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Real estate transactions can be complicated with many moving parts and can give you plenty to think about. Until closing day, your life revolves around interest rates, inspections and paperwork. So. Much. Paperwork.
We’re going to add one more thing to the list: real estate scams.
Yes, scammers are everywhere. From small-time application-fee thieves to predatory lenders, they’re a genuine concern – especially if you’re inexperienced or dealing with a stressful financial situation.
The good news? When you’re vigilant and armed with the right information, you can stop scams before they happen.
What Are Real Estate Scams?
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Real estate fraud and scams happen when someone uses deceptive tactics to take your money or your property.
There are many kinds of real estate scams, including mortgage scams, property sale scams, inspection scams and wire fraud. Real estate scams can happen at any point in the buying, renting, selling, investing or financing process, from the initial listing to a future refinancing.
In many cases, criminals use the internet. The FBI reported that more than 13,600 people were victims of online real estate scams in 2020 alone.
How Can You Spot a Real Estate Scam?
Scammers usually target people who are inexperienced or dealing with challenging or stressful situations. Are you planning to buy, sell, rent or refinance a property? Protect yourself – and your hard-earned money – by learning how to spot real estate scams.
Watch for these warning signs. They’re almost always red flags!
Reputable companies won’t typically seek you out directly. If you get a phone call or a home visit, proceed with extreme caution – especially when it comes to things like cash-out refinancing, home repairs and foreclosure assistance.
Lack of documentation
Real estate is all about the paperwork. If the person you’re dealing with won’t provide legitimate legal documents – such as a title, deed or inspection report – run the other way.
Pressure to act fast
If a company is pressuring you to sign quickly, it’s probably because they don’t want to give you time to think. They want to rope you in while you’re stressed, confused or overwhelmed.
Buying a home is rarely a fast process. You need the time to read each contract and understand what you’re agreeing to, preferably with the help of a real estate attorney.
When something seems too good to be true in real estate, it usually is. Listen to your gut. If something feels wrong, it merits more research.
Found a refinancing with an unusually low interest rate or a big cash offer? You can bet there are high fees hidden somewhere in the contract, or it’s a scam.
Demands to wire money
Reputable real estate or mortgage companies will never demand that you wire money without a legal contract or another guarantee – that’s a scammer’s trick. Any time you transfer funds, take time to verify the details. If the company is reputable, they won’t mind this due diligence.
What Are 10 Common Real Estate Scams To Look Out For?
A real estate scam artist will usually want one of three things: your money, your property or your identity.
That sounds easy to avoid, right? You might be surprised. Scammers have creative ways of getting what they want from homeowners or potential home buyers. Keep an eye out for these common scams.
1. Wire fraud
In a wire fraud, a scammer steals money by posing as your lender, escrow company or title company.
This kind of fraud usually happens over email or phone. The scammer will give you instructions for sending your down payment. Your money goes to an offshore account, where it’s hard to track.
The only way to avoid wire fraud is to stay vigilant. Check email addresses and URLs carefully, and always call your mortgage lender or mortgage servicing company directly to verify the details before sending money.
2. Predatory loans
When a lender uses misleading tactics to get you to borrow money with unreasonable terms, it’s called a predatory loan. Predatory lenders may try to scam you into accepting high interest rates, hidden fees or other unfavorable terms.
Predatory lenders are aggressive, often using intimidation and pressure. They want you to sign quickly, so you don’t have time to look too closely at the terms or shop around for better offers.
Not sure if a loan is above board? Look for these red flags:
- Guaranteed acceptance
- Excessive fees
- Inflated interest rates
- Unrelated add-ons, such as life insurance policies
- Extreme advertising, including door-to-door sales
3. Moving scams
Moving is stressful and overwhelming – it’s the perfect time for a scammer to strike. Fraudulent companies take advantage of the situation to pull off tricks homeowners wouldn’t ordinarily fall for.
Sometimes, the fraudulent company takes your deposit and disappears.
Or, the movers arrive and surprise – the online quote was wrong. You’re going to have to fork over an additional $5,000 or risk losing the deposit. They’re betting you’ll pay up to avoid getting stuck with your belongings in boxes and a looming move-out date.
To avoid getting scammed, check the complaint record and registration status for each company and make sure to get a quote in writing.
4. Home inspection scams
Most home buyers rely on the inspection to identify structural issues and other hidden problems. If the inspector is a scammer, you could end up buying a money pit.
How does it work? The “inspector” might just glance around the property quickly and call it a day. Sometimes, they’ll reel you in with a low fee and send an unexpected bill later.
To find a reputable inspector, choose professionals with:
- Verifiable credentials
- Guaranteed results
- Errors and omissions (E&O) insurance
- A solid reputation
- Proof of training and experience
- Detailed inspection reports
5. Loan flipping scams
Loan flipping happens when a lender convinces you to refinance your mortgage repeatedly, with no benefit to you.
