Dear Egghead: I’ve been warned that scams are common in real estate. What are they, and how do you avoid them?
ANSWER: Yes, real estate scams are all too common. Here’s what to watch out for:
Deposit wire fraud: This isn’t the most common, but it’s extremely dangerous and can cost you dearly. Typically, it happens when a crook knows you’re currently involved in a real estate transaction. They impersonate an escrow or title firm, and give you instructions on where to wire your earnest money deposit. They may build a fake website that prompts you to enter your banking information, or they may ask you for this information over the phone.
Unlike fraudulent credit card or check transactions, fraudulent wire transfer are often unrecoverable. A home buyer doing business at my brokerage fell for this scam, and lost $100,000. Very painful.
Avoid this scam by verbally verifying the transaction with your title or escrow company.
Foreclosure scams: Crooks target homeowners in financial trouble, and promise that they can drastically reduce their mortgage payment, but it will cost you a stiff fee upfront.
Some of these scammers will tell you they’re affiliated with the federal government as part of a foreclosure relief program. They will usually discourage you from consulting your lender, which is a major warning sign. Avoid this scam by contacting your lender — they have a vested interest in keeping you in your home, and they will be aware of any federal or state relief programs.
Fake listings of homes for sale or rent. These scammers use social media or classified services such as Craigslist.com to advertise a home opportunity. These online services do not vet these ads. The pictures used for the fake listing are usually copied from existing listings elsewhere.
When these scammers ask for a cash deposit before you visit the property, that’s your warning flag. Confirm who owns the property by searching for contact information.
If you suspect a scam, report it to the Federal Trade Commission or the Better Business Bureau so that other consumers will be warned.
Lockout contracts: A supposed buyer says they want to complete a quick cash transaction to buy your home, and they pressure you to sign a lockout clause that prohibits you from selling to anyone but them. The scammer then asks for processing fees or a reduction in the sale price.
Beware of supposed cash buyers who say they are in a big hurry.
Sketchy ads for cash purchases. Surely you’ve seen the flyers for “We buy homes for cash!” stuck to utility poles. These scammers target homeowners who need the cash. They’ll ask you to sign a deed, which gives them control of your property without any legal transaction taking place.
A company without a physical or online presence is usually a crook trying to get the rights to your home without actually buying it.
Loan flipping: Predatory lenders encourage you to refinance your mortgage. You’ll pay a hefty fee, and you’ll end up worse off financially at the end of the day. Sure, the homebuyer will get some cash out of the transaction, but it’s more than offset by fees, higher interest rates, and perhaps other penalties.
