Real Estate Scams To Avoid
There is no denying that buying real estate is an expensive transaction. With the average price of a home reaching hundreds of thousands of dollars, that much money attracts some people that are trying to make a quick buck rather than help their fellow man.
With so much money at risk, there are real estate scams to watch out for regardless of your tax bracket, your neighborhood, or even your background. The following scenarios will help you to be better informed, no matter if you are a buyer or seller, and hopefully, help you avoid a major financial problem.
Real Estate Scams Against Home Buyers
Deed or Title Scam
Fraud experts consider a typical deed scam, or a home title scam, as a type of identity theft. This type of scam puts the home buyer in a position where they do not own a home, even though they signed all the papers and took out a loan for the home.
The deed spells out who is the current owner of the property. A deed will include items such as the name of the person or persons selling the home, the name of the buyer or buyers, the kind of deed, and a detailed explanation of the property.
Once the deed is signed by buyers and sellers, it will be recorded in the appropriate county clerk’s office.
There are a few ways that someone can trick a buyer with the deed.
First, a person can pretend to be the owner of the property with a fake id. Another way is for a person to claim that they are a designated representative of the property, such as an attorney or manager of a trust fund.
The person may even go so far as to hire a person with a notary and bribe them to go along with the scam.
Protecting against deed or title scam: The first step in protecting your financial interests is to reach out to established professionals in the real estate world. A competent and legitimate mortgage lender, along with a good real estate agent will be your first stop. These professionals will then connect you with a local real estate lawyer, or local escrow service, that will handle the research of the title. The attorney or escrow will have an insurance policy to protect against errors and other problems to protect you just in case there is a problem with the title.
Wire Payment Scheme
This is a technological related scheme that has gotten more common in the past few years, and it can result in thousands of dollars being ripped off from the buyer.
The person in charge of the crime will get some details about one of the parties involved in the home purchase. It could be the escrow service that is handling all of the closing documents, or it could be the mortgage company offering the loan, or even the real estate agent that is either the selling agent or the buying agent.
After the scammer chooses which party to represent, they will then use a false email system. This false email system will look authentic to the buyer since it will have an address that is tied to the appropriate company and will have an email signature that appears legitimate.
The email will contain instructions for wiring funds to a particular account. The reason may be for the down payment or closing costs or some other truthful sounding reason.
Without hesitation, the buyer will follow the instructions and lose their money to the fraud.
Protecting against wire payment fraud: Buyers should always be wary of any sudden instructions that arrive by email to send money. Before sending any money to any account, the buyer should get in touch with their main point of contact, preferably by phone, and verify how they are supposed to pay along with the amount.
In most cases, the escrow service will ask the buyer to bring a cashier’s check to closing and will provide the amount in writing the day before closing. This gives the buyer time to make arrangements with their bank to get the funds.
Property Inspection Scheme
The inspection report of a home can be a valuable piece of information. It shows the current condition of the house along with any problems. However, if the inspector turns out to be a shady character or someone that was bribed by the seller, then the report could be worthless.
One example is that the seller could pay the inspector extra money to either ignore an issue or omit it from their property report. Or a real estate agent that is concerned with just making the sale could pay off the inspector.
Some inspectors simply do a bad job of reviewing homes and looking for problems.
Any of these situations can lead the buyer to purchase a home that may have some significant problems that require immediate attention.
Protecting against inspection schemes: Always do your homework on any person involved with the buying of your home. Look up their company in the Better Business Bureau and see if they have any open reports or criminal activities.
Thanks to social media and the internet, it is also possible to look at things like Google Reviews and Facebook Reviews on a company. If the company has high praise from the vast majority of its customers, then the company is likely doing a good job of executing its duties according to the local real estate laws.
Unfortunately, some mortgage lenders do not have the best interests of their clients at heart. They simply want to earn a dollar, even at the financial and credit expense of their customers.
These lenders will have a variety of ways to trick buyers out of their money.
First, they will make promises to get any buyer qualified for a home mortgage. This will usually be followed by a request for an unusually large payment upfront to secure the loan.
Next, the borrower will find out that they are approved for the loan, but at an interest rate that is much higher than other current mortgages. Along with the high rates, the borrower will find out that if they sign the loan, there are large penalties for late payments, escrow payments, and early payoff of the mortgage.
Some of these lenders even add a life insurance policy to cover the payoff of the loan in the event of the borrower’s death. The policy will also be highly inflated and factored into the loan payments.
