“A con artist’ only weapon is his brain.”
― Frank W. Abagnale, Catch Me If You Can
Let’s give an antidote to this statement, shall we? If a con artist’s only weapon is his brain then so is yours. After all, knowledge is power and this power can help you identify, call out and protect yourself from real estate investment scams.
Such scams are not just a part of crime thrillers but are real and pervasive. Also contrary to what we would all like to believe, it can happen to any one of us. As a first time buyer, it’s natural to look at your first real estate investment with a deep sense of optimism. We aren’t here to burst this bubble but to guard you against scams and frauds. We at LitPoodle want your Real Estate Investment journey to be smooth and for your money to be in safe hands. This brings us here. This article will give you knowledge on a sea of investment scams, so you can spot the red flags immediately.
Let’s get smart!
These Are Common Scams That First-Time Real Estate Investors Fall For
When Scammers Lure You in With Fake Listings
Fake listings are one of the most common scams to plague the real estate industry. Although such scammers usually target renters, ever since the pandemic, investors have also been pulled into this vicious net.
Lockdowns created an ecosystem of virtual tours, signing lease agreements online and no physical meetings with sellers. Scammers have taken advantage of these unique conditions by creating fake listings. You may find ‘for sale’ ads splattered across the internet complete with pictures, detailed descriptions of the property and a lucrative price tag.
This is but a garb for a property that most likely does not exist.
The best way to assess the authenticity of such listings is to meet the seller, verify his/her credentials and see the property. Ensuring these steps during your real estate investment process and keeping a record of communication can safeguard you from fake listing scams.
When Property Pictures Conceal The Real Condition of The Property
In our previous blogs, we have warned real estate investors on the downsides of purchasing a property without seeing it. Drive-bys, virtual tours, property pictures – none of these are substitutes for seeing the property in person.
We urge all our readers to hire a professional property inspector. Do not buy any property without having an inspection done. If possible join the professional during a tour of the home. They will be able to point out issues related to structure, roof plumbing, drainage, electrical wiring, etc.
Hiring a professional also brings in necessary objectivity. While you may miss out on some important details, most professionals won’t.
Why take these measures when you have pictures of the property as proof?
Pictures can be edited, manipulated or straight up taken from the internet. Aesthetic property images offer no guarantee about the actual condition of the property. Whether you are investing in your local neighbourhood or remote buying out of state, go take a look at the property.
Scammers often use deceptive images to lure buyers in. Ensuring a visit will either confirm that the property is real or confirm your worst fears. Either way, it’s a win-win situation for you.
When Emails Claim Money Needs to Be Sent to A “New” Account
There is a sigh of relief you experience when your real estate investment is finalized. The long hours filled with home tours, negotiations and documentation have all borne fruit.
This is also the moment you are most likely to let your guard down.
It is during these times that most home buyers are subjected to wire transfer frauds. This happens when scammers imitate the Title company and request you to transfer money. Scammers might then send you an email claiming a sudden change in transfer details of the final payment or might ask for an unscheduled transfer of funds. At this point, it’s best to call (not email) your agent at the Title company. Have them verify the email and only then carry out any transactions.
Such ‘business compromise email scams’ have been called epidemics and for a reason1.
These have caused investors to lose up to $150,000 and some even their whole life savings2. Title companies, on their part, have taken steps to combat this epidemic by administering secure messaging, instituting dual authentication, etc. Despite these digital safety measures, you need to be cautious and aware till your real estate investment deed is not signed and sealed.
When You Buy Property Directly from homeowners Who Aren’t Represented by Licensed Agents
Sometimes you might find yourself dealing with homeowners who have opted to sell their property directly without having any kind of licensed agent representing them. The problem with these kinds of deals is that homeowners most often have an unrealistic or exaggerated view of their property’s valuation. And more importantly they might not be very forthcoming on all the defects or the repairs that the house needs.
On the other hand, the agents are legally obliged to declare all defects in the house, however insignificant they might be. Agents fear trouble and a dent in their reputation, if they don’t disclose all the relevant facts to the buyer before the deal. However the homeowner might not be aware of such requirements/regulations.
