6 Types of Real Estate Fraud

There are many types of real estate fraud, and most aren’t as obvious as you’d think. The transaction may look normal aside from one seemingly minor detail that is easy to overlook. Noticing the signs of fraud too late may mean that the damage is irreversible.

In this post, a real estate attorney in Scottsdale goes over the most common types of fraud and what fraud means in real estate.

Overview of Real Estate Fraud

Real estate fraud can encompass any scenarios in which a person or entity deceives you in order to gain money or the legal control of a property. It can happen during any real estate transaction or even with financing or rentals.

Some victims lose their upfront payments, while others lose entire properties. Some people take on loans they can’t repay.

Understanding the common types of real estate fraud schemes helps you recognize warning signs of fraudulent activity early.

Common Real Estate Scams and Who They Target

According to the Federal Trade Commission, any of the parties involved in a real estate transaction is at risk of falling victim to high-pressure tactics. Below are the top types of real estate fraud to be aware of.

1. Mortgage Fraud and Title Fraud in Real Estate

Straw-buyer schemes are a common example of mortgage fraud. The scammer convinces someone with good credit to secure loans for them.

Scammers can also inflate the property appraisal to justify a larger loan. Loan-flipping operations push you into refinancing repeatedly, which means paying fees every time.

Title fraud is where forged deeds transfer ownership without the true owner’s knowledge. You may need to take legal action to reverse the damage.

2. Deed Theft

In deed theft, scammers pose as professionals to get sensitive information like bank statements from you. This allows them to set up fraudulent transactions to steal money through identity theft. Or, as a more serious threat, they file multiple forms that look legitimate and transfer the property’s title into their name or a shell entity.

The actual property owners may not notice until bills stop arriving or they try to sell. That’s why it’s important to check public records regularly for unexpected changes to property deeds.

3. Wire Fraud and Escrow Fraud in Property Deals

These potential scams are one of the fastest-growing threats in the real estate sector. They often begin with a spoofed email that looks like it came from a trusted party. The message gives you updated wire transfer information just before closing.

The problem with wire fraud is that it’s very difficult to recover the money. That’s why you should always verify the wire transfer using the number of someone you know at the company. You can also use an escrow service that maintains clear records and uses secure portals.

4. Rental Scams and Fake Listings

These types of real estate fraud occur because people are scared of missing out on a seemingly good rental property. They tend to look completely legitimate, with full photos and details. The difference is that the scammer insists on you paying deposits before letting you view the property.

That’s why it’s important to verify the real estate agents’ or property managers’ identity and see the property in person.

5. Foreclosure Rescue Scams and Predatory Lending

When you’re facing financial difficulties, you’re likely to reach for any lifeline, and scammers know this. They’ll often target those facing foreclosure with promises of quick relief, claiming they can stop the process or renegotiate the terms of your mortgage loan with your mortgage servicer. Naturally, you have to pay an upfront fee.

Predatory lenders may lock the property owner into unfavorable terms for mortgage payments. It may help to speak to a certified housing counselor.

6. Syndication, REIT, Investment, and Fraudulent Loans Scams

These real estate scams can involve fake real estate syndications or misleading REIT offerings and come in many forms. These are more complex than normal real estate market dealings, which makes it easier to give a false sense of security.

Fraud occurs with false documentation. You’ll need to invest money and even pay fees like closing costs, but you’ll never receive property ownership.

Common Warning Signs To Avoid Real Estate Scams

The best way to avoid all types of real estate fraud is to work with reputable professionals. Verify license numbers and see if there have been any disciplinary issues in the past.

You should also watch out for these red flags:

• Pressure to act quickly with financial decisions
• Requests for unusual payment methods
• Inconsistent or forged documents or property records
• Vagueness about legal ownership and other questions

Due Diligence Checklist

Safeguard yourself during the real estate journey by:

• Ordering an independent appraisal of value and rental income
• Obtaining a title search and report for the legal owner at the county recorder’s office
• Using a reputable escrow, title company, or financial advisor
• Verifying payment instructions independently
• Doing your own research to prevent significant financial losses
• Signing up for title insurance

How To Report Real Estate Fraud and Limit Financial Losses

If something feels off, document everything. Notify your bank immediately after a suspicious transfer and file a report with a local law enforcement agency. A title insurance company may also assist in cases involving ownership disputes.

When To Consult a Property Attorney

If you’re worried about the different types of real estate fraud, it may be helpful to speak to someone who understands real estate law. An attorney can address title disputes or contract issues. A forensic accountant may also be useful in complex financial cases.

You can also contact regulatory agencies if you feel someone is acting in a questionable way when it comes to property ownership.

Protect Your Property and Financial Interests

The best way to spot real estate scams is to stay alert in any real estate transaction. Stay up to date on the most common forms of mortgage fraud and always be cautious.

For guidance on the different types of real estate fraud and how to move forward, call Anthony Law Group at 602-362-2396. Learn more about a real estate lawyer’s role by visiting our website.