Fraud is intentional deception in order to make personal gains, whether monetary or otherwise. Fraud can occur at many points during a real estate transaction. If you’re a buyer, seller, or real estate agent, understanding real estate fraud and how to avoid it can save you a lot of money, time, and inconvenience.
Real Estate Fraud
Home is supposed to be where the heart is, but if real estate fraud has taken place, it’s where the heartache is. Real estate fraud, scams, and schemes all comprise a form of theft which criminals use to steal your home or real property. The effects of real estate fraud can be long lasting, no matter if you’re the one selling the property, buying the property, or the agent listing the property.
Types of Real Estate Fraud
It is almost impossible to explain every type of real estate fraud or scam that exists because there are so many. This is why it’s important to stay vigilant during any real estate transaction, and to make sure if you’re the real estate agent, that you are honest and ethical in all dealings. Common types of real estate fraud include:
- Wire Fraud Scam: This happens when a scammer poses as your real estate agent and tricks you into wiring the funds for your closing costs to a fraudulent account. This type of scam can be hard to spot because the scammers often use software that mimics your agent’s email or phone number. After you wire the money, it’s almost impossible to retrieve.
- Loan-Flipping Scam: Loan-flipping scams take place when a predatory lender convinces a homeowner to refinance their mortgage over and over, borrowing more money each time. This results in higher loan payments that the owner often cannot afford.
- Foreclosure Relief Scam: When a homeowner falls behind on their mortgage payments, they are usually desperate to get the situation resolved and save their home. This is when scammers take advantage. They offer to help save the home and reduce loan payments, but charge a large upfront fee to do so, leaving the homeowner in worse financial shape.
- Home Inspection Scam: For a lender to know that you are paying fair market value for a property, a home inspection needs to be completed. In this type of scam, an unqualified person completes the inspection hiding any possible problems with the property, or states that repairs need to be completed that actually do not.
- Rental Scam: Using online and social media sources to find a rental property is common practice in today’s society. Scammers often take advantage of this by listing properties that don’t actually exist to trick borrowers into sending them money. Other times, scammers will pull a bait-and-switch by posting low-quality rentals at a high price point.
Another common type of fraud that falls under the real estate fraud umbrella is mortgage fraud. Mortgage fraud refers to the deliberate act of lying or omitting information that is used by a mortgage underwriter or lender to fund, purchase or insure a mortgage loan. It can be committed by both borrowers and mortgage lenders.
Effects of Real Estate Fraud
Real estate fraud is personal, and many times the victims of this type of fraud suffer emotional trauma that leaves them reeling. Those who have been scammed can lose their:
- Financial Security
- Family Home
- Business
- Inheritance
- Retirement Savings or Children’s college funds
- Professional or Personal Credibility
How To Avoid Real Estate Fraud
Whether you’re the seller, buyer, or agent in a real estate transaction, it’s important to avoid being scammed, and avoid being the scammer.
As the Buyer or Seller
Buying or selling a property can be stressful and time consuming. There are some things you can do to protect your best interests when working through a real estate transaction. These include:
Working with a licensed professional: only work with licensed real estate and lender professionals who you trust. Verify that the professionals are who they claim to be.
Keeping your personal information safe: never give your personal financial information to anyone over email or through websites.
Not paying up-front for anything: never pay up front for a service to your home, especially if you are being pressured to do so.
Watching out for last minute changes: if something in the paperwork changes at the last minute during a real estate transaction, take the time to review it and verify it’s what you agreed to.
As the Real Estate Agent
Fraudulent behavior can lead to legal consequences and damage to your professional reputation, but it is also a disservice to the clients who are trusting in your expertise and guidance. Setting realistic goals for profit, joining professional real estate peer organizations, and working with people in the industry who set high standards can help keep your professional reputation intact.
Punishment for Real Estate Fraud
Any kind of fraud in a real estate transaction can result in substantial fines and penalties. Depending on the jurisdiction and severity of the crime, fines for real estate fraud can range from a few hundred to several thousand dollars. If the fraud is considered a felony, there may even be imprisonment along with the fines.
A real estate agent’s license to sell real estate may be suspended or revoked if they are convicted of committing real estate fraud. This can have lasting consequences on their career.
If you have questions about real estate fraud, or have been accused of a real estate scam, reach out to the Law Offices of Robert J. DeGroot. Our professional experience can make a difference!
