Buying your very first home is one of the most exciting times of your life. Unfortunately, the joy of reaching this milestone can blind you and make you vulnerable to real estate scams. Learn more about the three most common scams first-time homebuyers are subject to in this RealEstate.com article by Casey Fleming.
You’ve done it! You decided to pursue the American Dream. You’ve saved up and are ready to buy your first home. Congratulations! You are now a ripe target for real estate fraud.
Why? Because you are excited and inexperienced, you are particularly vulnerable to fraudsters. They know that you don’t have the experience to spot fraud, and you’re so excited that you may not be vigilant. And, you have cash. Maybe not a lot (in your mind), but it’s enough to make you a very attractive target to a fraudster.
Would You Wire Your Money to a Stranger?
The most common fraud these days is wire fraud. Once you go into contract on a purchase, you will be asked to send money to the escrow company at least twice — once for your earnest money deposit and once for your down payment and closing costs. You may be asked to wire money by your escrow agent, real estate agent, mortgage advisor, processor, transaction coordinator or even the escrow officer’s assistant. And because you’re excited, you tend to do as instructed.
But wait. Say fraudsters hack the real estate agent’s computer networks and look through pending transactions. If they see your file, they know exactly how much money you have to put into escrow and when, where your escrow is being held, what your escrow number is and all of your contact information, including your email address. That’s all they need.
Knowing that the big money isn’t deposited until right before close of escrow, they wait patiently for the right moment. Then, just before close of escrow, they send you an urgent email that appears to be from your escrow agent or real estate agent that says, “We need you to wire the rest of your money now!” The email includes wiring instructions, which, of course, don’t route to the escrow company’s bank.
Once your money is wired, it’s gone. There goes your down payment, your closing costs, your savings … and, of course, your new home. And since by now you’ve released contingencies, the seller can claim your earnest money deposit because you can’t close. Yep. You can lose that, too.
To protect yourself, ask all involved agents what steps they take to keep your information secure. Then, when you’re asked to send money, don’t make a move until you’ve confirmed the authenticity of the email by calling the person who appears to have sent it. Pick up the phone. Don’t email.
Would You Hire Someone with No License?
Wayne Bell, the California real estate commissioner, says that most complaints today involve unlicensed individuals. In every state, a real estate broker’s license is required to sell, rent or manage real estate. Brokers may hire licensed salespeople, who perform these duties under the broker’s supervision, but an unlicensed person may not perform these duties under any situation.
A common scam occurs when your money is not deposited into a trust account, and of course, disappears. When you make an offer on a home, you typically give the broker a check for the earnest money deposit. This money must go into the broker’s trust account or directly to escrow if the offer is accepted. But sometimes – especially when an individual is not licensed – it doesn’t.
How bad could it be? In October 2017, a New Jersey resident, Peter Live, was arrested for doing this. He took more than $75,000 from five buyers, which he then deposited directly into his own business accounts and then withdrew for personal expenses.
Your state’s real estate commissioner oversees licensing and is an excellent resource to protect yourself. In California, you can check licensing status at DRE.CA.gov.
How Much Would You Pay For Something You Could Get for Free?
Another very common scam involves selling you a copy of your deed. When you buy your home, the grant deed is recorded at the county recorder’s office and becomes public record, so anyone can see that you’ve just bought your home.
Shortly after closing, you receive an official-looking statement from a company with an official-sounding name telling you that you need a copy of your deed and property assessment profile. It might say “RECORDED DEED NOTICE” or something to that effect. The notice has your county’s name all over it and tells you that for $86 (give or take) the company will send you a copy of these documents.
The thing is, the county will send you a copy of the deed anyway, it just takes some time to get it. And the assessment profile is public record, available in most counties online for free.
Granted, this scam will only set you back $86, but it’s still a scam.
There are more, so be vigilant and aware. Work only with trusted professionals with verifiable licenses. Don’t send money without verifying the request as authentic, and double-check the validity of any request for money, no matter how small an amount.