For many homeowners, their home is their most valuable asset. This makes it imperative that homeowners protect this asset from real estate fraudsters. Real estate fraud is fraud committed in the connection with the buying, sale, rental, or financing of real estate. This type of fraud can be criminal or civil and affects renters and property owners. While anyone can be a victim of real estate fraud, real estate fraudsters often target seniors and economically vulnerable members of our community. Luckily, you can protect yourself by educating yourself about common types of real estate fraud. This blog post is part of a two-part series, with part one focusing on homeowner scams and part two focusing on renter scams.
There are many ways that scammers go after homeowners. The following are common fraud schemes and scams that target homeowners, though this list is by no means exhaustive.
Foreclosure “Rescue” Scam
In this scam, the scammers pose as foreclosure consultants, employees of a loan modification company, or some other similar title. These scammers target homeowners whose homes are in default due to too many missed mortgage payments (generally 3 missed payments will put you in default). Often, the homeowners are not able to refinance their mortgage due to poor credit or because the home is “upside down,” meaning the homeowner owes more money than the home is worth.
The scammers use public records to find you and contact you, making various claims, such as: they can help save your home, cure the default, or get your loan refinanced. Often the scammer will demand quick action, an up-front payment, or interest in your property as “collateral” or “security.” The fraudster may attempt to purchase your home before the foreclosure at a fraction of the property’s value. With this scam, the homeowner typically relies on the scammers’ promise of help and the homeowner takes no action to preserve their home. The fraudster will offer little to no real assistance and you end up losing your home to foreclosure.
Real Property Recordation Fraud
With this type of fraud, the fraudster creates a fake promissory note that shows that the homeowner owes money to the fraudster. The fraudster will forge and record a Deed of Trust that secures the promissory note. The homeowner may never know that this deed was recorded.
Reverse Mortgage Scams
This scam targets older homeowners who have accrued a significant amount of equity in their property. The perpetrator of the scam may be a loved one, caregiver, or a financial advisor who pressures the senior to take out a reverse mortgage. The scammer will claim that the money should be used for various things, such as an “investment,” as a gift, used to buy a car, or used to pay for “care.” Anyone thinking about taking out a reverse mortgage should consider the fact that reverse mortgages often have high closing costs and fees. You should also take into account the fact that the homeowner must continue to pay property taxes, homeowners insurance, HOA dues, and must maintain the home. If the elder loses the home to foreclosure, the scammer may take the loan proceeds.
Title Scam/Rent Skimming
With this scam, someone claiming to be a foreclosure consultant contacts a homeowner whose home is in foreclosure and offers to take over your mortgage and home title in exchange for a loan or quick cash. Often, the person claiming to be a consultant will promise that they have good credit and that they can take advantage of this good credit to refinance your loan and save your home for you. The homeowner is required to “temporarily” deed the home to the consultant and pay rent in order to live in the home while the consultant obtains financing. The fraudster may fail to apply the homeowners’ rent payments towards the mortgage and the house can be foreclosed on, with the homeowner losing both the house and the rent payments made to the consultant.
Know Your Rights
California has laws regulating practices by foreclosure consultants. According to state law, the following are illegal practices:
- Charge up-front payments
- Charge excessive fees
- Wage assignment (securing payment by making the homeowner sign their wages to a consultant)
- Use your property as security, take a lien on the property, and acquire an interest in the property
- Take secret payments from third parties
- Require the homeowner to set up a Durable Power of Attorney and designate the consultant as the homeowners’ agent
- Operate without a written contact
- Pressure the homeowner to sign a contract that does not comply with California law or waive their rights
Recognize the Signs of Fraud
You can protect your home by learning to spot the signs of homeowner fraud. Such signs include the following:
- You receive official documents for a transfer of your property, but you have no knowledge of this transaction or transfer
- You don’t receive your property tax bill
- You receive monthly documents for strange, unfamiliar loans
- You receive unsolicited communications about default or foreclosure, and you are pressured to act fast, pay cash, pay up front, or sign a contract quickly without reading it or seeking advice
- Someone guarantees that they can stop a foreclosure or modify a loan
- Someone advises you to stop making your mortgage payments and to give your payments to them instead
- Someone always meets with you in public places or your home, and doesn’t seem to have a real office
Remember, if something seems too good to be true, then it probably is!
Tips to Protect Yourself
There are many things you can do to protect yourself. If someone offers unsolicited advice and assistance, do your research before accepting that offer. Ask detailed questions and always make sure that you read and understand any documents you sign. Don’t pay up front and don’t pay cash or wire transfer. Using cash or wire transfer as payment methods is favored by scammers because money sent this way is hard to trace. If someone tries to do work for you without a written contact, this is a red flag, and you should slow down and be cautious. Don’t give personal or financial information out online or on the phone.
Where to Report Fraud
You can report scams by calling local law enforcement. In addition, report real estate fraud to the Contra Costa County District Attorney’s Real Estate Fraud Unit and fill out a complaint form.