Many are looking to purchase property this summer but with wire transfer scams, predatory real estate loans, and other scams to watch out for, buyers need to stay informed and alert.
Buying, selling and owning real estate, including homes, are often the most expensive transactions many individuals and households will undertake in their lives. Hundreds of thousands of dollars can be involved, attracting dishonest tricksters and scammers who may wish to take advantage of those involved.
Why are even the most diligent and intelligent of people susceptible to being scammed in real estate related deals? It is human nature for us to want to make the most out of any transaction so we may have a tendency to want to trust those with whom we are working.
It is natural for someone buying real estate to look for the best deal through each step of the process. This can lead to scams involving mortgages and predatory lending, wire transfers, title and deed fraud, home inspection scams and more. “Buyer beware” may never be more important than when buying real estate.
Wire Transfer Scam
One currently growing, and extremely costly real estate scam buyers need to be aware of are real estate wire transfer scams. This is one area of fraud that is defrauding buyers out of tens of thousands of dollars in down-payment funds. This scam is dangerously effective for several reasons. The scam can appear to be absolutely legitimate while using email technology to cheat buyers out of significant amounts of money.
The wire transfer scam may begin with the scammer gaining access to the information of a vendor involved in the closing of a property. The vendor could be the home buyers title company, lender or real estate agency. However, the scammer may not even need to get access to their computers – they may only require some knowledge about the employees who work there; such as their names, titles and email addresses.
Once the scammer determines those involved in an upcoming closing, they will send the home buyer an email with wiring instructions for the down payment. This email will actually look like it’s coming to the home buyer from either escrow, the title company, the lender or even the buyers real estate agent. This fake email uses a method called email spoofing. Email spoofing is the forgery of an email header so that the message looks like it came from someone or somewhere other than the actual source. And since the email looks as if it’s coming from a legitimate source, the home buyers will frequently follow the fraudulent instructions and then use the scammers wiring instruction to send the money. Unfortunately, by the time those involved realize what has happened, both the scammer and the funds are gone.
While this scam can be difficult to identify, there are some signals to watch for. Emails that are sent outside of normal business hours for example or that contain poor grammar or misspellings. Red flags should go up if payment methods change to a wire transfer at the last minute. Look to see if the email address is the one you have been working with (ex. example@companyname vs example@thecompanyname) in the past or during the home buying process.
Those involved can also take steps to better ensure communications can be trusted. Encrypted email, verified phone numbers, confirmation of instructions and even passcodes or PIN’s can be used. Buyers need to be very diligent about validating the transfer of any funds during a real estate transaction and question even what may appear to be messages from a genuine source.
An easy way of verifying wire instructions is to call the escrow or title company directly to confirm the wire instructions. Be sure and speak to someone who can repeat and verify the instructions as well as a few of the transaction details. This will help confirm that you are speaking to a legitimate person involved in the transaction. However, be sure and call a legitimate telephone number. Scammers will often include telephone numbers in the spoofed email that, when called, are directed to the scammers that then may pose as the employees named in the email.
Predatory Real Estate Loans
Predatory real estate loans are those that have unfair or even abusive loan terms placed on the borrower. Predatory loans often use deceptive practices in convincing a borrower to take out a loan that the borrower may not need or want. In some cases, predatory loans involve coercive and unscrupulous practices in an effort to get a borrower to get a loan they may not be able to afford. Common characteristics of predatory loans are that they often have high-interest rates, inflated late and other fees as well as rigid terms. The challenge is that predatory lending may not always be illegal.
A consumer’s ability to secure a mortgage at fair market interest rates will depend on several factors. These include the borrowers credit rating, income and job history, down payment amount, loan to value ratio and more. For those borrowers with damaged credit or who don’t have a significant cash down payment, “risk-based” loans may be the most accessible pathway to home ownership. These loans are sometimes known as Direct Loans and can have their place in legitimate lending if interest rates and terms are affordable and if the borrower is fully aware of the terms.
There are specific characteristics to watch for with predatory real estate and home loans. For starters, a lender may guarantee approval to anyone. Borrowers are often rushed to sign loan papers, as real estate transactions can often be all about timing and action. Some predatory loans will have life insurance or other coverage included in the loan. There may be loan prepayment fees or other unfair penalties included in the loan.
However, in most cases, the biggest factor in predatory lending are the very high-interest rates and fees on the loan. These can make the payments very high which makes keeping the payments current difficult, if not impossible. And, in most cases, the loans are tied to the property by way of a lien, so the lender can take ownership of the property should the loan go into default. Falling victim to a predatory loan can put a borrower deep into debt, could damage their credit rating and potentially end up with nothing to show for it.
Protecting Home Buyers: What Should be Done?
What can a home buyer do to protect their interests and minimize the risks of being scammed or misled in a real estate transaction? You can begin by becoming better aware of the types of scams targeting real estate buyers. Surround yourself with trusted, experienced professionals who conduct successful transactions on a daily basis. These people could include real estate agents, mortgage lenders or those in the escrow or title business. These individuals should be able to guarantee their services and back it with errors and omissions coverage. Be cautious about unsolicited “assistance” and mortgage-related offers from strangers or people who you have just met.
Furthermore, remember that not everyone seeking a mortgage loan may qualify for the best interest rates and loan terms. Many home buyers with less than stellar credit may have to find lenders in a secondary market where rates may be higher and terms less favorable. However, the services and mortgage loans of these legitimate lenders don’t necessitate that a scam or predatory lending is taking place. Often, lending terms are simply a reflection of the borrowers credit history and loan worthiness.
Fraud and forgery are criminal activities that should always be reported. There is usually some sort of recourse for those who have been genuinely scammed. The most frequent exception, however, is where wire transferred funds are involved. Be extremely careful in this area. A combination of knowledge, caution, and diligence can go a long way in protecting buyers through their real estate experience.
For more Scams and Misleading Tactics in Real Estate, please visit Kris Lindahl Real Estate.