4 Types of All-Too-Common Real Estate Scams Making Headlines
I am a member of the National Association of Realtors. My local association offers classes to help keep us up to date on all the latest real estate happenings. When a class about real estate scams was listed, I jumped at the chance to sign up.
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This particular class was sponsored and taught by Heritage Title Company, so the stories are coming from the title company point of view. They also illustrate why title insurance is so important and how an owner's policy in addition to a lender's policy can help protect you and your investment.
4 Types of All-Too-Common Real Estate Scams Making Headlines
1. Hacked Email Accounts
Our first scam is several variations on the theme of hacked email accounts. In all three examples, the real estate agent's email account has been hacked, and the hacker is monitoring the closing process, waiting for the right moment to jump in and quickly steal some cash.
Example #1: Release of Earnest Money
The title company or whoever is holding the earnest money deposit is notified that the sale is cancelled and the buyer wants their earnest money back. Specific wire instructions are given, and the email appears to have been sent by the buyer's agent. The wiring instructions route the money to the hacker's account rather than the buyer's bank account.
Related: My Property Fell Prey to a Craigslist Rental Scam: Here’s How I Handled It
Example #2: Earnest Money/Closing Funds Instructions to Buyers
The title company sends closing instructions and bank information for wire transfers for closing to the real estate agent. The hacker has been monitoring the account and sends revised instructions to the buyer. The settlement funds never make it to the closing table.
Example #3: Seller’s Proceeds
The title company received instructions from the seller’s agent regarding where to send the seller’s proceeds. Right after closing, the title company receives new instructions to wire the proceeds to a different account. The seller never receives their settlement funds.
All three examples could have been avoided if only there were a bit of due diligence on the part of the title company and/or broker. Do not allow your agent to release funds unless you have written authorization from both buyer and seller. Always verify instructions that are out of the norm with a phone call to a number you have used before. Do not take phone numbers from emails with out-of-the-ordinary instructions. Have your agent keep their eyes out for responses to emails they have not sent — this can be the first clue that their account has been hacked.
2. “Borrowed” Marketing Materials
In another instance of fraud, a woman — pretending to be a mortgage broker — ordered title work and requested that she be able to close the loan herself while the title company completed the title work. A few days later, she came into the office of the title company and asked for pens and notepads from the company. She also asked that she be able to use one of their conference rooms to close the transaction, but was told there were still outstanding title clouds that needed to be cleared up before settlement.
A short while later, the buyer called the title company, saying the closer had had her sign all the documents for the transaction — which indicated she was due a refund — and taken her cashier’s check with her after the documents were signed. The buyer was asking about the refund and didn’t think it was anything to be concerned about when she was told the closer didn’t have the authority to close the transaction. She even alleged that she had not kept her closing documents, but still insisted on her refund.
3. Beware the Mafia
A Colorado couple is in danger of losing their house after their wire transfer was intercepted — purportedly by the mafia! This couple went to their local title company, a small, single-location operation. Nothing wrong with that, except that in Colorado, you do not need to be insured or bonded to open a title company, and this company wasn’t. This couple thought they were paying off their existing mortgage and opening a new one with a different bank. They signed all the paperwork pertaining to refinancing and left, believing everything had been completed. The wire transfer was hijacked, supposedly by someone in Eastern Europe, unbeknownst to the couple.
They started making payments to their new lender, assuming the original loan had been paid off. When they received late payment notices a few months later, they assumed the paperwork had crossed in the mail and shredded the notices. It wasn't until the foreclosure notice came that they started to pay attention. Now their days are consumed with trying to keep their house. They purchased a title insurance policy, but only a lender's policy, not an owner's policy, which means their interests in the property were not covered.
When the title company transferred the funds, they neglected to use a secure, encrypted site. In total, almost $1 million was stolen, and the title company has since closed up shop. Meanwhile, the couple spends nearly every waking hour trying to keep their house from going into foreclosure. Their credit is ruined, stress eats them alive and they have had to pass up a job opportunity because they cannot sell their home. They are 100% blameless; they did everything right.
The moral of this story is to use an established title company who is insured. And make sure they use encrypted sites to transfer your money, so you aren’t left holding the bag — and confirm that the money was received by the bank!
4. “Sellers” Selling Homes They Don’t Own
This one really isn’t a new scam. Unfortunately, it has been done many times before and will most likely be done many times in the future. Two men have been arrested for their part in a scam that targeted homeowners facing foreclosure and Spanish-speaking buyers. The men identified potential foreclosures and convinced the homeowners to sign over control of the properties to them in an attempt to sidestep foreclosure. The men would then “sell” these properties to unsuspecting, Spanish-speaking buyers. These buyers were not familiar with the real estate laws in the state and would file paperwork they thought would deed the property to them, when in fact the paperwork they filed was worthless and gave them no rights to the property.
Related: Beware of this Scam from the “IRS”
The moral of this story is to get title insurance on any property you are buying. The title work would have pulled up numerous red flags in these sales and would have saved the buyers thousands of dollars.
Don’t Skip Due Diligence
In most cases, these scams would not have worked if proper due diligence had been performed. In this market, it seems everything is rushed; otherwise, the deal moves on to the next person in line. If a deal seems too good to be true, chances are it IS to good to be true. It should raise red flags when your seller will not allow you time to check things out.
Using a reputable, established title company and buying both a lender’s policy and an owner’s policy would have covered the buyer’s interests in the property and possibly saved them thousands in lost money and untold headaches. Title insurance can help save your investment.
[Editor’s Note: We are republishing this article in light of real estate scams making news lately in order to remind investors to stay on their toes!]
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