Share the Message: Real Estate Participants Are Prime Targets for Fraud
If there is a buck to be made, fraudsters will figure out how to lie, cheat, steal, swindle, hoodwink, dupe, con and bamboozle their victims in an effort to drain the bank accounts of homebuyers and sellers, lenders, title agents and real estate agents.
The first step in defeating the criminals is to understand the types of schemes that are afoot. The next step is to educate parties to the real estate transaction, to raise awareness of potential scams, and identify the warning signs.
Here is an overview you can share outlining the most common real estate industry schemes that participants may encounter.
Mortgage fraud scams
There are two basic types of mortgage fraud: fraud for profit and fraud for property.
Fraud for profit often involves real estate professionals or investors, for instance:
- Property flipping, where an investor purchases a property and then quickly resells it at a profit after acquiring an inflated appraisal.
- Equity skimming, where a team of fraudsters using straw buyers and false documentation acquire – and often quickly transfer a property – for the purpose of collecting rent without ever intending to pay the mortgage or property taxes, eventually letting the property fall into foreclosure.
- Air loan, where a fraudster uses a straw or non-existent buyer to acquire mortgage funds for a non-existent property.
- Appraisal fraud, where a real estate agent pays off an appraiser to inflate the value of the property for the purpose of increasing their commission.
Fraud for property often involves a buyer providing false information to qualify for a mortgage, for example:
- The borrower falsifies employment verification letters or uses stolen pay stubs or tax returns.
- The borrower steals someone else’s identity, including Social Security numbers, birth dates, and addresses, to acquire a mortgage.
Real estate scams
In a real estate scam, a fraudster swindles the buyer by misrepresenting the value of the property or by selling a property they do not actually own. Here are a few examples:
Home inspection scams: A fake home inspector is hired to perform an inspection for the purpose of deliberately hiding potential problems with the property.
Vacant lot scams: A fraudster identifies an empty lot free of liens – and often owned by an out of state owner – then pretending to be the owner, lists the property with a real estate agent. The fraudster often lists the property at below market value to ensure a quick sale.
Fraudulent deed scams: Through identity theft or fraudulent deed transfer, the scammer transfers title to a property to themselves and then sells the property out from under the true owner.
Fraud against consumers
Consumers are the most vulnerable targets when it comes to fraudulent activity in the real estate transaction because they generally are not aware of many of the schemes used to infiltrate the deal or prey on their ignorance. Wire transfer fraud and foreclosure rescue schemes continue to be the most damaging and costly to consumers.
Wire transfer fraud is the most devastating of all consumer fraud schemes, as it often wipes out the assets of the individual homebuyer or seller. In a wire fraud scheme, the criminal often infiltrates a real estate transaction through email phishing tactics, then poses as a participant in the transaction for the purpose of convincing the buyer or title company to divert funds to a fraudulent account.
Foreclosure rescue scams are also on the rise. Here are four different tactics fraudsters employ:
Negotiation fake out: The fraudster takes money from a distressed homeowner promising to negotiate an agreement with the servicer or lender and then fails to provide any meaningful assistance.
Bait and switch: The homeowner is asked to sign documents purportedly to bring the mortgage current but in actuality the owner unknowingly signs a document transferring the deed to the fraudster.
Rent-to-own: The homeowner signs a deed to the scammer under a rent-to-own agreement believing they will be able to buy the home back, but instead the fraudster sells the home without the knowledge of the owner.
Equity skimming: The owner signs a deed to the fraudster with the promise they will profit from a refinance, but instead, the fraudster leases back the property to the owner, pockets the owner’s money and eventually lets the property fall into foreclosure.
Text, email or phone scams
Of course, you don’t need to be actively involved in a real estate transaction to be the target of criminals. Text, email and phone scams are also on the rise and victims fall prey to these schemes in alarming numbers. Recent homebuyers and sellers may be particularly vulnerable to these types of scams amidst the commotion of moving and changing information to reflect new residences.
Here are a few of the most common:
Bank fraud alerts: You may receive a text, email or phone call alerting you to “suspicious activity” in your bank account. You may be asked to provide sensitive information to verify your identity or be invited to click on a link that leads you directly into the hands of the fraudster for the purpose of identity theft or getting access to your account.
Delivery problems: We are so accustomed to getting alerts from our delivery services, whether it is the U.S. Postal Service, FedEx or UPS, that we don’t think twice before clicking on a link that alerts us to a delivery problem or delay. A fake alert may direct you to a website that requests a fee to correct the delivery error or requires you to enter a credit card number or provide information that could lead to identity theft.
Fake Amazon orders: You may get a notice from Amazon or other online retail service impersonators asking you to verify an order that you know you never placed. The fraudster will offer to fix the problem for you, if you will just give them information, credit card numbers, or access to your account, all of which spells trouble if you follow through.
Subscription cancellations: Threats are a fraudster’s most effective tactic. When you learn that your subscription to something you rely on every day is about to be cancelled, i.e., video conferencing solution, anti-virus software or a favorite streaming service, you may not think twice before clicking on the re-subscribe button and providing your credit card information.
“Free” gifts: Sometimes fraudsters pretend to be one of your favorite service providers or shopping sites and offer to send a “free” gift if you will just give them your credit card information to pay for the shipping cost.
Red flags of fraud
Scam artists are very adept at preying on the emotions of their victims. Here are a few red flags to be aware of should someone reach out to you under the guise of one of these schemes:
- They impersonate a company, organization, or government agency you are connected with.
- They instill fear in you by suggesting there is a problem.
- They entice you by promising something free or saying you won a prize.
- They pressure you by insisting that you must act quickly to avert a disaster.
- They require you to provide birth date, social security information or credit card numbers that you know you should never give out.
Fraud schemes like these are successful only when their mark cooperates. In all cases, it is important to slow down and think about what we are being told or asked to do. If your instincts are telling you something is off, it is best to investigate before responding.
If you are concerned that the request that is being made or the information provided may be illegitimate, it is crucial that you reach out directly to the company or individual by a phone number already in your records, rather than respond to an inbound phone call, text or email.
Final note
At Alliant National, we invite agents to share their stories to help us spread the word on how to protect all of our customers from becoming victims of fraud. Please email us your stories at: fraudhotline@alliantnational.com.
In addition, agents who prevent a fraudulent transaction from being insured by Alliant National may qualify for a reward through Alliant National’s Crime Watch Program. Please visit https://alliantnational.com/title-claims/crime-watch-program/ for more information.
Tags: crime, crime watch, fraud