Real Estate News & Commentary

4 Types of All-Too-Common Real Estate Scams Making Headlines

Expertise: Real Estate Investing Basics, Real Estate News & Commentary, Personal Development, Flipping Houses, Landlording & Rental Properties, Personal Finance
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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.

Update: This particular scam has been resurfacing lately, with a warning sent out by Daily Real Estate News and one of BiggerPockets’ own members reporting being targeted by hackers.


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!]

Have you ever had to use your title insurance policy?

Please share your story.

Mindy Jensen has been buying and selling homes for more than 20 years. She buys houses, moves in, makes them beautiful, sells them, and starts the process all over again. She is a licensed real est...
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    Kara Haney Investor from new york, nj
    Replied over 4 years ago
    read this one about deed scams in NYC!
    Mindy Jensen BiggerPockets Community Manager from Longmont, CO
    Replied over 4 years ago
    Wow, Kara. During the scam class, the instructor repeatedly said the county recorder’s job is not to verify the validity of the document, only to verify that it has been filled out and collect the fee. Obviously, the old way of doing things has to change. This story makes me so angry, because the victims have to put their lives on hold to deal with it. It will cost them a lot of money in attorney fees, and they did nothing wrong. Some guy targeted them and has decided he wants what they have, so he is going to forge a deed and try to take it. The courts should throw this deed out immediately.
    Robert Leonard Specialist from Lafayette/Baton Rouge, LA
    Replied over 4 years ago
    Thanks for your informative article Mindy! You see all of the headlines about data breeches and you might think, “well what can the thieves harm with that information anyway?” These are great examples of how something that is as “little of a threat” as an email account can become a huge problem in the hands of a determined thief. The large sums of money in real estate transactions is just irresistible to them I guess! I’m going to share your article with a few title companies I work with. Awareness is the key to prevention.
    Mindy Jensen BiggerPockets Community Manager from Longmont, CO
    Replied over 4 years ago
    Thanks for reading, Robert. The data breeches can seem like nothing to worry about, but you are exactly right – in the hands of a determined thief they can devastate you!
    Daria B. Rental Property Investor from Gainesville, FL
    Replied over 4 years ago
    Great information Mindy. On my last 2 closings both lenders had encrypted and secure sites to log into for signatures and document transfer. It’s still a struggle trying to stay ahead of the hackers and scammers. I work in an IT department at my company and see daily how our IT network admin has to stay on guard to keep our network secure. Thanks again for bringing these other stories to our attention.
    Mindy Jensen BiggerPockets Community Manager from Longmont, CO
    Replied over 4 years ago
    Thanks for reading, Daria. Title companies are now required (at least in my state of Colorado) to use encrypted and secure sites and email accounts. But real estate agents are not. I hope to see those laws changed. The hacker doesn’t have to get through the title company’s defenses if there is a weaker link somewhere else.
    David Fuller
    Replied over 4 years ago
    Requirements differ by states. If there aren’t more restrictive state requirements, then federal law only requires (I think as of this Fall it’s a requirement) federally backed mortgages to have those kinds of protections. Like you said, those requirements are really for anyone who is working with the banks. So, if you are using private money, or the real estate agent, insurance, etc then those requirements aren’t mandated. They also aren’t required for commercial loans. A lot of states do have more restrictive requirements. I know in Connecticut, they are only moderately more restrictive. Commercial loans and private money aren’t protected.
    Account Closed Investor from Central Valley, California
    Replied over 4 years ago
    Thanks for the interesting article. I too would have signed up for such a class! I hate hearing stories about buyers and borrowers who don’t understand the difference between lender’s title and buyer’s title. To be clear, the buyer and/or borrower can’t “buy” a lender’s title policy. They pay for it per the terms of the sale or loan. Because lender’s title is one of the closing costs buyers almost always pay, they think it’s a policy. Closing costs are still mostly a mystery to the consumer. Where I am the escrow and title people work directly with the sellers and buyers. Agents can relay information if they want, but escrow doesn’t do anything without confirming it directly with the principals. There is no such thing in CA as releasing EM without signatures from both the buyer and the seller, the agents have nothing to do with it. Maybe time for a revamp in CO.
    Mindy Jensen BiggerPockets Community Manager from Longmont, CO
    Replied over 4 years ago
    I have been on both ends of releasing earnest money, and I have never been able to get it down without signatures from both sides. I thought that particular scam was odd, because it can be difficult to get EM released. Your comment about closing costs being a mystery to the consumer inspires me to spell out all the closing cost definitions. Stay tuned!
    Kelly B. Investor from Wausau, Wisconsin
    Replied over 4 years ago
    Ouch! I hope title companies & real estate agents are on top of this.
    Replied over 4 years ago
    Thanks Mindy. I had no idea on these risks. I help several small law firms with their IT needs and one of the big changes that’s been happening involves data security. I thought some of it was overblown but Im thinking now that they don’t go far enough. Thank you!
    Replied over 4 years ago
    Thanks Mindy. I had no idea on these risks. I help several small law firms with their IT needs and one of the big changes that’s been happening involves data security. I thought some of it was overblown but Im thinking now that they don’t go far enough. Thank you!
    Replied over 4 years ago
    Thanks Mindy. I had no idea on these risks. I help several small law firms with their IT needs and one of the big changes that’s been happening involves data security. I thought some of it was overblown but Im thinking now that they don’t go far enough. Thank you!
    Karen Rittenhouse Flipper/Rehabber from Greensboro, NC
    Replied over 4 years ago
    Thanks for this important post, Mindy. We find that buyers/sellers often think they’re saving money by not getting these extra insurances and/or they don’t want to slow down the closing if something suspicious looking pops up. So much better to have an extra layer of protection and never need it than to skip it and find out you’re in big trouble later on…
    Katie Rogers from Santa Barbara, California
    Replied over 4 years ago
    So if the title company or escrow company send money to the wrong person, who takes responsibility? Does the buyer expecting return of earnest money lose their money? Doesn’t the title or escrow companies have insurance or something, and even if they don’t, are they not responsible for making the buyer whole anyway?
    JD Wolfrey from Belton, South Carolina
    Replied over 4 years ago
    Awesome information for someone like me just getting into real estate. The biggest thing for me is personal protection to rid myself of as much risk as possible(obviously there is risk in any real estate deal) while investing. Great post.
    Katie Rogers from Santa Barbara, California
    Replied over 4 years ago
    My problem with NAR is that information they provide to fellow real estate agents and brokers, and the information they provide to the public differs substantially. NAR would rather focus on pushing the public to buy than provide accurate information.
    Account Closed from Mascot, Tennessee
    Replied about 4 years ago
    This is very useful and instructive post. I can strongly recommend it for reading. Some companies face challenges when making due diligence because of paper-intensiveness and lots of confusing data.
    Eric Christians from Fargo, ND
    Replied over 3 years ago
    The hacked emails with wiring instructions was brought up at our last realtor association meeting. Every local title company has received these fake emails. Fortunately they all were detected before wiring money. Everyone (realtors, title co employees, etc) was asked to change their email passwords immediately & often.
    Replied over 2 years ago
    Anyone have any comments or experience with Dallin LLC? Pretty sure it’s a scam on Craigslist….got this message:Yes, am a realtor. okay, you will be posting 4 ads per day and you will be paid 350 weekly. You will receive the payment through paypal or check I told you already, I will be paying you an advance the second day you start posting for me to be sure of your handwork.