There is big money to be made in real estate. Make the right deal and you can often earn bigger returns on your investment than any of the more traditional investment options, such as stocks, bonds and commodities. But the bigger the potential profits, the higher the opportunity for fraud. Real estate scams are quite common, probably because greed tends to blind people to potential risks. When it comes to any type of investing – but especially real estate – the best approach is common sense: If something seems too good to be true, it probably is.
Avoiding Title Fraud
One of the costliest real estate scams is title fraud. This is when somebody uses false documents to pose as the owner of a property that actually belongs to somebody else. It usually begins with identity theft, one of the fastest-growing types of fraud today.
The person will use a stolen identity to register forged documents that transfer a property to his or her name. They then take out a new mortgage or line of credit against the value of the property. After that, it’s “take the money and run”, leaving the property’s actual owner responsible for paying back the loan.
The best way to avoid this real estate scam is to take steps to protect your identity, especially online. Use high-quality passwords and software programs such as firewalls to keep outsiders out of your personal computers.
Another protective measure is to buy title insurance. Not only does it protect a new owner against existing liens against the property’s title, but it also gives protection against encroachment issues, errors in public surveys, and mistakes in public records.
Foreclosure fraud is when homeowners who can’t afford to pay their mortgage are approached by people claiming to represent loan consolidation companies that will loan them money to cover their monthly expenses in exchange for upfront fees and an agreement to transfer the property’s title.
But these scammers will then keep all the home owner’s payments and not pay the mortgage, taxes or other obligations on the property. Often another mortgage is then taken on the property and the scammer leaves with all the money, leaving the original homeowner responsible for the debt – and now without a home.
People who are facing foreclosure are often so desperate that they will grasp at any offered life preserver. But they need to be cautious about who they do business with. Any reputable bank, mortgage company or other lender will always be upfront about any risks.
Don’t do business with any company that asks you to embellish your application by exaggerating your income, the value of your property, or any other type of fraud. If you aren’t sure if a company is legitimate and you can’t find anything out about them, don’t sign anything without letting a lawyer read it over first no matter how desperate you are.
Rentals scams are becoming increasingly common in the age of Craigslist and other online classified sites. How it works is this: Somebody posts an ad for an apartment or rental home at a monthly rent well below market value. When a potential renter responds, the “owner” makes some excuse why he or she can’t meet at the property but instead proposes a meeting somewhere else.
During this meeting, photos, layouts and other information about the property are presented to the renter, who is then asked to pay a down payment and sign a lease. The “owner” then gives the renter the keys to the property.
When the renter goes to the actual property, they discover that not only do the keys not work, but that the space is already occupied by somebody else. Meanwhile, the scammer is long gone.
Never rent an apartment or other property sight unseen. And beware of ads on Craigslist and elsewhere that include urgent claims such as “must rent now” or that offer low-cost financing or no credit check or down payment required.
Property Investment Seminars
Beware of seminars or courses that offer investor education. While some may be free, others charge steep fees for information that can often be found online or elsewhere at no cost.
Another seminar scam is to lure investors into can’t miss investments that pay profits on “auto pilot”. Many of the people running these seminars make their money by charging high prices for books or reports or using high pressure tactics to sell low-value or high-risk property at inflated prices.
Home Improvement Scams
These are some of the oldest scams in the book. People will go door to door offering services such as driveway recoating, roof repair, or lawn maintenance at affordable prices. The homeowner is asked to pay for all or part of these services up front. Then the service provider either never shows up, or provides poor quality services.
Before hiring anybody to work on your home, check references to make sure the company has a solid reputation for doing high quality work.