Digital real estate deals are convenient, but home buyers and sellers beware. As with any transactions involving the electronic transfer of money, savvy scammers are increasingly trying new ways to divert your funds into their own accounts.
Real estate is generally considered a safe and secure investment. However, with the rise in sophisticated online scams and fraudulent activities1, it’s crucial for home sellers and buyers to be vigilant and proactive in protecting themselves from real estate fraud. The stakes are high. Not only could you lose your life savings, you could also lose your home.
To help prevent a worst-case scenario like that, read on to learn about some common types of real estate fraud, what you can do to avoid becoming a victim and steps to take if you do get scammed.
The scope of real estate fraud
Real estate fraud encompasses a wide range of deceptive practices aimed at exploiting unsuspecting individuals in property transactions. It’s a significant concern, with substantial financial losses reported each year. Take a look at these sobering stats surrounding the magnitude of real estate fraud:
- In 2021, 11,578 people reported losing $350,328,166 due to real estate-related scams nationwide, a 64% increase from the previous year.2
- According to the Financial Crimes Enforcement Network, the real estate sector filed $893M in losses due to fraud during 2020-2021.3
- In 2022, losses due to real estate-related email fraud reached $446.1 million, compared to $430.5 million in 2021 and $242.9 million in 2018. This represents approximately 16% of the total losses reported for business email compromise crimes in 2022.4
Types of real estate fraud and how to protect yourself
To protect yourself from real estate fraud, educate yourself and be aware of the various types of scams out there. Here are some common schemes.
Wire Fraud: Real estate wire fraud (REWF as classified by the FBI) is the most common real estate scam. It often involves Business Email Compromise (BEC) scams, where hackers gain unauthorized access to email accounts and pose as an agent, closing attorney, involved in a real estate transaction. They then deceive victims into wiring funds to fraudulent accounts, often directly to a cryptocurrency exchange or to a financial institution holding a custodial account for a cryptocurrency exchange. Protect yourself by implementing strong email security measures, double-checking payment instructions and confirming changes in wiring instructions directly with trusted individuals or entities.
Title Fraud: Fraudsters impersonate homeowners and fraudulently transfer property titles. They then secure loans using the stolen property as collateral. To prevent falling victim to title fraud, regularly monitor your property title through public records and consider purchasing title insurance.
Mortgage Fraud: Mortgage fraud involves deceitful practices by ‘insiders’ such as bank officers, appraisers, mortgage bankers and underwriters to make a profit. Beware – and report – lenders who encourage you to falsify income documents, inflate property values, or provide other misleading information during the loan process. To prevent mortgage fraud, work with reputable lenders, do your due diligence and consult with a real estate attorney to review all loan documents before signing and closing on a home.
Rental Scams: Rental scams commonly occur when scammers advertise fake rental properties or offer properties they do not own. Victims are required to pay upfront fees or deposits, only to discover that the property does not exist or is already occupied. To avoid rental scams, be cautious of suspiciously low prices, verify the property’s legitimacy and meet the landlord or property manager in person.
What to do if you’re a victim
Despite taking preventive measures, it’s still possible to fall victim to real estate fraud. If you suspect or identify fraudulent activities, follow these steps:
- Document the fraud. Collect all relevant evidence, including emails, documents and any other communications related to any suspected fraudulent activity. This documentation will be crucial when reporting the incident and seeking legal assistance.
- Report it – immediately! Contact your local law enforcement agency to file a complaint. Additionally, report any incidents to the appropriate federal agencies such as the FBI or the IC3. Providing them with detailed information and documentation can aid in their investigations and prevent others from falling victim to the same scam.
- Notify all parties involved in your transaction. Let your bank, real estate agent, mortgage and title company and/or attorneys know about any fraudulent activity. They can guide you through the necessary steps to take and may have additional resources to help you resolve the situation.
- Seek legal advice. Consult with an attorney specializing in real estate fraud to understand your rights and explore legal options. They can help you navigate the complexities of the legal process and potentially recover any financial losses.
Real estate fraud poses a significant risk to individuals and the real estate industry as a whole. By familiarizing yourself with the types of fraud, adopting preventive measures, and knowing what steps to take in case of fraudulent activities, you can better protect yourself against these scams. Stay vigilant, conduct thorough due diligence, and seek professional assistance when needed to safeguard your investments and ensure a secure real estate transaction.
Be sure, too, you’re dealing with a reputable, reliable and secure online real estate company like Offerpad, where your privacy and the security of your information is always protected. Click here for additional information on our privacy policy and website terms of use.
1 The top frauds of 2021 | Consumer Advice (ftc.gov)
2 FBI Warns of Spike in Rental and Real Estate Scams — FBI
3 Financial Crimes Enforcement Network, “Business Email Compromise in the Real Estate Sector: Threat Pattern and Trend Information,” January 2020 to December 2021. https://www.fincen.gov/sites/default/files/shared/Financial_Trend_Analysis_BEC_FINAL.pdf
4 Record Dollar Losses Incurred Due to Email Fraud in Real Estate – Bollyinside