8 Major Scams in Real Estate - What You Need To Look Out For

8 Major Scams in Real Estate - What You Need To Look Out For

8 Major Scams in Real Estate - What You Need To Look Out For
Real estate is a major industry that is susceptible to scams just like any other industry in the world. When you go to buy land or a property, it’s important to know what current scams are being conducted.

Unfortunately, there are many that the average person would fall for unexpectedly.

You need to know what to look out for so that you don’t get scammed in the process. We’re going to take a look at the most common scams the real estate industry is currently experiencing.

  1. Document Forgery

One of the biggest scams (and longest running) deals with document forgery. There are still those that will forge documents to make it look like they own a piece of property when they don’t. And, these people often ask for cash from the buyer who later finds out that he has been scammed when he’s kicked off the land by the property owner.

  1. Illegal Flipping

Depending on your local jurisdiction, there may be rules in place that do not allow illegal flipping of a home to occur. A good example of this would be:

- Buying a home for $120,000.

- Selling the same home for $240,000.

The problem is that homes can’t be purchased and resold quickly for prices well above the appraised value of the home without justification. This ensures that a wealthy investor can’t buy all the homes in the area and resell them for unrealistic prices, effectively monopolizing the real estate market.

  1. Fraudulent Loan Origination

There are times when the buyer knows they really can’t afford a mortgage, but they’ll do anything to land the property. Lenders are supposed to safeguard these ill-advised investments for both the borrower's and lender’s sake.

Real estate professionals that offer to help unqualified individuals get these loans is running a scam.

Usually, the agent will try to get a person into an FHA-insured mortgage and may even falsify documents to get you in the home. It’s not in your best interests to own a home or property that you simply can’t afford.

  1. Short Sale Fraud

There are primary and junior lenders that end up involved in short sale fraud. Primary lenders put a cap on junior lenders. But, the sale of the home cannot go through unless all junior liens are satisfied.

Junior lenders are not happy about having their payments capped, which can result in fraud.

Many junior lenders will ask for money that’s outside of escrow and payments that are never disclosed to the primary lender. Disclosure is the easiest way to stay safe against this type of fraud. All payments made to a junior lender must be disclosed as part of the short sale transaction.

Otherwise, you’re part of the fraud that occurred if you’re the buyer paying payments that weren't disclosed.

  1. Misrepresented Property Listings

Statistics show that 9 out of 10 people will look online first for real estate before going to see a home in person. The problem is that many sites, such as Craigslist, will have homes for sale, and when you arrive, you’re not at the same home that you saw in the listing.

Usually, you’ll be told the property is no longer available, and that’s why you’re at the current property.

When you enter the home, you’ll find out that it’s more expensive, may be smaller, or needs a lot of work. The short way to remedy this problem is to never waste your time with a property that was misrepresented from the start.

  1. Wire Fraud

Wire fraud is a common occurrence and should never occur in today’s real estate industry. What happens is that the real estate agent or seller will ask you to wire them money to hold the property on your behalf.

The problem is that many scammers will use this tactic when they don’t own the home.

You may find that the land or home is owned by another individual, and the scammer gained access to the property. The moral of the story is to never wire money to a landlord or seller unless it has been legally verified and documented.

  1. Scammers Posing as Owners

When dealing with property, many scammers will pose as owners and try to ask for a cash sale. Imagine an unused, empty lot of land that is in Florida. If the owners never visit the property, what is stopping a scammer from posting the listing online and trying to sell the property to you?

You’ll never get the deed to the property, but you will be asked to provide payment.

A false deed may even be forged and handed over to you. The issue is that land may be an investment someone is holding, and the owner may not visit the property for years. If you fall into this scam, you may even think you own the land and may start utilizing it before finding out you’ve been conned.

The best way to fight back against this fraud is to do your due diligence.

Find out who owns the land by going to your local county clerk’s office and verify that the seller of the land actually owns the property you want to buy.

If the seller is rushing you to buy the property right this moment in cash, chances are that something is amiss.

  1. Phony Seminars

You’ve been invited to a seminar where you may even be promised a free gift to attend. The seminar intends to teach you about the world of real estate investing, and the initial offer sounds so good that you wouldn’t dare pass it up.

There are two things that can happen here:

- You’ll need to pay more for insider secrets and another seminar that will show you how to profit off of land.

- You’ll be pushed into a “hot” investment opportunity to buy land, but you need to take advantage of it now before someone else does.

Unfortunately, these seminars are fly-by-night operations that will steal your money without you learning any proven investment techniques or owning property that you paid for legally.

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