same scamster, who was indicted in December 2018 on 22 felony counts, used a fake notary to forge a deed and then sold it to investors who took out a $2 million mortgage against the property. The owner only discovered the scam when a locksmith arrived at his house sent by the bank holding the new mortgage.
Foreclosure assistance promises
Foreclosure scams prey on homeowners in trouble. A credible sounding professional convinces the homeowner by phone or email that they can help and offers to negotiate with the property’s lender, perform a forensic mortgage loan audit, stop foreclosure by helping the owner file for bankruptcy, or even buy the owner’s home for a drastically reduced price. For a fee, they often will ask distressed homeowners to sign fake foreclosure rescue or mortgage documents or offer fake legal help all for a fee. These schemes are elaborate and prevalent where houses are “underwater.”
A recent example is a June 2019 case in Westchester County, NY, indicting a team of individuals holding themselves out “as a business that would investigate and eliminate mortgage loans in exchange for fees. In fact, however, they were engaged in a wide-ranging scheme to defraud clients, county clerks’ offices, and banks.” These white-collar criminals make targeted phone calls, advertise online and in local publications, and even distribute flyers. They want your money, your information, and maybe your home. If the homeowner is lucky they pay a fee for help and never hear anything more, but worse is actually losing your home and equity.
Reporting real estate scams
You should report all real estate scams to the Consumer Financial Protection Bureau, and the Federal Trade Commission (FTC.gov/complaint). If it involves bankruptcy, contact your local US Trustee office.
You also can call your local law enforcement agency, the FBI, and your state’s Attorney General.
The best protection against real estate scams is to select a trusted real estate broker and lawyer. There’s not much you can do after your money is gone, so protect yourself at every step and ask questions. We are fortunate in our lightly settled region of villages and small towns to know the professionals we are dealing with, but it’s always a good idea to check and make sure.
Note: This article is not a comprehensive overview of all real estate scams – new ones are being invented every day. Nor does it cover practices which can be financially damaging, but are not illegal like TV touted expensive courses and mentoring in how to make millions in real estate for as much as $40,000, shoddy repairs by flippers, etc.
How to protect yourself against real estate scams, basic rules:
- Don’t respond to pressure to act immediately.
- Remember the rule that if it’s too good to be true, it probably is.
- Don’t provide any personal or financial information to an unknown party (driver’s license, date of birth, social security number, bank or credit card account).
- Don’t click on any file sent to you by an unknown party.
- Don’t email financial information. Guard your online presence.
- Do check the identity of all people you are dealing with.
- Always avoid paying in cash or wiring money.
- Poor English, grammatical errors, and odd syntax appear on listing site or in email.
- Landlord claims to be out of town working for the UN or the military, or on missionary assignment.
- House unavailable for showing.
- Phone calls made at odd hours indicate that scammer is calling from another time zone.
- Upfront deposits are requested to hold rental property especially by wire via Western Union or MoneyGram.
- Rent is too low for the property. Too good to be true.
- Fake realtor asks rental payments be made to him/her rather than owner.
- Photographs on internet are suspicious – either lacking or taken from design magazines.
- Rental application requested before showing house and includes banking, credit, and personal information.
- A fee for submitting a rental application is requested.
When buying, selling, and listing:
- You are advised of last minute changes and asked to wire money to a different account.
- An unfamiliar name of an agent or an attorney claims to be part of the selling/closing process.
- A buyer offers an above market price.
- A seller offers you a “wholesale” price because you are so savvy.
- Closing costs, especially title insurance, are higher than expected.
- Settlement statement arrives late.
Foreclosure or mortgage refinancing:
- Fees requested in advance.
- Protection from foreclosure is “guaranteed.”
- Personal and bank account information required.
- Owner is asked to send mortgage payments to a company that is not their designated loan servicer or to stop making mortgage payments.
- Owner/seller is asked to sign documents that have not been reviewed by an attorney or independent expert.
How to protect yourself:
- Protect all personal information – shred paper records, protect financial information online.
- Work with a legitimate local, registered real estate broker. Ask to see their photo ID identity card and business card.
- Registered real estate agents carry a picture ID indicating they are registered in the state where they are selling property.
- Make sure they are currently licensed in the correct state.
- Do your homework and check on market rates for rentals and sales.
- A real estate agent should make clear whom they are representing, (the buyer or seller) and provide signed documentation.
- Hire a reputable attorney to review ALL documentation – lease, sale, mortgage, title search, etc.
- Always check by phone to make sure you are dealing with the right party and request a phone call confirmation for money-wiring instructions.
- If you are buying, make sure to have a title search by a recommended title company.
- Purchase title insurance, which offers financial protection from false impersonation and improperly recorded legal documents.
- Ask for HUD-1 settlement sheets prior to the closing to make sure all charges are legitimate.
- The best way to get help with your mortgage is to call the Department of Housing and Urban Development and request a list of qualified housing specialists who can advise. The HOPE hotline available 24/7 is (888)-995-HOPE.
Remember scams and fraud are a rapidly growing global industry and if you aren’t cautious, you may be part of its success.
Christine Bates has written about real estate since Main Street’s first issue. She is a real estate professional, licensed in Connecticut and New York with Sotheby’s International.