Beware the Vacant Property Scam: Criminals Leave Plenty of Clues
Title agents across the country have seen an uptick in vacant lot scams over the past year, where criminals pose as the property owner and attempt to sell a property to unsuspecting buyers.
This is not a new scam, but it is once again on the rise, and we need to remain hypervigilant.
To help you identify and thwart these fraudulent property sales, we’ve pulled together information about how the schemes are conducted, red flags to be aware of, action steps you can take to verify property ownership, and documentation and proofs you need to verify the seller has the right to sell the property.
In January, ALTA issued an advisory outlining the scheme.
According to ALTA, these scams often begin with a fraudster searching public records to identify real estate that is free and clear of mortgages or other liens. They focus on property not occupied by the owner. This can include vacant lots, out of state ownership, or rental properties where the owner does not live on premises. In addition, elderly owners are often targeted.
After gathering the pertinent information from the public records, the fraudster, posing as the owner, contacts a real estate agent to list the property for sale.
The fraudster often lists the property below the current market value to realize a quick sale. Once the transaction is concluded, the funds are then transferred to the criminal. The ownership discrepancies are often not identified until the documents are filed with the county.
Fraudsters often use several tactics to keep the professionals handling the transaction at arm’s length from the seller. Here are a few potential red flags that may alert you to a fraudulent transaction:
- Communications are conducted through email and digital means, never in person.
- The fraudster seeks to push the sale through quickly.
- Often, a preference for a cash close is indicated.
- The scammers refuse to sign in person but demand a notary closing, often insisting on making those arrangement themselves with “their favorite notary.”
- Sales proceeds are directed to be disbursed to someone other than the person in title.
Always follow your instincts if something seems unusual in a transaction involving vacant or unoccupied property and ask plenty of questions.
Jean E. Bailey, Vice President and Southwest Regional Underwriting Counsel for Alliant National, noted that the Texas Land Title Association has started a fraud task force after a single agent in the state reported several cases of fraudulent sellers, including one that involved a property worth $2.8 million.
“All the usual elements were there – only communication through email or text, no phone calls, or if there were phone calls, they were from burner phones,” she said. “They also included mail out closings or remote/e-closings, even if the owner resided in the same area as the property.”
An Ounce of Prevention
Agents can take steps to ensure a vacant land sale is legitimate, including making an effort to investigate the property, research the owner of record, and verify the identity of the seller and their forms of identification.
Investigate the Property
Early in the process, it’s a good practice to determine whether the property being sold is vacant. The preliminary title report will show if the property is mortgage and lien free. Contact the real estate agent to ascertain if they have been to the property or met with the owner in person.
Recently, a title agent became suspicious of a transaction and took the precaution to drive to the vacant property and interview neighbors. She discovered that the true owner was not trying to sell the property and reported the scam to the police.
In one reported case, the true owner discovered potential buyers walking through her vacant lot and inquired what they were doing. When they informed her they were buying the lot, the property owner assured them it was not for sale. If a property owner contacts you or the real estate agent about a suspected fraud, take the report seriously and conduct your own investigation.
Inspect Suspicious Deeds
Sophisticated fraudsters will sometimes record fraudulent deeds, transferring property to themselves or a shell company to maintain their anonymity. They often target property that is obviously not being maintained, left vacant or not properly transferred to heirs after the death of the owner.
Often the “new owner” will attempt to sell the property quickly, so a recently recorded deed is a predictable red flag in these transactions.
Establish Seller Identity
It’s worth the effort to independently research the identity of the seller, especially by trying to locate a picture of the owner of record or establishing the age of the seller.
One recently reported scam was discovered because the title agent working on the transaction identified the owner as an elderly woman, while the seller who had contacted the real estate agent was much younger, raising suspicions about the legitimacy of the seller.
