What is a real estate scam?
Real estate scams involve fraudsters pretending to be real estate agents, lenders, or any individual supposedly engaged in the real estate transaction process to steal money, sensitive information, or even your home title through deception.
Because real estate transactions aren’t processes everyone goes through daily, and methods can involve several parties and complicated processes, fraudsters use these to deceive unknowing individuals to steal their assets through real estate scams.
Real estate scams and how to avoid them
Here are some examples of the most common real estate scams and ways to safeguard against them.
Wire frauds
In wire fraud, a fraudster identifies a real estate transaction online, for example, via email conversations or public records. They execute a business email compromise (BEC), ie a type of email phishing attack whereby somebody attempts to trick an employee into sending money or sharing business information. Then, following the BEC, the fraudster mimics a legitimate real estate company’s identity, tricking real estate buyers into sending their deposit for a legitimate property into a fraudster’s account.
Chris Aubeeluck, Head of Sales and Marketing at Osbornes Law, says, ‘Scammers who perform wire fraud typically use malware and other tools to assume and mimic the identity of one of the parties in a real estate transaction. These are often very difficult to identify for most individuals because of how technology has made it possible to create very deceptive emails and details to be mimicked.’
How to avoid this scam:
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avoid the rush. Confirm payment details with the other party before making payments, as emails can easily be hacked or mimicked
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avoid spoofed emails or contact numbers by contacting the other party in multiple communication channels
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avoid sharing sensitive financial information over email
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if there are any last-minute changes, especially regarding sensitive details, double and triple-check information by phone or in person
Fake listing scams
In a fake listing scam, fraudsters post a listing of a property that is not theirs or which does not exist for sale or rent. Scammers entice buyers or renters to buy or rent the property at an unrealistically lower market value and obtain a deposit before running off with your money.
Jonathan Feniak, General Counsel at LLC Attorney, says, ‘The challenge with fake listing scams is that scammers often use legitimate properties that are up for sale or rent to create their listing, making it difficult for purchasers to identify which is real.’
How to avoid this scam:
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search the name of the property and its location online. If multiple property listings use the same photos and details, you are most likely getting scammed by a fake property listing
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ask for detailed property location and additional high-quality photos
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ask to personally see the property and examine documents before making any payment
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compare the property price to other properties within the area. If the price is extremely lower than others, it’s most likely a scam
Home inspection scams
Results of a home inspection can significantly affect the price negotiations between you and a real estate agent. A home inspector checks the state of a home and any safety or maintenance issues that may arise in the future.
Erin Acheson, VP of Business Intelligence at ZeroEyes, says, ‘Home inspection scams are on the rise because the role of a home inspector is crucial in price negotiation. In these scams, a home inspector intentionally misses out on faulty electrical wiring or a poor HVAC (heating, ventilation and air conditioning) system in their reports in collusion with a seller to sell the property at a higher price.’
How to avoid this scam:
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ensure that the inspector is independent and has no interest in or relationship with the property owner or real estate agent
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verify the legitimacy of the home inspector with relevant licensing organisations
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ask for a list of what the home inspector will check during the inspection and compare it with their actual report
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accompany the home inspector when they do the actual inspection
Deed and title fraud
Deed and title fraud occurs when a fraudster forges a deed to transfer ownership of your home without your permission. The fraudster may either sell the property and obtain cash from the sale, or mortgage it and take a loan against it then keep the benefits of the loan when the lender eventually repossesses the home.
If you are a home buyer, a fraudster may also sell you a fake property title, stealing your money before you even discover that the transfer documents were not legitimate.
How to avoid this scam:
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regularly check your titles deeds (ie recorded ownership of your property) and details with the Land Registry, to see if anything seems off
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consider a title insurance policy to protect you against title fraud
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carefully check your credit reports for any mortgages or credit taken against your name without your knowledge
Property investment scams
Fraudsters usually target landlords looking for lucrative investment options, and unknowing investors often fall into these scams with the promise of low-risk, high-return investments.
Charles Platon, Founder at Peel and Stick Wall Murals, says, ‘Property scam investors often use the urgency tactic to pressure you into making immediate investments promised to appreciate in the future and that the ‘promising’ rates and returns for this investment would end today or tomorrow. What’s worse is that these property investments may not even exist, and fraudsters can run after getting any upfront payment from you.’
How to avoid this scam:
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when investing in property, research the viability of any suggested property appreciation (ie an anticipated growth in the value of a property over time) in a specific area
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check and inspect the legitimacy of the property and its documents
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low-risk, high-return investments generally aren’t real, and if they exist they’re most likely scammers trying to run you off of your money
Predatory lenders
Predatory lenders abuse an individual’s lack of knowledge and entice them to take out loans and mortgages only favourable to the lenders, which the borrowers will not be able to pay back, leading to the lender seeking possession of the property. They usually target those with few credit options or who are easily deceived, like senior citizens.
‘One of the most common scams perpetrated by predatory lenders in real estate is loan flipping. In this scam, lenders entice you to take on a new, long-term, high-cost loan, which will also cost you excessive fees beneficial only to the lender, such as prepayment penalties and higher interest on loans,’ says Jarret Austin, Owner of Bankruptcy Canada.
How to avoid this scam:
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educate yourself before taking out a mortgage or signing any new loan agreements, and consult a lawyer if possible
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predatory lenders tend to use urgency tactics when inducing you to take out a loan. If you need money, take your time, consider your options, and compare alternatives
Mortgage and deposit payment scams
In these types of scams, fraudsters use the time-critical nature of property transactions to their advantage. They will pressure their targets into paying money into their accounts directly or indirectly and run away with the money.
Deposit fraud often occurs around completion on a property, where a fraudster will intercept communications (often by email) and impersonate either the solicitor or homebuyer to redirect the completion funds to a fraudulent account. This is also known as ‘Friday afternoon fraud’ due to completion often occurring on a Friday.
Advance fee scams can also occur. Here, fraudsters often target those less financially secure who are looking for mortgages. They create fake mortgage lender companies or use slightly altered names of legitimate companies to impersonate them. They ask you for upfront payments before they provide their services and will disguise these payments as legal or credit checks.
In ‘bait and switch’ scams, fraudsters will exploit borrowers by promoting attractive loan terms that seem almost too good to be true. After completing a majority of the financing process, they will ambush the borrower with new terms which, given the time sensitivity of most property transactions, leaves borrowers feeling trapped into accepting.
How to avoid these types of scams:
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make sure that you are dealing with a legitimate lender
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if you have received a request for an upfront payment for services, don’t pay any money until your application has been approved
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if you receive a request to move payment to a different account, always call the legitimate contact directly to verify
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if you have received a call and believe it is an impersonation scam, call the legitimate lender, solicitor or homebuyer on a different phone to avoid the scammers intercepting your confirmation call
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always be suspicious of loan terms which allow for rates excessively lower than standard terms
Stay safe during real estate transactions
Real estate investment has always been a lucrative business endeavour that deals with high-value assets. And where high amounts of money are involved, there will always be fraudsters looking to catch you unaware and run away with your money.
Never fall for urgency tactics or jump the gun with enticing offers regarding real estate or any money matters. The best way to deal with real estate scams is to be educated and vigilant, and to research thoroughly before entering into any contract or agreement.
Do you have questions or concerns about buying property or managing deposits and mortgages? Ask a lawyer how Rocket Lawyer can help. For help with other property law matters, see Rocket Lawyer’s catalogue of property documents and guides.
