Watch Your Step
This was the cover story in the August/September 2013 issue of Commonwealth. It was fun to write because it was all about the various scams and fraud targeting the real estate market — Realtors and consumers.
It’s not surprising. In times of trouble, you can count on the rats coming out of the woodwork — and the more chaotic the trouble, the more brazen the rats. That’s why, in the confusion of today’s housing market, you can bet there are some pretty big rats indeed.
Fear, of course, is their prime breeding ground, and — “home of the brave” or not — we are a very fearful nation. Whether it’s disease, terrorism, accidents, or simply missing a house payment, we’re always scared of something … and there is always someone willing to take advantage of that with a pill, a program, a device, or a deal… or, as you’ll see, a threat.
There are home and real estate scams of all stripes out there, running the gamut from simple “We’ll fix your driveway with this leftover concrete” to complex schemes to hijack Realtors’ listings.
Watch your back.
The “Craigslist” scam
You might think that all the advice you need is, “If it sounds too good to be true, it probably is,” but the reality is a bit harsher. Real estate con artists are smarter and better equipped — they know who to target, and they know how to ride the line between “too good to be true” and “good enough to take a chance.”
Perhaps the best-known real estate con is quite simple: Offering a home for rent when it doesn’t actually belong to you, then collecting deposits from interested tenants. It’s sometimes called the “Craigslist scam” because that’s where scammers will often ply their trade, but it has popped up on other classifieds and real estate sites, including big names like Zillow.
Clearly that’s a problem for potential renters, but it’s also a problem for Realtors and property managers. These scammers will often target homes that are listed for sale or for rent because A) that means the house is empty, just in case someone drives by, and B) it’s easy to copy the listing information from a legitimate real estate website.
It’s easy to pull off. When a Realtor posts a listing of a home for sale or rent (as she normally would), a scammer sees it, copies it — data, pictures, descriptions — and lists the same property for rent on Craigslist (or Zillow, or another such site) at a good price. Then he waits for potential renters — preferably from out of town — to contact him about the property via a disposable e-mail address (think Gmail, Outlook.com, or Yahoo Mail).
Because there is a legitimate listing (unbeknownst to potential renters), the scammer can send pictures and even suggest that the potential renter drive by. He explains that the rent is low because the owner needs to leave the area soon, and that there are other interested parties — so putting a deposit down is a good idea — cash or money order only, please. He might even send a fake rental contract.
Either way, when the renter arrives with a U-Haul, instead of finding his new home, he’s confronted with a locked door and — soon — the realization that he won’t be getting back that deposit. Hopefully he didn’t give out his credit card information, too.
Some scammers take the con further by not only hijacking a Realtor’s listing, but by using her name as well. Who would know whether “email@example.com” goes to the legitimate agent or to a scammer using her name?
None of this bodes well for the real Jane Smith, who’s looking at a confrontation with an angry victim demanding the keys and insisting that he’s been corresponding with her for weeks. (He may have even spoken with her — well, someone pretending to be her. Between disposable mobile phones and Google’s free Voice service, getting a throwaway phone number in the area isn’t hard.)
There are variations on this theme. For example, homes that are vacant because of moving or foreclosure are an easy target. It’s not terribly hard to break in and change the locks, then offer the place for rent. In fact, it could be months or longer before the scam is discovered — say, by a Realtor hired by the owner (bank or individual) to sell the home. More brazen con artists might even offer to rent a “furnished” home if the owner is on an extended vacation.
So what’s to be done? Vigilance is important — odd phone calls about listings, for example (“I just want to check if that house at 123 Main Street is actually for sale” or “I’m wondering why 456 Elm Court is priced so low”) might tip you off that someone has hijacked a listing.
A simpler way is to create a Google Alert for each of your listings (google.com/alerts). Essentially, you enter the address and Google will notify you if that term appears in anything new on the Web. So if someone creates a Craigslist post or otherwise takes one of your listings, you’ll hopefully be notified.
If you see your listing appear somewhere it doesn’t belong, notify the site immediately. Craiglist, Zillow, and most other legitimate listing sites have a mechanism in place to have scams removed quickly.
And, of course, help spread the word — forewarned is forearmed.
Not every scam targeting Realtors is even related to property. One other thing the real estate business is known for is forms — lots and lots of them. That makes Realtors a good target of a different kind of modern-era scam — a patent troll.
In this scam, a company claims to have a patent on the process of e-mailing documents from a multifunction copier. (Many of these machines can not only copy and fax, but also scan and e-mail a document as well.) It demands a “licensing fee” — $900 to $1,200 per employee, according to NAR, which has received a number of complaints about this — or it’ will take you to court.
