Real estate is not an easy business. Finding the right property, organizing the proper funding, and managing a rental takes a lot of time and effort. And just like in any business, there are good-for-nothing trolls who try to scam you out of your hard work.
Real estate changes constantly with time. And so do real estate investment scams. Con artists are becoming more sophisticated in their scamming methods, and in some cases they are becoming more detrimental. To become invulnerable to real estate investment scams, you need to learn about them first.
Loan Modification Scams
This real estate investment scam is a notorious one, as it preyed on many investors in the ’08 crisis. It is still a common scam an investor needs to be aware of. The typical victims of this scam are homeowners who are struggling to pay mortgage or are facing foreclosure. A scammer will act as a ‘lender’ and will offer to ‘modify’ the loan so that the owner pays lesser amounts. They may even assure a ‘guarantee’ of protection from foreclosure. But of course, the owner has to pay a fee – usually an upfront fee, a huge red flag. The investor will also be asked to send personal information, including a bank account number, to the scammer.
These scams are extremely cunning. Some scammer’s will have a website with a government logo or even end in “.gov”. However, they are avoidable. Do not get involved with third parties when it comes to mortgage. Deal with your mortgage company and them only, even when facing difficulty in paying.
The main red flags of loan modifications are: demanding upfront payments and asking for personal information. It is illegal for a company to ask for upfront payments, make sure you know that! Also, beware of anyone or any agency asking for your bank account information. Chances are, they are looking for trouble.
Related: 9 Expert Tips for Real Estate Investing
Investors interested in buying a rental will first turn to the internet for their property search. This is just pure fact, and the actual number of investors who turn to the internet is over 90%. Equipped with this knowledge, scam artists turn to the Internet as well. What they then do is they select an actual listing, that is not theirs, and they will post it on their own website, or even on commonly used sites like Craigslist. The computer crafty scammers may even hack the site of the original listing and replace the written information with some of their own. The investor is then asked to wire the payment to a third party.
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These real estate investment scams do not necessarily need the internet, too. The more old-fashioned con artists will offer a property at a very cheap price. During an open house, they will ask interested buyers to fill out an application and pay some fees. Then, if they contact you, or you contact them, they will tell you that your application has been rejected.
Whether the scammer is online or not, an investor will be asked to wire the payment, no matter the kind of payment. The scammer will demand payment, even if you two have not met yet or signed any legal documents. These investors will also claim they are out of the country, another warning to beware of. All of these are big no-no’s you should watch out for. To learn how to officially report rental scams, read this.
Related: 5 Risks that Come with a Real Estate Property and How to Mitigate Them
The one thing all real estate investment scams have in common (aside from scamming investors) is that they put on a pretense of wanting to help an investor. In seminar scams, the scammer might provide actual help…as a form of bait.
Just like loan modification scams, seminar scams soared during the housing bubble. This scam is essentially a workshop by an ‘expert’. The expert will provide gullible investors with “get rich quick” tips, some of them being actually valuable and factual. This unconsciously plants seeds of trust the investor has for the expert. Then, the scammer will offer investors properties that are available “for a limited time” or additional classes that cost thousands of dollars.
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If investors buy one of the limited properties hastily, they may not be able to review the property as accurately as they normally would. Then, only after the purchase, the investor realizes that the property may be flawed in a number of ways and has taken part in a bad investment.
Failing for the second trap is just as detrimental to the investor. The course turns out to offer investors with basic and repetitive information. This leaves them feeling frustrated, since they spent thousands of dollars on a course that provided so little.
Once an investor becomes entangled in one of these real estate investment scams, it can become difficult to get out of. Why? Well, by signing an agreement document with the scammer, the investor is limited with legal action against the scammer.
To avoid these real estate investment scams, do your research. Research the ‘expert’ and the properties and courses they may present. Research will also help you find certified and trustworthy experts and any companies they are affiliated with.
Related: 5 Tips on Researching Investment Properties
Last, but definitely not least in the list of most common real estate investment scams, is title fraud. To be fair, it is the least common of the ones mentioned on the list, but it can be just as or more destructive. This scam could potentially result in identity theft.
Basically, a scammer, using false documents, will pose as a home seller. The scammer will recommend to buyers not to purchase title insurance. The buyer is left with a terrible investment, to say the least. The scammer may also request personal information for the purchase.
To avoid these kinds of real estate investment scams, purchase title insurance. This protects the buyer from false impersonation of the seller. The company will also verify is any actual mortgage is tied to the property.
There you have it, the most common real estate investment scams. Have you ever been subject to real estate investment scams? Tell us about your experience in the comments below!