An Alliant National agent in Ocala, Florida, became suspicious when asked to close a transaction for a half-acre plot of vacant land. They contacted the owner of record directly about the sale and instructed them to call their office if they were not, in fact, selling the property. The agency’s suspicions turned out to be correct, as the owner called back immediately, provided two valid forms of photo identification and scheduled a video conference call to discuss the matter. Conversely, the fraudulent seller was asked for the same items and never responded, putting an end to the transaction.
Review a purported seller’s signatures on all documents, including the listing agreement and disclosures, making sure they are consistent with documents of record.
If the seller is a foreign owner, and a passport is used for identification, check with the country’s passport agency to verify the legitimacy of the passport.
If you are suspicious, you may want to consider requiring a second form of identification when conducting the closing.
Manage All Notary Closings
Be wary of a request by a seller to choose their own notary. It’s a best practice to insist upon using your trusted closers or closing attorney. You may also want to consider requiring a remote online notarization. If the seller refuses to agree to this form of closing, that may raise a red flag as well.
Report Suspicions to Management and Underwriter
If you suspect a transaction is not legitimate you should contact your manager or agency owner immediately. Based on the facts of the transaction, they may determine it is appropriate to alert other closers and staff to make them aware of other possible schemes they may encounter.
Remember that while you may suspect fraud, until that is proven in a court of law it is only a suspicion and you should not share your concerns outside of the office.
Bailey said this is especially true when dealing with the real estate agent or lender handling the transaction.
“We should not tell a real estate agent or lender that we think there may be fraud in the transaction, because that could result in a claim for slander,” she explained. “It may be sufficient for the underwriter to decline to insure and to have the agent then decline to insure. If a commitment has been issued, the agent should rescind all issued commitments.”
While you must avoid discussing suspicious situations you encounter with the real estate agent or lender, Bailey said you should immediately alert the underwriter.
“It is important to tell the underwriter all the details of the fraud, including the names of all parties and real estate agents, the property address, and any other pertinent information,” she advised. “In addition to alerting the underwriter on the specific transaction, it is advisable for the agent to contact all the underwriters on which they issue policies. The more people who are made aware of these transactions, the more likely fraud can be stopped.”
Bailey noted that the Alliant National underwriting counsel may be able to offer assistance in investigating the parties involved, to ascertain if they are active entities and if the persons purporting to be acting for the entity are actually involved with the entity.
“We may be able to perform credit checks or other searches on the parties that may yield additional information,” she said. “In addition, we may already have knowledge of the scheme, or the persons involved, and be able to inform the agent whether they are right to be suspicious. Sometimes we can even let them know that the transaction appears to be legitimate.”
If there is actual evidence of fraud, the agency owner or manager should contact local law enforcement, especially if fraud is active in their area or they have had more than one occurrence.
County Alert Systems
Vacant lot fraud has been particularly rampant in Florida and Texas. Many counties in those states have established property fraud alert systems, for example the Tarrant County, Texas, Property Fraud Alert, which encourages property owners to request notification from the county recorder if any documents are filed against their property. New deeds, liens or other legal documents would trigger an alert to the owner. As Tarrant County points out on their website, the system will not prevent fraud from happening, but does offer an early warning system that will allow property owners to take appropriate action should they believe fraudulent activity has occurred with their property.
In Florida, several counties have also implemented a similar fraud alert system. Check with the county in which the property is situated to see if this program is available. In addition, Florida is currently considering legislation that would make these alerts mandatory for all property owners.
Follow Your Instincts
Title agents are skilled at ferreting out fraud of all kinds in real estate transactions. Often, the number one indicator is your own instinct that something is off. It could be a buyer who is overjoyed at getting a phenomenal deal on a property that raises your suspicions. Sometimes it is the odd way in which a transaction is progressing. Anything out of the norm should be investigated to ensure the validity of the transaction.
At Alliant National, our underwriting team is here to assist you in thwarting any suspicious activity. Call us if you have any questions or uncertainty about a transaction so that we can work with you to verify the facts at issue.
Tags: fraud, real estate