The patent troll — a company called MPHJ Technology Investments, but which operates under names like “AllLed,” “AdzPro,” “GanPan,” and “HeaPle” — apparently does have some kind of patent, but the likelihood that it’s valid is pretty slim. Still, that doesn’t stop MPHJ and its attorney, Texas-based Farney Daniels, from threatening businesses — particularly small ones that might see it easier to pay a fee than to hire a lawyer.
NAR is wary of offering any specific advice for a firm receiving a troll letter, although it points out that the threats seem to be sent out haphazardly: “There is no evidence that MPHJ knows of any infringement before sending these letters.”
NAR’s advice ranges from suggesting that you respond by demanding more information (“Ask why your equipment or software infringes the patents”) or to deny that there is any infringement. You can also join other companies in challenging the patent’s validity, or, as a last resort, pay the license fee (known as “feeding the troll”). In any of these cases, you should consult an attorney.
Realtors aren’t mortgage brokers, but the mortgage process is obviously key to the whole house-buying thing. Your clients’ backs may bear a little watching, too.
There are plenty of bad hats out there waiting to take advantage of them from the moment they begin a house hunt. In fact, the Federal Trade Commission ranks real estate and mortgage scams in its top 15 issues for the past three years running.
When mortgage shopping, many people will turn to trusted institutions such as their banks or credit unions. But others will shop in the more, shall we say, seedy parts of the virtual mortgage mall, where they’ll meet people who will try to take advantage of them.
Breaking from the price sheet. Every day, lenders give a price sheet to their brokers with the day’s posted mortgage rates — the various combinations of interest rates and points available, e.g., “4.125% at 0 points.” In companies where brokers earn commission, they typically earn more if they can get borrowers to pay a higher rate.
One easy way is for an unscrupulous lender to simply not show the day’s prices to a prospective borrower — to quote a higher rate and hope the borrower hasn’t done his homework. (“Hmm… 4.5 percent? Sounds good.”)
Another scam, according to Jack M. Guttentag, author of The Mortgage Encyclopedia, is to offer a borrower a rate that includes a rebate… but not mention the rebate. Some higher-rate loans will offer one- or two-point rebate — cash in hand, essentially. A borrower could choose between, say, 3.75 percent and zero points, or 4.25 percent with a two-point rebate. A sneaky mortgage broker would offer the 4.25 percent rate, and, if that’s accepted, hide the rebate information in the fine print and pocket the cash.
Suggests Guttentag: “This abuse can be avoided by asking first about ‘the lowest rate possible’ and how many points it would require.” He also suggests asking to see the lender’s schedule of rates and points — the original fax or computer screen. “If the loan officer insists on transcribing them to a separate piece of paper,” he writes, “ask point-blank if she is adding an overage.”
Using sneaky terminology. The FTC cautions borrowers about buzzwords like “very low rates” that could refer to a low interest rate or simply a low payment rate; the latter can lead to a devastating balloon payment or a loan that goes into “negative amortization” and is never paid off.
Another example from the FTC: lenders offering great “fixed” mortgages, where unsuspecting borrowers don’t realize that the fixed part isn’t the interest rate, but the payment rate. The interest rate in fact adjusts with the market, and borrowers can end up upside down when the rates adjust up and their payments don’t.
Even ads touting a “fixed rate” mortgage can be sneaky … if it’s only fixed for 30 or 60 days. (Now you see why the Consumer Financial Protection Bureau is insisting on clear and standardized forms and disclosures.) Borrowers who don’t understand the fine print are surprised when their monthly bill skyrockets.
“Float abuse.” In this trick, a lender takes advantage of the fact that it can wait days or even weeks to lock in a borrower’s rate after she’s applied for a loan. For example, Jane applies for a mortgage and is quoted a rate of 4.00 percent. But the rate isn’t locked in for a week, after which the lender quotes 4.25 percent, saying that rates have gone up. Jane now has the option of accepting the higher rate, or starting the mortgage process all over. Solution: Lock in the rate immediately.
Listing hijackers, patent trolls, and mortgage sneaks may be the most noteworthy kinds of scams you’re likely to encounter, but they’re far from the only ones. There’s plenty more to be on the lookout for.
Like a kitchen sponge, your inbox is a seemingly benign place … but one that can harbor some nasty critters. You may have noticed — especially if you’ve only been in the business for a few years — that once you started doing a lot of real estate work you began to get a lot of real estate spam.
