Unmasking Real Estate Scams: Protecting Your Investments, Part 2

Pastor Don and his wife Marie were excited about retiring and selling their family home in the Northeast after their youngest child left the nest to live on his own. They had already purchased a little condo in Florida. A month after Pastor Don listing the house for sale, the couple received an e-mail from a foreign buyer who claimed to be relocating to the United States. The buyer offered full asking price in cash and promised a lightning-fast closing. It was an enticing offer until the buyer began to ask the couple for personal information, so his lawyer could send them a cashier’s check for the purchase. 

Something about the buyer didn’t feel right. Why didn’t the buyer want to speak to them via video call? Why was all communication via email? Pastor Don and Marie paused and decided to double-check. A quick call to their real estate attorney and a bit of online research revealed a pattern. Several homeowners and reals estate agents had reported similar scenarios: Fake buyers lured sellers with cash offers only to disappear after receiving upfront fees or reimbursement for “overpaying” the selling price with a check that the homeowner learned too late was invalid. Pastor Don and Marie immediately cut off communication and reported the incident. Their caution saved them from a costly mistake—and reminded them that even the most promising deals deserve a second look.

In part two of our series on real estate scams, we explore foreign buyer, foreclosure relief and mortgage scams, as well as title or deed theft. In addition, we offer suggestions on how to avoid falling prey to these types of fraud.

Foreclosure Relief Scams

Foreclosure scams target homeowners on the verge of a foreclosure. The scammers pretend to be affiliated with government housing assistance programs or legal services and reach out promising to stop the foreclosure or modify the loan in exchange for a payment upfront.

However, it is illegal to charge an upfront fee for mortgage relief. A mortgage relief company can’t ask for fees until the following requirements are met:

• A written offer from your lender or servicer that you decide is acceptable.
• A written document from the lender or servicer describing the key changes to your mortgage that would result if you accepted the offer.
• A reminder that you have the right to reject the offer without any charge.

Sometimes the scammer will convince the homeowner to sign the deed over to them in a leaseback arrangement. The former homeowners end up renting their home for more than their monthly mortgage payment and lose the property’s equity.  Moreover, they are sometimes even forced to move as they can no longer afford to live there. 

Another type of scam aimed at homeowners in financial straits is the lockout clause scam. A buyer seems to be in a hurry to close the deal. They pressure the seller for a contract that contains a hold clause so they can’t sell the property to anyone else. The buyers often ask the sellers not only to drop the sale price, but for administration fees.

How to Protect Yourself:

• Contact legitimate government programs or resources for foreclosure assistance, such as HUD-approved housing counselors.
• Be wary of anyone asking for upfront fees and verify their credentials.

Mortgage Scams

Common tactics in a mortgage scam include ignoring the buyer’s ability to pay, illegally overstating their income and inflating home values, which leaves the buyer with an underwater mortgage.

Loan flipping is another type of mortgage fraud. The mortgage company convinces homeowners to repeatedly refinance their home. Homeowners end up with a new loan that contains high fees and points, resulting in higher loan payments. On occasion, the loan is larger than the original mortgage, reducing the equity in the home.

How to Protect Yourself:

• Verify the lender's credentials and read reviews before proceeding with any mortgage transactions.
• Be cautious of offers to refinance repeatedly and ensure you understand all terms and fees involved.

Faking Interest

Sellers or landlords will exaggerate the interest in a property and pretend the unit is in great demand to push up the price.

How to Protect Yourself:

• Ask for proof of other offers and take your time to decide rather than  feeling pressured.

A Foreign Cash Buyer

This type of scam involves a buyer who offers cash but has no intention of purchasing your home. The “buyer” typically contacts you via email, explaining they are relocating to the United States.  They state they cannot speak to you in person but have someone they claim is their lawyer send the seller a cashier’s check for the down payment. Shortly after you receive the check, the scammer’s “lawyer” contacts you claiming they accidentally overpaid and asks if you can return the difference. The seller reimburses the scammer before the seller’s bank reports the cashier’s check is invalid.  As a result, seller loses both the down payment and the returned money.

How to Protect Yourself:

• Verify the legitimacy of foreign buyers by requesting a video call or checking the credentials of the lawyer involved.
• Be cautious of any requests to return money before verifying the validity of the payment.
• Consult with your bank to confirm the validity of any cashier's check before taking further action.
• Avoid sharing personal information or financial details with unknown parties.

Title/Deed Fraud

Title or deed fraud occurs when someone forges a deed to your property in their own name. They then borrow against the equity in the home and fail to make payments, forcing you to face foreclosure. In some cases, they may even sell your home without your knowledge. This type of fraud is more common with rental properties or vacation homes than homes occupied daily.

A variant of this type of scam involves fraudsters making you believe you are refinancing your home, when you are unknowingly selling the property to the scammers.

While this type of scam is on the rise, it still relatively rare compared to other types of real estate fraud. Although any type of deed can be forged, deed fraud often involves quitclaim deeds. These are simple legal documents that transfer ownership without any guarantees about the property. Quitclaim deeds are commonly used to pass ownership between family members.

How to Protect Yourself:

• Regularly check your property records to ensure no unauthorized changes have been made.
• Use a reputable title company when buying or refinancing property to ensure all documents are legitimate.
• Consider purchasing title insurance to protect against potential fraud.
• Be cautious with quitclaim deeds and ensure you understand the implications before signing.

To sum up, you don’t need to be a real-estate pro to protect yourself from fraud — you just need to be cautious. Whether you're selling, buying, or trying to save your home, asking questions, doing a little research and seeking second opinions can mean the difference between tribulations and triumph.