Real estate fraud has persisted throughout the history of property transactions. While the techniques used for perpetrating fraud have become more sophisticated with the assistance of technology, there are often warning indicators that vigilant real estate professionals, loan officers, or title agents can spot to prevent fraud.
Detecting fraud in a real estate transaction boils down to a few fundamental practices: staying updated on the latest fraud tactics, educating your staff and clients about the warning signs, and trusting your instincts when something appears amiss.
The primary target categories of real estate fraud are lenders, real estate agents, title agents, homeowners, and the transaction itself. The main driving force behind any situation is financial gain. This is especially important when it comes to wire fraud, the riskiest and most expensive kind of fraud.
TARGETING THE TRANSACTION
Wire fraud, which is a financially devastating crime, is the result of a cybercriminal trying to reroute money from a real estate deal by adding new wire transfer instructions to the transaction. It is essential to maintain vigilance and use best practices in real estate transactions in order to reduce the likelihood of being a victim of this crime. Fraud can be significantly reduced by your knowledge and preventive actions. This is usually done by pretending to be one of the participants - a home buyer, seller, real estate agent or foreclosure officer - and sending new instructions via email or text message.
WHAT TO DO?
Real estate agents can follow these important protocols to prevent cybercriminals from trying to enter a transaction:
- Watch out for late transaction emails, especially those that suggest the transaction may fail if you don't act quickly. Always pick up the phone and call a number known to the parties to the transaction to check possible transfer requests or information that has already been transferred.
- Educate your homebuyers and sellers about this threat
- Provide customers with written instructions on how to identify, address and report fraudulent emails
- Work closely with the title agent to create rules and procedures that everyone must follow
- Warn your clients to avoid passing personal data – Social Security Numbers, wiring instructions, etc. – via email
- Avoid posting home sale details on social media until after the transaction has been completed
PROPERTY FRAUD
Some real estate scams target property. This can include vacancy scams where fraudsters pose as the owner to sell the property to an unsuspecting buyer.
Sometimes homes are sold without the permission of the owner, if a son or daughter sells the apartment from under an elderly parent, or during a divorce, the spouse sells the apartment without the consent of the other.
Title or deed fraud occurs when a fraudster files a new title or deed with the county, transferring property ownership to themselves. This is done with the intention of selling the property swiftly and making off with the proceeds. Notably, rental properties and abandoned properties are particularly susceptible to this kind of fraud, as the true owner is often absent and may remain unaware of the ongoing fraud.
Another category of property fraud involves sellers obtaining an inflated property appraisal, persuading the buyer to pay significantly more than the property's actual value.
WHAT TO DO?
- Exercising scrutiny when confronted with unusual requests, such as cash-only transactions or sellers urging for an expedited closing.
- Undertaking due diligence regarding property values if the asking price appears excessively inflated.
- Developing a comprehensive understanding of both homebuyers and sellers, and advocating for face-to-face meetings with all involved parties.
- Verifying the credentials of all participants in the transaction.
- Conducting research and validating the property's title history
- Exercising caution when dealing with sellers willing to accept prices significantly below the property's actual value.
- Exercising increased scrutiny in arm's-length transactions and offers that seem "too good to be true."
TRUST YOUR GUT
While we all welcome new transactions with open arms, it's equally crucial to maintain our commitment to safeguarding the integrity of our real estate market. Fraud poses a significant threat to this integrity.
The majority of fraud cases are unearthed by professionals who oversee various aspects of transactions, including:
- Appraisers who notice irregularities in recent sales data.
- Astute real estate agents who inquire into overly assertive sellers.
- Mortgage lenders who identify fabricated financial information.
- Title agents who meticulously scrutinize all facets of the buyers' and sellers' identities, the property's title history, and documents such as powers of attorney, contracts, deeds, and divorce decrees.
Always trust your instincts if something appears unusual or questionable within a transaction. You can conduct your investigations discreetly to avoid upsetting your clients, but more often than not, you'll find that your intuition was spot on.
By adhering to these precautions and practices, you can significantly reduce the risk of falling victim to property fraud.
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