Jun 28 2019 19494 1
Agents, particularly those new to the real estate industry, may be unaware of the various risks surrounding a transaction. From wire fraud to title-related scams, today’s consumers, agents and other transaction vendors can be at risk of losing several thousand to hundreds of thousands of dollars in a matter of days.
The dangers are increasing—the Consumer Financial Protection Bureau (CFPB) reports that phishing attempts have increased 1,100 percent between 2015 and 2017, and in 2017 alone, transaction cost losses due to mortgage fraud reached nearly $1 billion.
As many will say, consumer awareness is the No. 1 way to avoid being victimized by a real estate scam. However, this is made significantly easier if agents know what these dangers are and how to properly educate their clients on how to avoid them.
Here are a few real estate-related scams and how they could have been prevented:
For a family in Florida, who was, at first, completely unaware that any fraud had occurred, losing their home was a real possibility. Susan Spofford had found the dream home for her and her family on the Treasure Coast. Their offer was accepted, and the process was moving along smoothly—right up until the closing. When her attorney asked them to provide the $77,000 required for closing costs, Spofford knew something was wrong—they had already paid the sum via an email request for a wire transfer. The family had become a victim of wire fraud via a sophisticated email hack. While the Spofford family was lucky enough to be able to pay for the closing costs at the last minute, they did lose out on $77,000 dollars, which they will likely never see again.
How could this have been avoided? Here are the tell-tale signs that the request was not legitimate:
The email address was not a perfect match.
Although the display name matched that of the attorney’s secretary, and the office’s logo and contact information was correct, the email address itself was slightly off. In the case of email phishing, a single letter may be switched out, or the sender may have changed the account from @gmail or @outlook to something that looks very similar.
Often, when it comes to email-related scams, the fraudsters will try to get everything as close as possible in order to bait the target. Agents should implore their clients to look at this information very closely to assure it is actually coming from the agent, the attorney, the lender or anyone else who has a role within the real estate transaction.
The message directed them to contact only via email.
In this case, the individual posing as the attorney told the Spofford family that he would be “busy with limited access” to his phone. Agents should tell their clients to immediately call the person who sent the email, or confirm with them in person, even if fraud is not suspected. Any time money or sensitive information is requested, the client should take steps to confirm the authenticity of the sender.
Raymond Murray, a 67-year-old New York resident, could no longer work, his wife had passed and he was unable to afford living expenses on his disability check. During this vulnerable time, he was approached by a man named Mario Alvarenga, who said he could offer solutions to his problems by helping him avoid foreclosure, eliminate legal fees and reduce his monthly mortgage payment. Murray soon found out, however, that instead of his problems being fixed, they were added onto—he lost his home to fraud.
Here’s how it all went wrong:
He was told to fire his attorney.
The biggest sign that something isn’t right is being directed to fire the person who is protecting your legal well-being. Agents should warn consumers that anyone asking that they end their relationship with their lawyer, agent, lender, advisor, etc. may be involved in something nefarious.
The paperwork wasn’t read by a lawyer or financial advisor.
What looked like a mortgage restructuring was actually a stealthily-obscured contract for sale. Any time clients have to sign something, ensure they are working with someone reputable and who has their best interest at heart.
Alvarenga was not vetted.
If consumers decide not to pursue a relationship with one of the agents’ vendors, who have been vetted and are trusted sources, ensure their own pick has been thoroughly researched. Consumers should be educated on how to look for signs of fraud through reviews and online research. Additionally, if ever in doubt, agents should be a resource to them in confirming the validity of the services their clients are hoping to engage in. A second set of eyes never hurts.
This past May, the Securities and Exchange Commission charged George Slowinski, principal/owner of Rebuilding America, LLC, which said it offered real estate investments based on home flipping, with committing over $20 million worth of real estate fraud in South Side Chicago. Slowinski was diverting 34 percent to 42 percent of every dollar earned from investors, a total of $2.8 million, to improperly pay for his company’s payroll, overhead and cost overruns on other projects without notifying investors.
While details surrounding the investors’ relationships with Slowinski are unavailable, here’s what agents can tell their investor clients:
Research everything thoroughly. Consult a financial advisor before investing in a home flip. Additionally, use a real estate agent to determine if the property’s valuation post-renovation is actually viable. Too often, investors are promised an attractive cut, only to find out that the earning potential is much less, if anything at all.
Walk away from “guaranteed” returns.
The market fluctuates; therefore, what may be a good financial decision one month may prove to be a weaker return if the market shifts by the time the renovation is done, and when the property is finally listing-ready a few months later. If someone is promising a guaranteed return, be vigilant.
Don’t rush in.
If looking to purchase a flipped home, consumers should follow their agent’s and home inspector’s lead to determine if the value is actually there. What may appear to be a full renovation may actually be a scam disguised by surface repair work.
Real estate scams can be prevented if the consumer is savvy; however, that rarely comes without the help of an agent who can educate them on how to spot these red flags.
Author: Sheryl Volk
July 2nd 2019
About Sheryl: ...