Buying a home or refinancing a mortgage is stressful enough on its own. The last thing you should worry about is getting scammed during this process.
Unfortunately, that’s exactly what happens to many home buyers and homeowners these days. In 2018, real estate frauds affected 11,300 victims, an increase of 15% from 2017. These frauds resulted in close to $150 million in losses.
To make matters worse, real estate scammers are proving hard to catch. Their methods of targeting consumers are also getting more creative. In some cases, all they need is to find someone conducting business on a public WiFi connection.
When it comes to fraud in real estate transactions, prevention is still the best medicine. Here are four common scams and how to avoid them.
- Loan Flipping
The fraud: This scam consists of persuading a homeowner to keep refinancing their mortgage. With each transaction, the scammer charges higher fees and points. The homeowner may end up with a higher loan payment that he or she can afford.
Seniors with cognitive issues are often vulnerable to these frauds. For starters, they’re more likely to have significant home equity. Predatory lenders may convince them that they need a better loan product or a cash-out refinance.
The solution: Homeowners at risk of getting scammed should involve trusted people in financial discussions. This is particularly true when it comes to home equity. If a lender keeps reaching out to you, that’s a solid indicator that something’s off.
To avoid any risks, work only with reputable banks and lenders. Keep in mind that a lender must provide disclosures listing all fees and costs. If you’re refinancing your mortgage, have someone review these documents carefully.
- Rental Scams
The fraud: Many scammers post property rental ads on social media or Craiglist. Since they have no connection to the property, they’ll likely use photos from other listings. When someone wants to see the property, they ask for an upfront payment.
Though they’re not a new phenomenon, rental scams are becoming more and more common. Recent surveys say that more than 5 million Americans have lost money in a rental fraud. Younger renters (aged 18 to 29) are the likeliest victims.
The solution: Don’t trust any renter who asks for an upfront cash deposit of any kind. If someone does that, make sure they’re the real property owner. Try to find their contact information online or look at the local property appraiser’s website.
No matter what, don’t do transactions via phone or email. Schedule a face-to-face meeting to confirm the property ownership and make the payment. Use a check rather than cash — that way, you’ll get an automatic receipt.
You can also use a deposit platform to make your payment. If you opt for this method, make sure you’re using an earnest money deposit platform.
- Escrow Wire Fraud
The fraud: Did you get an email from an escrow company telling you where to wire your funds? If so, you may be a potential victim of real estate escrow fraud.
You can recognize these scams by taking a closer look at the link to the website. Though it will appear like a link to the company you’re working with, it won’t be the same. One number or letter will be different, which is easy to miss at first glance.
If you go through with the instructions you received, the fraudster’s job is already done. They will withdraw your funds from an offshore account and disappear. If they play their cards right, you will have very few options to retrieve that money.
The solution: Before clicking on any links or sending money online, verify wire instructions with a live person. You can do that by looking at the documents your lender originally gave you. Go through them and call the phone numbers listed there.
You should watch out for any changes to your existing wiring instructions. If you have to wire money, confirm the escrow account number beforehand. After you’re done, verify the transfer by calling your settlement agent.
- Foreclosure Relief
The fraud: Did you know that pre-foreclosure listings are public record information? Scammers know that very well and will use that information for nefarious purposes.
In this case, they target homeowners who fell behind on their mortgage payments. Many of these people are desperate, which plays into the scammer’s hands. They’ll offer to reduce the homeowner’s mortgage payments for an up-front fee.
For this to work, fraudsters need to appear as legitimate as possible. For instance, they might claim they’re affiliated with housing assistance programs. Homeowners who get swindled this way can lose up to thousands of dollars.
The solution: When it comes to foreclosure-related real estate fraud, it pays to be careful. Your best bet would be to try and avoid foreclosure altogether. Work with your loan servicer to request forbearance or make another arrangement.
If you’re not sure what options you have, consult an experienced housing counselor. Then, have the counselor talk to your lender to find the right solution for you.
If you become delinquent, you might think that speaking to your lender won’t help. Fraudsters know that and may tell you to not speak to your lender. This is a clear red flag. For the best results, you should keep your lender informed at all times.
More on Real Estate Frauds to Watch Out For
As you can see, real estate frauds can be hard to deal with. The more you know about them, though, the easier they’re to avoid.
To reduce your risk of getting scammed, work only with reputable lenders. The best way to find one is through referrals from friends and family members. If you’re an older homeowner (or know one), protect your home equity.
Do you suspect that you’re getting targeted by a fraudster? If so, don’t open any links or respond to the messages they send. Instead, report the issue to the FTC or your local police department.
Want to know more about commercial real estate fraud? Interested in learning what you need to do before applying for a mortgage? Check out our Finance archives!