At first, this scam seems legit. A lender reaches out with a refinancing offer: “Interest rates are at a historic low, so why not put your home equity to work for you?”
After signing, you start to make unpleasant discoveries.
That great low interest rate? It comes with a high upfront fee. Oh, and in exchange for lower monthly payments, you’re looking at a huge balloon payment in 5 years.
Lenders know you can’t afford these fees, so they make yet another refinancing offer. You end up borrowing more money, and before you know it, you’re left with high payments and low equity.
6. Foreclosure assistance scams
During a foreclosure scam, someone offers financial assistance to help you keep a house you’re at risk of losing. In the process, they take advantage of your struggles to trick you into:
- Paying fees to negotiate with your lender
- Accepting a leaseback agreement with unfair terms
- Signing over your house
Some scammers find you through public preforeclosure records, while others set up foreclosure relief sites and wait for you to reach out.
7. Title or deed fraud
Title or deed fraud starts with identity theft. The scammer impersonates you and transfers the deed and title to someone else – all without your knowledge. Then, they try to sell or rent the home.
Sometimes, thieves forge documents and take out loans in the homeowner’s name, using the property as collateral. When they fail to pay, the lender comes after your property.
8. Rental scams
Rental scams are common in competitive markets. The person steals photos and walkthrough videos from real estate websites and uses them to set up a fake listing. Then, they charge a fee to set up a showing, submit an application or hold the home.
In some cases, people pay thousands of dollars to lease a property that’s not even for rent.
Ways to avoid rental scams:
- Search for the address and contact name
- Run an image search to see if the photos appear in other listings
- Ask for a live FaceTime walkthrough or in-person tour
9. Real estate agent frauds
Yes, even real estate agents can be scammers. Real estate agent frauds can happen when:
- Someone poses as an agent and takes your deposit for unavailable properties
- An agent lies to get a sale and a commission
- Agents refer you to fraudulent inspectors in return for a fee
To spot fake real estate agents, use your state’s license-lookup tool. Legitimate agents are required to maintain a current license.
10. Real estate investment course scams
Seminars and online courses can be a legitimate way to learn about real estate investing, but they’re also a common spot for scammers to hang out.
On these sites, sketchy “teachers” reel you in with a free session. Once you’re hooked, they’ll sell you on an expensive system or coaching plan. More often than not, you’ll wind up with a big credit card bill and no real estate investments.
So how can you tell when a seminar or course is a scam? Keep an eye out for claims that are too good to be true – they probably are. Other things to watch out for include high-priced “exclusive” systems, teachers with no verifiable experience and educational seminars with a hard sell.
How Do You Avoid Real Estate Scams?
With so many housing scams to watch out for, the world of real estate can feel scary. We get it – but don’t panic. With a thoughtful approach, you can avoid scams.
- Hire a lawyer or financial professional to review contracts
- Never give out personal information or send money without verifying the recipient
- Push back on upfront fees – they’re a common scammer trick
- Avoid off-market transactions to reduce your risk of buying a property that’s not available
- Do a scammer check by verifying the license of every real estate professional
Be wary of “we buy homes” scams. In a house-buying scam, the scammers pretend to buy houses, but their real goal is to gain control of your property without paying. Then, they rent it out to another person.
What Do You Do When You Think You’ve Been Scammed?
Real estate scams aren’t fun, but they happen. If you’re wondering what to do when someone scams you out of money, start with a few key actions:
- Call your mortgage servicer and explain what happened
- Report the scam to your local police department, especially if it involves identity theft
Although you might not be able to recover your money, your mortgage servicer and law enforcement officials can help prevent further financial loss.
Ways to report real estate fraud and scams
Real estate fraud and predatory lending practices are illegal in many states. Increase your chances of bringing the perpetrator to justice by reporting the scam.
- File a fraud report with the Federal Trade Commission (FTC)
- Report identity theft to the FTC
- File a complaint with the Better Business Bureau
- Report predatory lending to your state’s attorney general
- Contact the consumer protection agency in your state
Outsmart the Scammers
Awareness and education are the enemies of scammers everywhere. When you know about common real estate scams, you can avoid them like a pro.
Any time you buy, sell or rent a property, we recommend proceeding with caution. And never give out personal information to someone you don’t know is legit.
Read those contracts carefully. Review the terms with your financial advisor or lawyer. Make sure your lender or real estate agent is the real deal.
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The Short Version
- Real estate scams can happen at any point in the buying, renting, selling, investing or financing processes, from the initial listing to a future refinancing
- Scammers usually target people who are inexperienced or dealing with challenging or stressful situations
- Predatory lenders may try to scam you into accepting high interest rates, hidden fees or other unfavorable terms
FBI Internet Crime Complaint Center. “Internet Crime Report 2020.” Retrieved April 2022 from https://www.ic3.gov/Media/PDF/AnnualReport/2020_IC3Report.pdf