As the U.S. housing market rebounds, some professionals are warning of a resurgence in real estate and mortgage fraud. So what is being perpetrated, and investigated now, and what should those that encounter it, do about it? The more you learn about these scams, the more you will be able to avoid becoming a victim.
Regulators say they are just moving into a new phase of investigations. We’ve recently seen this with new types of mortgage fraud, and a focus on different types of criminals. Fraud and scams can be very damaging to individuals, and the greater economy. Unfortunately, many don’t see that, until it is too late. It is critical for home buyers, owners, and real estate agents and investors to be alert to current schemes in order to protect themselves and their investments. So what types of threats are in the works now?
During the last housing boom, there were agents that conducted all types of wild fraud, including not paying off mortgage debt, or taxes, with loan proceeds; leaving owners and sellers on the hook for hundreds of thousands of dollars. More recently, Erika Weichel, of Michigan Investment Title, warns that the rise in out of area investing has led to some opportunists trying to sell homes they don’t even own. Weichel says it is crucial for all buyers to have title searches performed to verify ownership, and are wise to have title insurance, as well as being careful to only wire funds through reputable companies, not directly to purported sellers.
One of the biggest, and most difficult to protect against, is cyber-crime. The Georgia Association of Realtors recently warned Realtor members not to email wiring instructions to clients due to hackers mimicking their emails; and sending similar ones to clients with the attention of diverting funds with different account numbers. Everyone needs to be diligent in double checking email addresses and account numbers when communicating about money, and should verify with the source. Even small transactions can ultimately give hackers access to larger sums, and enable identity theft.
Craigslist Real Estate Scams
Craigslist continues to be a hot bed of real estate fraud and scams. What makes it difficult, is that Craigslist does remain a great platform for legitimate sellers and landlords to reach renters and buyers. It can even be one of the fastest, easiest, and most cost effective to use. Vendors need to watch competing ads and ensure they separate themselves from sounding like the scams. Buyers, renters and investors, need to be very careful in double verifying everything.
Home Rental Scams
With so many vacant homes, rental scams continue to be a major issue. In a recent case in South Florida, a renter returned after vacation to find that his belongings had been tossed, and someone else had moved into his home. The landlord had no idea this happened. The new occupant and his pregnant wife claimed someone outside the home offered them the place, took thousands of dollars from them in upfront money, and gave them a lease. The police said there was little they could do as it was a civil, not criminal matter. Always make sure you are renting through the real owner or authorized representative. Document everything!
Vacation Rental Property Scams
North Carolina Realtors have raised the alarm on fraud in the rapidly growing vacation home rental industry. Reportedly, many scammers are scraping listings and setting up mirror sites to take reservations. Vacationers arrive on site only to find they have been duped out of their money, and have nowhere to stay. The same precautions from above apply here. Vacation property renters can also limit exposure with rental property insurance which covers damage for the landlord, and should enable them to avoid risking putting up large deposits on seasonal and short term rentals.
Bank of America has been back in the news again as it tries to negotiate a $17 billion settlement with the US Justice Department in the latest round of investigations. It is expected banks will continue to be investigated and hit up for further sums as new fraud is discovered and prosecuted. These cases have run the gamut from discrimination to securities fraud, and robo-signing. Still the biggest caseload hasn’t been touched. This is their part in manipulating mortgage documents, which until now has been blamed on mortgage brokers and borrowers; many of whom are going to jail for it. Looking forward this may be a concern for those investing in bank stocks, or with large bank deposits not covered by the FDIC. Borrowers also need to be extremely cautious in who they borrow from, and should be on the defensive when signing loan documents.
Property Tax Systems
While this hasn’t actually been deemed a form of fraud yet, many argue it should be. Some say it is hard to blame individual scammers for their actions when big banks and government systems remain flawed, and act as the example of how to do business. Property Tax Adjusters, Ltd. on Long Island, uses the New York property tax system as the perfect example. New Yorkers already have some of the highest taxes in the country. Officials have acknowledged the property tax system has been broken for years. Each year as much as 48% of property owners are hit with incorrect bills, aiming to overcharge, with foreclosure as the threat for failure to pay. Those that are educated on their options can, and do appeal and get their property tax bills reduced by thousands. Others bear the brunt of the broken system. In the private sector this would be considered extortion. NY politicians and tax authority workers are no doubt doing their best to fix this system and issues. Yet, homeowners across the country face similar problems, and ought to challenge all types of bills and fees that don’t appear right.
Mortgage Fraud & Straw Buyers
During the run up to the last housing peak straw buyers were a big part of the market. Many parties didn’t really see this as being anything wrong. New cases since 2008 highlighted by the IRS show that law enforcement is making a major crackdown on straw buyers and those that may commit mortgage fraud on their behalf. We are just now seeing the straw buyers themselves starting to be indicted and go to jail, after giving up information, thinking they were getting back at old partners whose deals went sour when the housing market folded.
Income Tax Fraud
The IRS website is now packed with cases of real estate and mortgage professionals and property owners going to jail for failing to report their full income.
These schemes can be catastrophic for those caught up in them. Home buyers, investors, and real estate agents need to be alert, and stay away from those engaged in it. The more you are able to learn about scams, the better you can protect your business from becoming a victim. Be proactive and stay in touch.