When it comes to housing, mortgage and renting, there are plenty of hucksters out there ready to party you with your hard earned money. In fact, fraud in the real estate market is a lot more prevalent than you may think, with California home to four out of the top ten zip codes, and ten out of the top 25, when it comes to scams and fraud.
Each year, billions of dollars are siphoned off illegitimately by criminals who set out to sham the real estate, mortgage, and housing system. But it’s not only shady career felons, professional con artists, and organized crime bosses that perpetrate this kind of fraud, as plenty of regular citizens also dabble in doing the wrong thing.
In fact, an FBI special report on fraud states that guilty parties include Realtors, mortgage brokers, loan officers, lenders, appraisers, underwriters, accountants, attorneys, land developers, investors, builders, bankers, escrow and title employees, and plenty of landlords, renters, and plain old lawbreakers.
In this series, we’ll bring the most common scams from real estate, housing and renting to light, allowing you to protect yourself from being taken, too.
1. Straw-Man schemes
During the real estate boom of the mid-2000s, the market was white-hot, with homes appreciating so fast that it was all-too-easy to get a mortgage in someone else's name, and then cash in with a bogus sale, cash-out refinance, or over-appraisal.
In 2010 alone, more than $10 billion in mortgage loans originated based on fraudulent data on applications. Financial institutions also file their own Suspicious Activity Reports, and that same year, they reported $3.2 billion in losses, a 16% increase from 2009 and a shocking 117% increase since 2008.
The "Straw Man" was usually the person presented on paper to the banks, lenders and for the sake of the real estate transaction. They're usually someone with good credit, a legitimate job, etc., so everything was put in his or her name, which protects the real masterminds. Once the home/loan closed, the Straw Man got a small percentage of the profits for their trouble. Unfortunately, they were also usually the ones that got led away in handcuffs when the Feds started investigating this fraudulent transaction.
"Slamming" is the street term for this scam, entailing when someone signs up for utilities like water, electric, gas, etc. in your name. There are a variety of ways they can run this cam, but often they knock on your door claiming to be a legitimate rep from the utility companies, offering to switch your account and save you money. Once you give them your personal and even financial information, they can open new accounts in your name, which you'll only find out about six months down the road when your own lights are shut off for non-payments in your name, and a host of collections hit your credit report.
3. The moving company holds your items hostage
Too often, moving companies run a hustle where they extort you for more money before delivering or even releasing your stuff. This happens most often when homeowners hire amateurish, unlicensed, and fly-by-night moving operations. Once they get your things on the truck and drive away, you'll probably get a call from the owner of the company saying that your items were over weight, over volume, or some other made-up story. Or they may just come out and tell you that if you ever want to see your boxes, bags, and furniture again, you better come up with some more cash.
Either way, the only way you can get them back is to pay more. Maybe you've signed a contract with fine print or maybe not, but having strangers hold everything you own in the world ransom is a terrifying experience, so unwitting homeowners usually just pony up the cash.
4. Collecting bogus rental application fees
This one is fairly simple, but also extremely difficult to detect and avoid. The enterprising con man advertises a rental property that’s just become available, usually for way less than market value. He or she may do open houses, put up CraigsList ads, or advertise it online by other means. When applicants express interest, they’re told that the house is going to go quickly since it’s such a good deal, so they should submit their application immediately if they want a chance.
The usual rental application comes with a $25 fee, of course, which covers the credit check and possibly a background check – all standard for rentals. However, this landlord/scam artist collects scores or even hundreds of applications, tossing them in the trash, and putting all of the $25 fees in their pocket without running one single credit check.
When no one hears back from the landlord, they just assume that they didn't get it, or they're told someone else got the home. In some cases, the scammer doesn't even own/manage the property, and they run this game online with ten houses at the same time!
In a more aggressive version, they collect first month’s rents and down payments from prospective renters en masse, but then no one is there to give them the keys on move-in day.
5. Renters hustle landlords, too
The homeowner isn't always the one in control and running game, as plenty of tenants can cheat money from their unsuspecting landlord. We've all heard horror stories about tenants that move in and just flat out refuse to pay. By the time the landlord can take them to court and have them forcibly evicted, they've been in the property for six months or so without paying a cent, usually also doing costly damage to the property.
But a more sophisticated scam looks to exploit the timing (and trust) between renter and landlord when the lease is signed. Renters for a long-term lease or vacation rental say they want the property and send an advanced check. However, they make an intentional mistake by sending way too much money, and then confess that they were confused, thought it would cost more, or wanted to pay several months in advance. The landlord then agrees to send them back the overage (or just hand them the cash) to make it right, but when he or she does so, the tenant is never heard from again. And their original check in that big amount? It either bounces or was a phony check, all together.
Unfortunatley, we have a lot more scams to expose, so look for parts #2 and #3 of this blog series!