Real estate scams to be wary of

Unfortunately, the property market is no stranger to real estate fraud and investment scams. Criminals have become exceptionally capable of swindling considerable amounts of money out of prospective property buyers / renters and investors, thanks to the advancement of technology. Because society has become so dependent on technology, they open themselves up to exploitation by these nefarious racketeers.

Perhaps most frightening is that illicit property dealings are not limited to just one entity – these marauders include elaborate property syndication schemes, beguiling property attorneys, cunning real estate agents and elusive contractors. Therefore, it is important that you remain vigilant and are aware of the convoluted surfeit of property scams festering within the world of real estate.

Title Fraud

Despite being relatively uncommon, title fraud is a particularly malignant form of property extortion. The fraudster begins by stealing the identity of an individual and then proceeds to illegally procure property by using forged documents and posing as that individual. A property is then transferred into his or her name after the forged documents have been registered, after which a mortgage bond is taken out against the newly acquired property. Once the line of credit or mortgage has been obtained, the fraudster disappears, leaving the duped owner responsible for future payments.

Property swindlers are more inclined to target homes that are free and clear of mortgages as they offer fewer complications. Homeowners who rent out their property and high value properties free of mortgages tend to be more vulnerable to title fraud as substantial mortgages can be taken out with them. However, homes with existing mortgages are not entirely safe from these fraudsters either. They have been known to get a forced discharge of an existing mortgage. There have also been cases of lawyers and notaries absconding after being trusted with funds meant to pay off an existing mortgage.

Title fraud can be avoided with ‘title insurance’. This type of insurance also guards against encroachment issues, faults in surveys and public records, as well as existing liens against a property’s title. Precautions should also be taken to protect your personal information from identity theft.

Title Fraud

Vacant Home

The vacant home rental scam is one of the most common types of real estate fraud. A profusion of empty houses following the increase in recession-driven foreclosures has become a breeding ground for corrupt activity. Fraudsters take advantage of the plenitude of uninhabited homes by locating these homes and creating bogus online advertisements pretending to be a real estate agent or the owner of the property. They then break into the homes (often changing the locks so the landlords are unable to gain access) and show them to unsuspecting tenants. Once these tenants have agreed to rent out the home, the fraudster requests a wire or cash payment of the deposit and first month’s rent, after which they disappear into oblivion.

Fortunately, there are a number of red flags that can help property seekers identify charlatans and sham properties. Suspicious behaviour includes: ‘landlords’ who request a money wire; an attempt to solicit a deposit or rent before the lease has been signed or a meeting has taken place; and ‘landlords’ who claim that they are unable to meet for a particular reason (i.e. they are “out of the country”).

Vacant home rental scams can be avoided by checking the deed registry for the property owner’s name and requesting identification from the person showing the home. Doing a background check on the prospective landlord is also recommended before signing the lease.

Vacant Home

Renting foreclosed property

The renting of foreclosed property or soon to be foreclosed property scam works in much the same way as the vacant home rental scam. Fraudsters find homes that have been foreclosed on or are soon to be foreclosed and show them to prospective tenants. A fake or temporary number is supplied and the keys to the property never handed over. After the fraudster has collected the deposit (sometimes from several prospective tenants at once) he or she disappears, leaving a trail of victims duped out of their money and with no place to live.

Other types of foreclosure scams include: the phantom help; the bailout; and the bait-and-switch.

  • The phantom help scam involves a ‘rescuer’ charging exorbitant fees for phone calls or admin that does not result in the home being saved from foreclosure. These fraudsters lull homeowners into a false sense of security and charge them for work that could have easily been carried out without their help.
  • The bailout scam involves a fraudster deceiving the desperate homeowner into signing over the title of the home with the promise of undisturbed residence in the home and being able to buy it back over time. Unfortunately buying the property back becomes impossible, resulting in the homeowner losing possession and the scam artist maintaining equity.
  • The bait-and-switch is a duplicitous scam that involves a fraudster tricking the homeowner into signing documents that surrender ownership instead of bringing the mortgage current. Often homeowners only realise they have been deceived when they are evicted.

Renting Foreclosed Property

Fake property manager renting out home

Despite its seemingly simple approach, this type of scam is particularly intricate and devastating as it entails identity theft. Fraudsters find existing property listings by legitimate real estate agencies and alter the text of these listings before posting it on other websites (often free websites like Gumtree). Prospective tenants respond eagerly to these advertisements because the original price has been reduced drastically, thus appealing to resolute home seekers. The fraudster then claims that a cash deposit or application form is required to secure the property. Overwhelmed by desperate yearning, home seekers release their money or information to the imposter, thereby opening themselves up to identity theft. Before viewing arrangements can be made, the fraudster disappears.

When encountering properties that seem too good to be true you should contact the real estate agency and confirm the details of the listing and agent. It is also recommended that you do research about the area where the property is located and check the current average price range for rentals. If the situation seems veiled and the property manager requests a wire transfer or personal information, but is unable to meet for whatever reason, it should raise red flags.

Fake Property Manager

Confronting a scam artist or fraudulent property can be an unnerving experience. However, if you are aware of common real estate scams and know how to identify them, you could save yourself from a potentially grievous situation and avoid being another victim of this lawlessness.

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About BetterLife Home Loans

Since 2003 BetterLife Home Loans has been SA’s No.1 Bond Originator, handling the entire home loan application process on your behalf – free of charge! Our aim is still to source the best interest rate for you by submitting your home loan application to all the major banks. There is no easier way to apply for a Bond or Home Loan in South Africa!

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