Protecting against bad mortgage lenders: Talk to your real estate agent and ask them who they recommend for a mortgage loan. Most agents will have 2 or 3 lenders that they trust and have worked with in the past. Rely on this relationship and do a little bit of research on your own, as mentioned previously. Lenders that have a bad reputation as being less than honest have that reputation for a reason.
Real Estate Scams Against Home Sellers
Some buyers have managed their money well and are in a position to buy a home without the need for a mortgage. However, there are also quite a few scammers that claim they wish to buy a home quickly, and with all cash, but that is a bit misleading.
A current homeowner that is facing a tough financial situation and needs to sell their home fast may think that a cash buyer is a solution to their problems. However, the scheme is designed to help the buyer, not the seller.
The buyer of the home will visit the property and do a visual inspection while gaining information from the seller. The goal is to try to buy the home way below the current market value, sometimes as much as 50% below the value. This gives the buyer lots of equity and the ability to resell the home quickly for a profit.
The seller, in the process, does get rid of the home but they lose all of their built-up equity by taking a quick cash offer.
Protecting against cash scams: Sellers should ask the buyer why they are purchasing the home. If it is for their personal use, and they are offering a price at or near the home’s selling price, then it could be an authentic offer.
However, if the offer is way below market price, or the buyer is more interested in your financial situation than the condition of the home, then it is likely a trap.
Scammers Posing as Professional Movers
Moving a lot of furniture, boxes, personal belongings, and other things can be quite a chore. This is the reason that so many people willingly hire a moving company to do the majority of the work.
But there can be an issue if the moving company is either not very good at their work, or simply running a scam.
The most common scheme is for the movers to provide an estimate to the home seller. Then, after the workers have arrived and are in the process of loading the belongings, they discover that they did not quote a high enough price to cover all the work.
The trucks pull off with the belongings, and then someone stays behind to demand more money from the home seller. The belongings are not being transported to the new home, but to some other storage location. The items will be kept there until the extra fees are paid.
Protecting against moving schemes: Only deal with a reputable moving company that is licensed in your area and has appropriate insurance. Check their history, their reviews online, and make sure to get a firm price in writing before agreeing to let them pack your belongings.
Fake Real Estate Agents
We started this article by explaining just how expensive a home transaction can be and how this attracts various types of scams. The easiest scam is for someone to pretend to be a real estate agent so they can earn a heft commission on the sale of a home and leave you with regret and possible financial problems.
A person may approach you to assist you with selling your home. They get lucky and find some buyers, help you write out a contract to sell the place, and then collect their fees when the home sells.
However, if the person does not have a license to work as a real estate agent, the contract used to sell the home could be faulty, or even illegal. An illegal contract could make you the victim of a lawsuit not just from the buyer of the home but also from the mortgage lender.
Protecting against real estate agent fraud: Only agree to work with a real estate agent after you have researched the person. Find out how long they have worked as an agent, get copies of their license, and check around with other sources. Your mortgage lender and local escrow service will likely know if the person is a legitimate agent or not and can give you advice on who you should be using as your agent.
Home Remodel or Improvement Scheme
Sometimes a homeowner will decide to do some renovation work to make the home more appealing for a profitable sale. Unfortunately, there are some contractors and service providers that will see this as a quick way to get cash from an unsuspecting sucker.
The scams can appear in different ways. A contractor may review the home to determine what work needs to be done based on the homeowner’s request. Then, during the conversation, the contractor may strongly urge additional work, stressing that it will make the home safer or that it is necessary to comply with the local construction code.
Another scheme is for the contractor to uncover some kind of major problem that will require a lot of extra work, and money, to repair.
This usually means that homeowner spends way too much on the repair and renovation work and that they are not able to recover most of the expense when they sell the property.
Protecting against home remodel scheme: A quality contractor that has been in business for several years will have a reputation in their local town. Check out the contractor by contacting the Better Business Bureau as well as checking the online reviews via Google and Facebook. This should give you enough information to determine which contractor to use for your project.
Being alert to these scams and preparing yourself for any scheme that someone might try to pull on you will help you to do a better job of investigating the people involved with your home transaction and likely prevent you from making a huge mistake.
About the author: This article on “8 Home Buyer and Seller Scams To Avoid” was written by Luke Skar of MadisonMortgageGuys.com. As the Social Media Strategist, his role is to provide original content for all of their social media profiles as well as generate new leads from his website.
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