The purpose of a title company is to understand the ownership history and chain of…
Aside from homebuyers, there are also those looking to refinance their mortgages, sell their homes, and even tenants who are targeted by real estate scams. Con artists are eager to scam at every stage of a real estate transaction. Although scams vary, there are several that are well-known. Scammers may pose as real estate agents, homebuyers, home inspectors, landlords, or lenders and can reach you through phone calls, email, text, or advertising. All of these scams can be financially devastating.
Lock-out Agreements and Processing Fees
You may have seen flyers or received postcards from a company promising to purchase your home in cash in a matter of days. While these offers may be technically legitimate, they are not a good way to get the full value for your home.
A cash buyer will first find out how much is left on your mortgage and make an offer a bit over that amount, yet much less than your home is worth. It may be as little as half the price you would receive selling through a legitimate real estate agent. The final sale price may also be much less than initially offered due to carefully worded contract language.
Buyers offering a higher purchase price have no plans to pay it themselves. They will get you to sign a contract promising to sell to them. Afterward, they will turn around and sell the contract to someone else for a fee. The details regarding the sale of your home will not be in your best interest. In many instances, the deal will fall apart, and you will have lost months of potential sale time because the home was unavailable while under contract.
If you prefer to receive cash for selling your home, seek a legitimate company with a proven track record. There is an authentic We Buy Houses cash home-buying business operating in more than thirty states; however, “We Buy Houses” is no longer a trademarked term, so many scammers will use the name to fake legitimacy.
House-buying companies are house flippers, buy-and-hold companies, iBuyers, trade-in companies, and sometimes local investors. Due diligence before selling your home for cash in this type of business arrangement will help you avoid scammers. Ask for references and follow up on them.
Cashier’s Checks and Refunds
These so-called cash buyers use a variation on an older “overpayment scam” that often happens with credit cards, utility bills, or work-from-home check cashing. A prospective buyer will contact you, generally via email, claiming to want to buy your home but will be unable to speak with you in person.
Instead, they want the transaction handled by a recommended lawyer or even suggest you hire a real estate attorney to feign legitimacy. In time you will receive a cashier’s check for the down payment on the home for sale, but the buyer will “accidentally” send too much money and request your wire back the difference. The return amount is usually not so large (maybe an $8,000 return on a $40,000 check) as to tip off the seller.
Ultimately in this scam, the bank will advise you the “cashier’s check” you deposited was fraudulent. Meanwhile, you have wired cash to the “buyer” for the overpayment. Suddenly the buyer disappears and is no longer contactable, and you never receive the money.
Look for red flags to avoid scams, including:
· Purchasing your home sight unseen or before the property is listed
· A buyer claiming to live outside the country
· A buyer who is unwilling to speak with you personally
· The desire for a quick sale, recommends a lawyer and promises a cashier’s check
· Volunteers a lot of personal data without being asked and is pushy
· Overpays and requests for money back via wire transfer before the buyer’s check clears
Escrow Wire Fraud
Home mortgages often require an upfront payment known as earnest money, qualifying you as a serious buyer. The amount is usually between one and three percent of the home’s sale price and is kept in an escrow account until closing when it is applied to the purchase price.
Con artists will try to scam you via text, email, or phone calls posing as an employee from your escrow or title company. Reaching out to you may appear genuine and link you to fake mirror websites to make contact look legitimate. Believing you are communicating with the real company, you receive an instruction to wire your escrow payment to a phony account. When your real estate deal closes, you will realize you wired funds to an illegitimate account and be on the hook for that payment to the real seller.
Always double-check the instructions you receive to wire money. Double-check the original documents from your lender and compare the escrow account number to ensure it is the same. Make a phone call to the title or escrow company to verify the authenticity of the instruction but do not use the one provided in the email, text, etc. The original documents will have valid contact data for you to use. Do not wire the money until you have verification from a live person regarding the instructions.
Predatory Lenders and Loan Flipping
Pursuing a homeowner to refinance their mortgage repeatedly, often borrowing increasing amounts of money, is known as loan flipping. With each transaction, the scammer will charge high fees and points. Eventually, the homeowner has higher loan payments than they can afford after borrowing most of their home’s equity.
Seniors with memory impairment are particularly vulnerable to this scam since they typically have significant home equity, allowing the scammer to refinance multiple times before the senior realizes they have fallen prey. Predatory lenders promise a homeowner they can use a cash-out refinance to pay for home renovations that accommodate aging or offer a better loan product. These predators are relentless in their pursuit.
Any decision relating to a mortgage for elderly homeowners with cognitive issues should involve a trusted family member, friend, or elder law attorney to review and ensure the action is in the homeowner’s best interests. These scammers actively and aggressively seek out homeowners who have not requested help, which is a warning sign. Only work with banks and lenders you request and understand all fees and penalties associated with loans attached to your home equity.
If homeowners get behind in their mortgage payments, they can become desperate to save their homes. Unscrupulous scammers use public records of homes in pre-foreclosure and appear with offers of foreclosure relief when the homeowner is most vulnerable.
These scammers promise they can reduce the homeowner’s mortgage payments for a hefty upfront fee but will leave their victim in worse financial shape. Many fraudsters will claim affiliation with the government or government housing assistance programs and, according to the Federal Trade Commission, swindle hundreds or thousands of dollars from a homeowner.
This type of scam is rising due to the financial challenges caused by the pandemic and current economic conditions. Government agencies and banks are taking additional steps to help distressed borrowers, but criminals can capitalize on people’s fears. The scammer may offer to negotiate with your lender (for a fee) or ask for direct payment as they “sort out” your situation. Avoid these scams by working directly with your loan officer to modify an existing loan, request forbearance, or some other arrangement. Enlist the help of HUD-accredited housing counselors for further options.
There are many other types of scams, including:
· Fake listing and rental scams
· Bait-and-switch movers
· Home inspections
· Suing a seller for not disclosing known issues
· Forged deeds
· Notes of pendency
Know who you are dealing with by verifying identities and double-checking all banking transactions before you deposit funds. A real estate lawyer or elder law attorney working with a qualified real estate agent can best protect your interests since virtually any real estate transaction can fall prey to a scam. For assistance, please contact our Natchez office at (601) 445-5011.