Scams are a part of every business. Real estate business is not spared from them too. Scammers use different ways to lure the home owners, prospective home buyers and sellers in their trap. With the passage of time, people have become more aware of these real estate scams.
Barbara Floyd Jones, the program manager of NeighborWorks America explained it pretty well recently, “Consumers are now more aware of scams, but because scams have gotten more sophisticated, consumers are not sure they know how to avoid them.” NeighborWorks is a non-profit organization, which started the Loan Modification Scam Alert campaign in 2009 after Congress approval.
There are different organizations out there that are working towards helping the public but still every day, many people file complaints. All of this aggravated during the housing bubble and many fraudulent companies started operating. That’s why; it is important to get educated about these scams, so you can avoid them.
Below are some of the most common real estate scams and tips to avoid them:
1. Mortgage Compression or Loan Modification Scams
It is one of the most common scam where a fake lender will promise you to take you out of your difficult situation. For example, if you are facing difficulty in making your monthly mortgage payments and you are dreading a foreclosure, these so-called loan modification companies will promise to get you out of that situation. They might ask you to pay an upfront fee or they will use some other sophisticated ways as bait.
Some of these companies will come up with a “scheme” of refinancing where they will trap you by saying that you’ll have to pay a very little amount of money every month and the rest would be paid by them. For this, they might charge you hefty fees or ask you to give them your bank account info. Eventually, either these companies make late payments to your lender or disappear with all the money. The homeowner is left with a foreclosure notice.
Every day, many homeowners go through the process of foreclosure and it is not difficult to pick up their data from internet. Some of these companies will call you and pretend to be offering foreclosure counseling or government loan modification programs. A lot of these companies might pretend to be associated with different government initiated programs such as HAMP (Home Affordable Modification Program) or HARP (Home Affordable Refinance Program) or MHA (Making Home Affordable).
They usually have very convincing websites with government logos or even “.gov” in the end of their website’s url. Some of them might also have a caller id on the phone call with an official name. They promise you that they will take you out of this situation by getting your mortgage payments reduced or freedom from foreclosure. They might ask for some fees at the first step but most of them try to play safe and might ask you for paying some “processing fees” at the third or fourth meeting.
How to avoid them
- Beware of someone asking you to pay an up-front fee for their services. It should ring a bell in your mind immediately. It is illegal for any company to charge you an advance fee. An attorney can charge you an advance fee, only if he/she meets certain requirements but you need to be aware that there are many fake attorneys too.
- Beware someone giving you a “guarantee” that they will protect you from foreclosure. Nobody can give you this guarantee because foreclosure is processed by the government. Some of these companies will offer you a “money back guarantee” too but loan modification is a free service.
- Beware of someone asking you to pay them instead of paying to your mortgage company. You need to understand that you have to keep your mortgage company in the loop all the time. If you have any financial issues or your payments are late, talk to your mortgage advisor and they might help you with an alternative. Don’t go for third parties.
- Beware of someone asking you to sign some document which you don’t fully understand.
- Beware of someone asking you to send any personal financial information to them.
- Beware of someone pretending to offer “official” foreclosure counseling services and asking you to pay them. HUD offers free foreclosure counseling services and they are the experts who could guide you.
2. Title Scams
There are few home owners who would pose to be “free and clear” and might advise you not to spend money on buying title insurance. There were cases where the buyers didn’t get the title insurance and eventually end up moving to a property that is on the verge of getting foreclosed. Sometimes, the sellers aren’t even the legal owners of the property and the buyer ends up with nothing.
How to avoid them
Although, title scam might sound far-fetched but there have been cases where the buyer had to suffer. That’s why; don’t listen to anyone. Always use a title company because they are ones who can give you the proofs that the property doesn’t have any mortgage payment or liens attached to it.
3. Rental Scams
Renting is prevalent throughout the US. People move in and out of rental properties everyday and there are many rental companies that provide services to the general public. Research also shows that more than 90% of the population uses internet to search rental or vacation properties. This is where rental scams boomed too.
Many of these rental scammers copy a rental listing and post it to different websites (Craigslist, BackPage) with their information. Most of them will also have their own fancy websites. Some of them even hack the original listing’s information and post their information instead. Some of them might have access to the property and will offer it at a very low price. During an open house, they will ask the prospective renters to fill an application form and pay some fees. After that, usually you will never hear from them or they might send you an “application denied” email.
They pretend to be the owner or property manager and might ask you to pay or wire a security deposit, first month’s rent, vacation rental fee or broker fees. Sometimes, they might also ask you to pay application fees for credit checks.
How to avoid them
- Beware of someone asking you to make an upfront payment or wire the money. There is a big chance that it would be something dodgy. It is important that you visit the property and meet the property owner or manager. Do not pay anything until it is written in a legal document.
- Beware of someone asking you to pay money to their “agents” or “lawyers” on their behalf or tell you that they are out of country and ask you to transfer the money abroad.
- There are scammers who might even create fake keys to show you the property but don’t pay anything until it is on a legal document. Read all the terms and conditions before signing anything. It is advisable to seek advice from someone who could guide you about the entire renting process.
- You can cross check the listings at different websites to ensure that it’s a real rental listing.
Real estate scams are pretty common but they can be avoided. You need to do your homework diligently. There are many government operated websites that can guide you with the tips and suggestions. You can also file complaints to those websites.
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Listing information last updated on July 28th, 2017 at 11:47am CDT.