Finding a place to live can be an exciting but stressful experience. Between balancing costs, closing documents, and square footage, the last thing a homeowner wants is to become a victim of a real estate scam. By establishing yourself as a resource for clients, you can protect your clients from fraud and improve their homebuying and renting experience.
In the following sections, you’ll learn more about why real estate is a target for criminals, examples of common real estate scams that target homebuyers and renters, and best practices for preventing fraud when buying and renting property.
Why are housing scams so prevalent?
Real estate is a common target for criminals due to the large sums of money involved in transactions as well as the sharing of sensitive information among multiple parties. According to a study conducted by FinCen, real estate is the third most common sector for fraud attempts behind construction and commercial services. Housing scams are prevalent across all aspects of the housing industry, with criminals targeting both renters and owners.
Traditional real estate transactions revolve around email, which makes them vulnerable to cyberattacks. The FBI announced in its 2020 Internet Crime Report that Business Email Compromise (BEC)/Email Account Compromise (EAC) complaints resulted in over $1.8 billion in losses in 2020 alone. Despite growing awareness around cybercrime, it continues to be a threat in the real estate industry.
Common real estate scams and fraud
Being aware of common forms of real estate fraud is an important step in avoiding scams. Use the following examples to learn more about how criminals target homebuyers and renters to protect your clients from becoming the next victim of fraud.
Wire transfer fraud
A common form of cybercrime is real estate wire fraud. This form of fraud often targets homebuyers as they navigate the process of buying a home. By hacking into email and other forms of communication, criminals can gain access to bank accounts, social security numbers, and other sensitive information. With this information, criminals can intercept transactions and steal hundreds of thousands of dollars from your clients.
Home title theft
Home title theft, also known as deed theft, deed fraud, or house stealing, occurs when the title to a property is obtained illegally without an owner’s consent. Title theft often occurs at critical stages of sales and refinance transactions, where funds and sensitive information are passed between parties. Thieves often acquire the information they need to execute a title theft by assuming the identity of a real estate professional or third party. Deed theft recently made headlines in New York where a Long Island man forged deeds and falsified documents to acquire two properties in Harlem. Victims of home title theft are encouraged to report cases to the Federal Trade Commission (FTC).
Mortgage fraud scams
Homebuying can be an intimidating and expensive process, so homebuyers may be misled by “no strings attached” loans. This type of mortgage scam may promise a loan with low interest rates or no closing costs. Once the loan is finalized, the new homeowner may discover higher interest rates and undisclosed fees. Avoiding these scams starts with working with reputable lenders and encouraging clients to carefully review their closing documents. Using a secure closing portal allows you to share documents and communicate with clients to help them understand all aspects of the closing process.
In the wake of financial hardships, homeowners may fall behind on mortgage payments and risk losing their home. In this situation, scammers may offer foreclosure relief to homeowners desperate to save their property. Unfortunately, foreclosure relief scams have become more prevalent during the pandemic; targeting homeowners who may have lost their jobs. If financial challenges are preventing a borrower from fulfilling mortgage payments, encourage them to talk with their lender to identify options for modifying loans, requesting forbearance, or other solutions.
According to research conducted by Apartment List, 5.2 million U.S. renters have lost money from rental fraud. Renters may experience a variety of scams, which can lead to different levels of financial loss. A common rental scam involves fake rental advertisements. In this case, a scammer creates an ad for an apartment and attempts to collect a deposit or lease payment from a potential tenant. The FTC warns that any payment requests—especially via wire transfer or cash—prior to meeting a landlord or signing a lease are red flags for rental scams. In other scenarios, scammers may lie about amenities (such as in-unit laundry or air conditioning) to increase the rent they’re able to charge for a unit.
Unfortunately, real estate scams don’t end when a homeowner receives the keys to their new home. Moving can provide additional opportunities for scams. Moving scams tend to fall into two categories: (1) companies that overcharge with undisclosed fees and (2) companies that accept a deposit and then disappear without a trace (with or without the mover’s belongings!). To avoid moving scams, the Federal Motor Carrier Safety Administration (FMCSA) recommends getting at least three quotes from potential companies and researching each company to ensure that they’re a reputable business. The FMCSA also warns that moving companies that request cash or large deposits are usually red flags for fraud.
Preventing real estate fraud
Protecting against real estate scams and fraud involves safeguarding personal information and being aware of how criminals target homeowners and renters. Real estate fraud is constantly evolving so nothing can prevent it entirely, but use the following best practices in an effort to help your clients avoid common forms of fraud.
- Encourage clients to do their due diligence: Buyers and renters should research companies and individuals with whom they partner. Encourage them to read online reviews and talk to real estate professionals about past experiences with certain companies or individuals.
- Make yourself a resource for customers: Although homeowners and renters have access to more online resources than ever before, they still need real estate professionals to help guide them through the industry with their expertise.
- Warn clients about common red flags: If something seems suspicious, encourage clients to ask companies for additional information. Reputable companies will be clear about the information they need and why they need it.
- If fraud occurs, encourage clients to file complaints with the FTC and the BBB’s scam tracker: Victims of real estate fraud should file a report with the FTC as a first step in repairing any damage. This government website can help victims report and recover from identity theft. Additionally, reporting a scam to the Better Business Bureau can warn others about potential scams.
- Create a culture of security: Protecting client information starts with your internal security practices and technology. Learn more about how Qualia is committed to being the real estate industry’s leader in data security and privacy.