Buying a home is probably one of the biggest investments and decisions you will make in your life. With so much money at stake, falling victim to a real estate scam can be one of the most financially devastating events you'll experience. There are many intricate real estate schemes disguised as real businesses that take advantage of unknowing homebuyers and sellers. When you are navigating through any type of real estate process, it's important to research and obtain accurate information so you know what is legal and what isn't before signing on the dotted line.
First-time homebuyers, distressed homeowners, or people who are looking to "get rich quick" are the usual targets of these scams. So prepare yourself and learn how to spot a real estate fraud before it happens to you. Check out our list of five real estate scams to look out for.Â
Real Estate Workshop and Seminar Scams
You may have seen these workshops and seminars advertised on TV or at least heard the term "Ponzi scheme." These scams typically draw in people who are eager to invest in real estate and want to make a quick profit. In a Ponzi scheme, you invest in a real estate deal by using your money to pay other investors instead of putting that money toward the purchase of the property. Workshops and seminars usually offer people information that is too good to be true and promise to show you tricks on how to invest in a property without putting any money down. At these seminars, you end up spending a lot of money on attendance fees, books, audio kits, courses, and other coaching services that sell you false promises about the secrets of real estate investing that you could otherwise get for much less from a licensed realtor or, simply, at your local library.
Loan Modification Scams & Foreclosure Counseling Scams
These scams target homeowners going through financial hardships who are unable to make payments on time and are under water on their mortgage. These organizations, disguised as a foreclosure counseling company, will seek out cash-strapped individuals and offer them services to avoid foreclosure on their home. They attract homeowners by telling them that they can lower their mortgage payments and avoid foreclosure. The scam involves the fake company getting a new loan on behalf of the homeowner and convincing them to transfer the property title over. Owners end up paying rent for their own home, which are known as fake leaseback deals, until they can repurchase it again. The fraud company keeps all of the money from the homeowner and remortgages the property, which leaves the owner without a home and still in debt
Short Sale Scams
Some homeowners try to scam the system in order to save money or not pay their mortgage and get away with it. In a short sale scam, homeowners who owe more than their property is worth will lie on their financial hardship letter and supply fake documents so they don't have to make mortgage payments. The homeowner's co-conspirator submits a low offer to purchase the home in a short sale agreement, while the lender has no clue this deal was preplanned by the other party involved. Once the home has been purchased at a discount price through the short sale, the accomplice sells the home for what the property is actually worth.
Title fraud is one of the worst types of scams for homeowners because it involves identity theft. A criminal or fraudulent company will use false documents to pose as the homeowner and transfer forged property documents to their own name to obtain a new mortgage or line of credit against the home. Once the scammer gets the money, they leave the homeowner with the debt from the loan.
Home Improvement Scams
Although on a much smaller scale, home improvement scams are still harmful to homeowners. Shady contractors typically approach property owners and sell them offers and deals for home improvement projects like driveway repairs, roofing jobs, or window installations at a fraction of the usual price. These scheming contractors use lucrative sales techniques and one-time offers to attract homeowners. They usually ask for the first portion of the payment to be made in cash or check and then promise to come back and finish the project at a later date.Â