Real Estate Fraud: Common Schemes and Strategies to Avoid Them

Real estate fraud is a prevalent and severe problem that can cost unsuspecting individuals significant amounts of money and even result in the loss of their homes. There are many types of real estate fraud, and fraudsters often use many different tactics, such as forging documents, falsifying information, and using straw buyers to deceive homeowners and property buyers.

According to the True Cost of Fraud study, mortgage-related fraud poses a significant financial burden on originators, servicers, and title/settlement firms due to its high volume and cost. Detecting, investigating, and reporting fraud is expensive for everyone involved in the real estate process. Recovering lost funds is even trickier.

Potential homeowners and buyers must remain vigilant and look for these real estate schemes to protect themselves from financial loss and legal repercussions. Some tips to avoid real estate fraud include conducting thorough research, verifying the authenticity of all documents and individuals involved, and seeking the advice of legal and financial professionals.

By being informed and cautious, homebuyers and other real estate entities can reduce their risk of falling victim to fraud.

5 Most Common Real Estate Fraud Schemes

According to the FBI, over 13,600 people become victims of real estate fraud every year. These real estate scams occur in many ways, but here are the most common real estate fraud schemes to avoid.

Mortgage Scam

A mortgage scam targets homeowners or potential homeowners. It typically involves someone pretending to be a legitimate lender, broker, or loan modification company and then using various tactics to trick the victim into giving them money or personal information.

Some common types of mortgage scams include:

• Equity stripping: This scam involves a lender offering a loan to a homeowner with equity in their home and encouraging them to borrow more than they can afford to repay. The lender may then take possession of the property, leaving the homeowner without a home or equity.
• Loan flipping: In this scam, a lender encourages a homeowner to refinance their mortgage multiple times while charging them high fees and points. Ultimately, this leaves the homeowner with a much higher debt load and lower equity in their home.
• Bait-and-switch: In a bait-and-switch, a lender or broker advertises low-interest rates or favorable loan terms to attract borrowers. They then change the terms or rates once borrowers commit to the loan.

Wire Fraud Scam

Wire fraud scams typically involve fake emails, texts, or phone calls that appear to be from legitimate sources, such as a real estate agent or title company. The scammers often pose as a bank representative or provide false information about the transaction. Their goal is to get you to wire money they can disappear with. Once the victim wires the money, it is difficult to recover.

Foreclosure Relief Scam

A foreclosure scam is a type of mortgage fraud that targets homeowners struggling to pay their mortgages and facing foreclosure. These fraudsters promise to negotiate with the lender, modify the loan terms, or even buy the home to help the struggling homeowner. However, these promises are usually false, and the fraudsters may charge the homeowner upfront fees or collect personal information for identity theft. In some cases, the scammers may even convince the homeowner to sign over the property title, resulting in the loss of the home.

Home Inspection Scams

Fraudsters often pose as licensed home inspectors or collaborate with legitimate inspectors to inflate repair costs or fabricate problems that do not exist. They may also conceal significant defects or safety hazards in the home, such as mold or faulty wiring, to make the home appear in better condition. Home inspection scams can result in homebuyers unknowingly purchasing a property with significant defects or costly repairs, leading to financial and legal complications.

Commercial Property Scams

Fraudsters involved in commercial property scams may use various tactics, such as offering fraudulent investment opportunities, falsifying documents, or misrepresenting the value or condition of the property. Victims of commercial property scams can include property buyers, investors, lenders, and government agencies.

How Can I Avoid Real Estate Scams?

Real estate scams are quite sophisticated, and fraudsters go to tremendous lengths to deceive homebuyers, sellers, and lenders. However, there are some steps you can take to avoid becoming a victim:

• Research the property and the seller: Research the property and the person or company selling it. Check out their background and credentials, and make sure they are legitimate. You can use websites like the Better Business Bureau or the National Association of Realtors to check the seller’s reputation.
• Get a professional inspection: Before buying any property, get a professional inspection to identify defects or problems. Be sure to check your inspector’s credentials and referrals.
• Be wary of deals that seem too good to be true: If a deal seems too good to be true, it probably is. Be cautious of properties priced significantly below market value, which could signify a scam.
• Don’t wire money or provide personal information: Be wary of sellers who ask for a wire transfer or other forms of payment that are difficult to trace.

Contact Our Houston Real Estate Attorneys for Legal Guidance

The Houston real estate market can be difficult for homeowners and realtors alike. At Pathway Property Lawyers, our Houston-based real estate attorneys are committed to providing legal guidance to clients facing real estate litigation issues. We aim to help you navigate the legal process so that you can focus on your future.

To learn more about your legal options, please call us at (832) 364-6234 or complete our confidential contact form. Our team safeguards your rights and property and guides you through the legal complexities.

Roger G. Jain

As long as I can remember, I have been inspired by courtroom drama. The story, regardless of who was fighting and for what cause, always came down to the very basic human traits of greed, jealousy, vengeance, deceit, ego, and pride. The skilled lawyer, always a good listener, could always find the heart of the case and convey it simply and eloquently to the jury and help the jury reach a just verdict. Read more here.