Buying, selling, or refinancing a house is already tough enough. The last thing you want to worry about is falling prey to a real estate scam. Unfortunately, where there are large sums of dollars to be made, scammers await who will lie and cheat to separate you from your money. According to the FBI’s 2022 Internet Crime Report, real estate scams defrauded victims out of $397 million. Worse, this figure is nearly $200 million more (86% increase) than the figure reported for 2020 ($213 million).
This can mean only 1 thing – scams in real estate aren’t going away. How can you protect yourself from all the dangers that are pervading the home buying and selling industry? Here are the 5 most common real estate scams that even smart people fall for, plus ways to defend yourself against them.
What’s in it for you
The first real estate con is 1 of the “oldest scams in the book” and many smart folks still fall for it – the ole “bait and switch”. Bait and switch investors are buyers who agree to purchase a home at a certain price who then later try to renegotiate that price due to “unforeseen” repairs or a supposed downturn in the real estate market.
To guard yourself from investors who offer high to only then go low, steer clear of: (a) contracts where the offer price seems too good to be true, (b) situations where an investor can’t show you a recent bank statement for an account that has more money in it than their offer, (c) contracts with inspection contingencies that allow renegotiation post-property inspection, and avoid (d) assignable contracts as they’re often a warning sign of a real estate wholesaler who makes money off bait and switch tactics.
The good news is that you found the perfect house to buy. The bad news is that you must move all your belongings to that house. You don’t have the time, so you retain the first moving company that grabs your attention. Moving day arrives and instead of $3,000, they tell you it’s going to be $4,000. You begrudgingly comply and they drive off with all your belongings. They then decide $4,000 isn’t quite enough and call to tell you it’s going to be $6,000, effectively holding you and all your belongings hostage.
Smart people fall for real estate scam number 2 so often that the nation’s leading moving companies – United Van Lines and Mayflower – sponsor and fund MoveRescue, a free service that protects the interests of people who feel they’ve been scammed by a fraudulent moving company posing as a legitimate mover.
No matter how you do it, moving is expensive and we all want to get a good deal to save a few bucks. However, don’t shop movers solely based on price. Before you pick, ensure that you’ve received a written quote and perform a little due diligence by checking Google reviews, verifying insurance, and the Federal Motor Carrier Safety Administration website to see if any complaints have been lodged.
Renting a home that isn’t actually available sounds crazy, but it really does happen. In fact, rental listing scams are so common that there’s a section on the FTC’s website dedicated solely to them and the FBI recently issued (July 2023) a warning about a surge in scams targeted at rental home shoppers.
Here’s how this racket works: scammers use photos from a previous rental listing and create a bogus home-for-rent ad online. When you respond to the ad, the scammer alleges they’re unavailable to meet in-person but that you can view the property provided you make a refundable deposit (using specifically the word “refundable” to draw you in). If you send the deposit, surprise! You’re not getting it back nor are you renting that home!
Property manager Matt Doerbaum of Lone Star Realty and Property Management in Killeen says that “you should be suspicious of anyone who requests a deposit to simply view a rent home. It’s not the industry standard.” Smart people can protect themselves against fake rental house listing rip-offs by verifying the validity of the property owner prior to engaging in any negotiations. Use the local county’s appraisal district website to identify the lawful owner and then search for that person’s name on Google to find their contact information. If it conflicts with the contact information of the person you’re working with, it’s an alarm bell that you’re involved with a renter home con artist.
Foreclosure relief scams in real estate are where unscrupulous pretenders prey upon homeowners who have fallen on hard times and are delinquent on their mortgage payments. These con artists claim they can help homeowners save their house by making the mortgage payment on the owner’s behalf. They then collect a reduced monthly payment from the owner, but they never really make payments on the mortgage. Not surprisingly, stop foreclosure tricks are easy to fall for, especially when you consider how desperate people are to save their home.
The best way a smart person can protect against stop foreclosure scams is by learning how to identify a legitimate foreclosure rescue service. How can you tell the legit companies from the con companies? According to the Consumer Financial Protection Bureau, genuine foreclosure relief firms are prohibited by law from collecting any fees up-front. If you’re asked to make a payment prior to services being given, do not pay it, and stop all contact with them at once. Another way you can tell is that some stop foreclosure scammers will ask you to not speak with your lender, saying that they’ll speak with them on your behalf. That’s ridiculous! How can homeowners protect themselves from foreclosure without speaking to the person in which the money is owed? The fact is, prevent foreclosure cheats aren’t speaking to the lender either and they don’t want you to know.
The last con is 1 of the most financially damaging and emotionally devastating scams in real estate – stripping the equity out of a house. Home equity stripping is a predatory practice where a malicious investor buys a distressed property (e.g., facing foreclosure) at a discounted price from the owner, they then lease it back to the owner, and promise to sell it back to them later. After the investor takes ownership, they refinance the home to strip away all its equity, leaving the seller with nothing once/if they’re able to retake ownership.
1 way smart folks can steer clear of home equity skimming scams is to consult a housing counselor recommended by the Federal Department of Housing and Urban Development. This service is free and can help homeowners better understand their options before they make a sales decision. Alternatively, you could contact our highly rated, high integrity real estate investors to get options for selling. If you feel you’ve already fallen victim to a home equity stripping scam, you should consult a mortgage lawyer who, through the courts, may be able to legally reclassify the sale as an ‘equitable mortgage.’ The advantage in establishing an equitable mortgage is that the seller is deemed to have kept title to the property, and most importantly, that the equity stripped by the investor is deemed to instead be a loan that is to be paid back by the buyer to the seller.
If you become the victim of a real estate scam, know this – you’re not alone and help exists. Being victimized can be embarrassing and can feel demoralizing but you have the power to help prevent others from experiencing the same. It’s important to take steps to notify the proper authorities, starting with the FTC. Your report is entered into a database that reaches all levels of government and their enforcement agencies. You should also record a complaint with the BBB’s Scam Tracker, which others can then view to steer clear of the real estate scammer.
If you still need a rental home or if you need to sell your house, contacting our legitimate investors is a great place to start. They can provide you with a host of information and valuable resources which definitively prove their legitimacy to earn your business. You have nothing to lose but you do have much to gain by contacting them. Don’t wait!
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