Buying a home is a big event. It’s something most people spend months or even years saving for and thinking about. It’s usually the culmination of a lot of hard work.
When buying a home, especially if you’re a new buyer, it can be easy to let your guard down. You get emotionally invested. You’re forced to make decisions before you’re ready. You’re going through a lot of new steps and paperwork that you’ve not seen before. And you have to rely on many people to help you through the process.
It’s a time of life when you’re particularly vulnerable and trusting of people you don’t know well.
And that’s why criminals target you.
In this article, we’ll spend time shedding light on some of the most common real estate scams you should be aware of before, during, and shortly after you buy your home.
Our goal is to help you better understand why these scams exist and how they occur so you can better protect yourself from criminals hoping to prey on your vulnerabilities throughout the homebuying process.
If you’re getting ready to buy a new house, prepare yourself by learning about these four common real estate scams:
1. Escrow Wire Fraud
Escrow wire fraud, also known as mortgage wire fraud, is a scam that relies on social engineering as a way to trick eager homebuyers into wiring down payments to fraudulent bank accounts.
In an article about mortgage wire fraud, the National Association of Realtors shares that “more than 13,000 people were victims of wire fraud in the real estate and rental sector in 2020, with losses of more than $213 million—an increase of 380% since 2017, according to FBI data.”
In this scam, cybercriminals dupe eager homebuyers into thinking that they are successfully completing one of the final steps in acquiring a home: the downpayment. A criminal sends an email to an unsuspecting homebuyer that looks and sounds like it’s coming from the lender or real estate agency they’ve been working with. It gives the buyer instructions on how and where to wire money so it can be placed in escrow ahead of closing.
Homebuyers who fall victim to this scam often only find out they’ve been deceived when a legitimate person from their lender or real estate agency reaches out with the actual routing information.
It’s a stressful and costly mistake to make. There are countless examples online of people who fell for this scam and could not cancel a wire transfer or retrieve the money after learning they’d sent it to an unknown location.
How to Protect Yourself
To prevent yourself from becoming a victim of this scam, follow these recommendations:
- Spend time closely reviewing the name, email content, and email address you receive that provides you with wire transfer information. Make sure the email address matches the email address you’ve been communicating with. Check the spelling of the first and last names. Inspect the content of the email closely and look for oddities.
- When you receive information on how to complete a wire transfer, make sure you confirm the information with more than one form of communication.
- Look closely at the documents you’re receiving from the people you’re working with. Don’t gloss over anything. Read every document carefully and in its entirety.
- Make sure at least one other person, such as a parent, spouse, or other family members, can help you review and evaluate documents and emails as part of your process to close on a house.
2. Home Title Theft
Home title theft, also known as home title fraud, happens when someone steals the title or deed of your home for the purpose of financial gain.
Title fraud occurs when someone fraudulently changes the name on your title from you to them, effectively stealing your home. Then, the criminals take out loans using your home as collateral, pocket the money, and disappear.
A common misconception about home title theft is that criminals are trying to steal your physical property, but this is not the case. In reality, a criminal is not interested in obtaining your actual house. Instead, what they’re actually after is your home equity.
They want to be able to use your home equity as collateral when obtaining fraudulent loans, and the way they do it is by forging home title documents.
Home title theft can be devastating for homeowners. It can take thousands of dollars and months of time to undo the damage done by a criminal who successfully steals a home title from a homeowner.
How to Protect Yourself
To prevent yourself from becoming a victim of home title fraud, follow these recommendations:
- Watch your mail closely and look for account notice updates, letters from loan companies you don’t recognize, and loan default notices.
- Use a monitoring service like Home Title Lock to get notifications when changes to your home title have been made. This service also gives you access to a team of resolution experts that you can work with if your title has been altered or stolen.
- Monitor your credit report. Look for any discrepancies or unexplained changes that could point to fraudulent activity.
3. Predatory Lending
Debt.org describes predatory lending as “any lending practice that imposes unfair or abusive loan terms on a borrower. It is also any practice that convinces a borrower to accept unfair terms through deceptive, coercive, exploitative or unscrupulous actions for a loan that a borrower doesn’t need, doesn’t want or can’t afford.”
This practice ignores the borrower’s ability to pay back the loan in favor of the financial gain of the lender.
There are many different examples of predatory lending practices that you should know about and be able to recognize when applying for a home mortgage loan. Here are some of the most common to watch out for:
- Inflated fees and charges that look much higher than others
- False disclosure of the true costs of a loan
- Loan flipping, which encourages the borrower to refinance into a loan with a higher interest rate
- Balloon mortgages, which offer lower payments upfront but excessively high payments later on
- Negative amortization, which makes a monthly payment too small to cover even interest on the loan
How to Protect Yourself
To prevent yourself from becoming a victim of predatory lending, follow these recommendations:
- Be skeptical of loan offers that arrive unsolicited through the mail.
- Check interest rates and fees against ones being offered by well-known lenders.
- Don’t succumb to any sort of pressure to sign paperwork quickly.
4. Fake Lender Phishing
Fake lender phishing refers to a type of scam where criminals pretend to be a borrower’s lender to extract money or personal information from them.
In this scam, criminals use emails or phone calls to convince a borrower to wire money for a missed mortgage payment or to provide private information like social security number, an account password, or answers to security questions.
Fake lender phishing relies on social engineering and the ability to make emails look, feel, and sound as though they are coming from your actual lender, even though they aren’t. They may use a company’s logo, a similar-looking website, or even real names from people who actually work for the lender you know and trust.
How to Protect Yourself
- Be aware of the information your lender will ask you to provide over the phone or through email.
- Look for discrepancies in design, misspelled words, hidden text, or suspicious email addresses before responding to an email.
- Type phone numbers into Google to try to verify whether or not they are legitimate.
- Never provide your passwords or answers to security questions over the phone or in an email reply.
- Trust your instincts. If a call or email seems suspicious, it probably is.
Buying a home should be a big, exciting milestone in your life. It shouldn’t be a moment when your financial situation falls apart because of a savvy criminal. Knowing these common real estate scams ahead of time can help you protect your assets so that you can move into the home of your dreams.