With thousands of first-time homebuyers entering the property market each year, real estate scams are an unfortunate reality. Most scams involve mortgage fraud, but other scams, such as rental and wire fraud, also claim thousands of victims.
Real estate service professionals should know the many scams lurking in the real estate market. If a transaction feels “off” to you, do your due diligence to ensure that you do not sign a fraudulent contract.
How to Recognize Real Estate Scams
Real estate fraud comes in many forms, and they all have a few things in common. Fraud would not be possible without irregularities in the buying process, so be on the lookout for unusual requests or procedures. In particular, be suspicious of any transaction where the seller:
- Cannot provide documentation
- Puts pressure on the buyer
- Makes unrealistic promises
- Requests a wire transfer
Most victims of fraud will have no suspicion that their transactions are improper until it is too late. Scams succeed when victims trust their perpetrators without question. Simply being cautious and skeptical is the first line of defense.
The Seven Most Common Real Estate Scams
While every transaction provides a unique opportunity for a scam, most scams take one of the seven following forms. With these common scams in mind, you can confidently conduct your next real estate transaction.
Wire fraud scams are some of the hardest to recognize because they exploit a buyer’s trust in their agent. When a scammer poses as a legitimate Realtor, it can be challenging to recognize the potential scam.
A scammer will typically use illicit software to mimic a realtor’s email address or phone number with wire fraud. Using this stolen identity, the scammer will request a wire transfer for the closing costs of the sale.
Unfortunately, victims of mortgage wire fraud rarely recover their money. To prevent wire fraud, always call the Realtor for confirmation before transferring funds.
Foreclosure Relief Scams
Homeowners on the verge of foreclosure will often receive offers from scammers to refinance their mortgages and save their homes. These real estate scams can be particularly heartbreaking because the victims may lose thousands of dollars and lose their homes to foreclosure.
It may be legitimate and helpful if one receives a home refinancing offers. However, one should not send money to an unknown mortgage refinancing company without due diligence.
Unscrupulous lenders use mortgage scams to defraud elderly homeowners of their home equity, leaving them with excessively high mortgage payments. Sadly, the victims of these scams usually cannot recover their equity or undo the damage to their finances. To avoid this scam, they should always consult a trusted lawyer or agent before signing mortgage paperwork.
Home Inspection Scams
Home inspection fraud can lead an unsuspecting buyer to invest in a substandard property. When an unethical Realtor hires a fake inspector to create a legal home inspection report, the fraudulent report may omit severe problems with the property. Later, when these problems become apparent, the unlucky buyer will have no choice but to pay for repairs.
Rental scams are prevalent, and they are one of the easiest types of real estate fraud to avoid. Scammers post fraudulent listings on rental websites, luring inexperienced renters into a trap.
These scams succeed only when renters pay upfront for a property before seeing it. With due diligence, you can avoid falling victim to a rental scam.
Deed or Title Fraud
Deed or title fraud occurs when a trusted overseer illegally transfers property into his or her name. This type of fraud is serious because it can potentially result in millions of dollars in losses. If one trusts an overseer to manage the property, take extra precautions to protect against real estate scams in this category.
Commercial Real Estate Fraud
Commercial real estate scams are quite common and diverse. Usually, the perpetrators of these scams are the property owners or managers themselves.
From bookkeeping fraud to the misappropriation of funds, financial crimes in commercial real estate can draw the attention of the IRS. As with deed or title fraud, these scams can hurt the owners who trust overseers to manage their properties.
How to Avoid Real Estate Scams
The risk of falling victim to real estate scams is real, but it should not cause excessive worry. One can easily avoid scams by constantly vetting agents, sellers, renters, and buyers.
Commercial and rental property owners who hire overseers to manage their properties must be extra vigilant. In this case, the risk of deed or title fraud is linked to the risk of identity theft.
When a trusted agent commits fraud or identity theft, it can significantly dent a credit score. To reduce the risk of falling victim to a scam, keep the following tips in mind:
- Work with only vetted and licensed professionals
- Protect personal identity information
- Advise against paying hefty upfront fees
- Be suspicious of last-minute changes
- Do not close an off-market transaction
If you think you have been the victim of a real estate scam, notify the FBI immediately. Next, notify the local authorities to begin recovering money or property. Additionally, a complaint with the Federal Trade Commission can prevent others from falling victim to the same real estate scam.
Real estate scams are plentiful in today’s housing market, so be alert and cautious in all your transactions. Report scams to the authorities to help make the market safer for everyone.