In such situations, take a step back. Have the property assessed and inspected thoroughly with the help of professionals.
When Title Deed Scams Leads To Pseudo-Ownership of the Property
Once you pay the final payment on your real estate investment, the Title company will draw a deed. This deed holds your credentials and verifies you as the owner of the property. With each legal change in ownership, the title deed is changed. This deed is of integral value and is recognized by your state. It is also this deed that qualifies you for mortgaging your property for a loan.
We are sure you can see the pattern here!
For scammers, title deeds are one of the most profitable documents. Changing the ownership of a property can give them access to loans on a property that you own. Though these scams have been reduced with stringent measures by states, it’s still best to be cautious.
Property owned by the elderly, abandoned for years or one which has no mortgage on it, is more likely to be a target of such scams.
If you or someone you know suspects that their title deed has been manipulated then head to your local authorities. Also, be aware of your rights. If your property deed has been infringed upon by a scammer, then you are not liable to pay any loans under this.
Similarly, make sure that the Title Company does a thorough title inspection before buying any property. Liens could have been placed on the title by anyone who has lent money against the property or by anyone whose work on the property has been unpaid or by a regulatory body whose taxes haven’t been paid. Make sure you understand the outstanding liens and their implications when assuming or buying any property.
A Word of Caution
We have touched upon some common investment scams. While you keep an eye out for these, also be wary of the different versions of the above scams.
Certain common patterns can help you identify real estate investment scams. Keep an eye out for:
- Sellers/Agents/3rd Party Persons offering limited or incomplete information about a property.
- A rushed sale where the seller is insistent that you close the deal immediately, oftentimes by just viewing pictures of the property.
- Sellers/agents who fail to provide authentic documentation. In addition, hire a title company or an expert legal consultant who can help you validate any documentation and paperwork.
- Sellers/agents who fail to provide authentic documentation. In addition, hire a title company or an expert legal consultant who can help you validate any documentation and paperwork.
- Inflated rates or suspiciously low home rates can both be red flags. Do your own research about the neighbourhood to understand the media rates. Also consult an agent who can help you understand the validity of rates.
Remember, most scammers work on a buyer’s ignorance. Do your research, hire consultants and only use secure real estate investment platforms and you should be good.
Adopt These Precautions To Guard Yourself Against Real Estate Investment Scams
Even if you don’t suspect your investment to be fraudulent, it’s important to follow a few checks for all your investments. In the best case, it makes your investment process smooth. In the worst case, it safeguards you against a scam.
Here are a few ‘hygiene’ points you should keep in mind when investing in real estate.
- Document everything. Emails, chats and messages that are part of your interactions with agents/buyers and 3rd party contacts. Make copies of originals and share these files with a trusted friend/family member.
- Look at all the facts while also listening to your instinct. Strike a balance by relying both on your intuition and your intellect. Investing in real estate involves time, effort and resources. So think clearly before making a decision.
- Hire professionals from property inspectors, licensed agents to legal teams. The expertise of these professionals will help you notice any red flags.
- Observe, listen and pay attention to everyone you communicate with. Scammers/Fraudsters are usually charming, accommodating and yet very persuasive.
What To Do If You Fall Victim To A Real Estate Scam
We understand that despite taking all precautions any one of us can become victims of a real estate investment scam. If this happens to you or someone you know then remember that mistakes do occur.
Next is to stop feeling embarrassed and report the matter to your local authorities.
If you have documentation, transaction details and any other information, you can still salvage your investment. Furthermore, you can save another person from being a victim.
Seek help and you will be fine.
LitPoodle’s aim is to democratize real estate investing. Spreading awareness and knowledge to first-time investors is part of this process. This awareness also extends to action – our software is secure, safe and reliable. The safety of your data, information and your experience is of paramount importance to us. So extensive verifications and collaborations with trusted partners is the standard we uphold for ourselves. Explore LitPoodle to experience secure real estate investing.
Sources