Most true junk mail is obvious, and most will (or should) be snagged by your spam filter. But the ones you have to worry about — for yourself and for your clients — are the ones that sneak past the radar.
Reasonable-sounding deals from legitimate-sounding companies might look like something you’d want to save or pass along. But beware — listen to your Realtor-Sense, keep in mind the “if it sounds too good” mantra, and consider one simple thing: How much trust do you put in a company that sends you unsolicited mail? (Of course, searching on the company name can’t hurt, either.)
Scams aren’t limited to your inbox. With all the news about real estate investors making bank, a lot of people want to get in on that pot. Many — most — of those investments are legit, but if you don’t know the warning signs of a Ponzi scheme or even a simple money grab, you could lose a lot. (In 2010, a former Henrico County police officer was sentenced to 10 years in prison for bilking friends and neighbors out of millions with a real estate investment fraud scheme.)
There are some obvious signs of potential fraud in the works: promises of unusually high returns or of specific numbers (“10% per year, guaranteed”), an unclear or undisclosed investment strategy, an aggressive salesman, or a request to “spread the word.” But even smart people can be bilked. If you’re investing with someone while sitting in his living room, maybe think twice.
In fact, “think twice” is good overall advice. Yes, there will always be those who are out to separate good folks from their money, and you don’t have to be a fool to fall for the schemes. A little caution, a little cynicism, and a little trust in your own inner alarm bells will go a long way to keeping you out of harm’s way.
Ranks and ratings
Online review sites give the power to the people — and, as we all know, power corrupts. That means some people have tried to take advantage of the fact that so many people look to the Internet before buying… or hiring.
One company has already tried to use ratings to extort Realtors. It created a site — Realtor-complaints.com, then began contacting Realtors claiming that a complaint or bad review had been posted. For a small fee it would remove that review.
The good news is that NAR was able to have the site closed because of trademark infringement. The bad news is that that’s the only reason it was able to have it shuttered. There’s nothing necessarily illegal about posting bad reviews about someone. (True, you could get into issues of libel, but that’s a bit of a stretch — and a costly one at that.) Restaurant owners across the country are suffering from what’s been dubbed “Yelp extortion,” where customers demand extra service (from quicker seating to free food) in exchange for avoiding a negative review on Yelp.
This isn’t a scam, per se, because it’s not illegal yet — but it’s still something homeowners need to be aware of.
It works like this: A lender sends a homeowner a notice of foreclosure. The homeowner, knowing he won’t be able to refinance, says his good-byes, empties the home, and turns the keys over to the bank. (He’ll take a significant credit hit, for sure, and may owe the lender money depending on what the house eventually sells for.)
But then, unbeknownst to the owner, the bank quietly changes its mind and doesn’t go through with the foreclosure process. It “walks away” from the property without informing the homeowner.
Months later, the homeowner begins to get legal notices and bills from the municipality for things like an overgrown yard or an unshoveled walk… or worse. He tries to explain that he no longer owns the property because of the foreclosure — and that’s when he first learns that the bank walked away. By then he’s likely to have incurred huge debts to the county or city as the home deteriorates.
The only way to avoid this is simply not to leave a home, even if you’ve been foreclosed on, until ordered to do so by a court — and you have all the paperwork in hand.
8 Mortgage-relief and foreclosure scams
A particularly insidious type of scam targets people who are having serious trouble paying their mortgages. You can find them on late-night TV commercials, and via e-mail with subjects like “Stop foreclosure now!” or “Obama Cuts Refi Requirements”
The scams are similar: The company offers to reduce the homeowner’s payment, save his credit, keep him in his home, and so on. But that ain’t what happens. Instead, homeowners end up deeper in debt… at best.
In the mildest cases, the company will charge a fee for credit counseling. But government-approved agencies offer foreclosure prevention counseling free.
In other instances, the company promises to reduce the homeowner’s monthly payment by working with his lender — for a small fee, naturally. But here’s the rub: It’s illegal for a company to collect any fees from a homeowner until he has received and accepted an offer of relief from his lender.
Other companies offer a “mortgage audit” or “forensic audit” in which they say they’ll have attorneys review the loan to look for some kind of loophole… again, for a small fee. Up front. Not surprisingly, you don’t typically find any such loopholes these days. Banks are pretty good about that sort of thing.
Then you get into the really bad apples — the companies that trick homeowners into opening a second mortgage, or refinancing with the scammer, or transferring the deed, all in the name of stopping foreclosure proceedings.
If you’re using TV commercials or e-mail spam to make financial decisions, you’re already in trouble, but there are some warning signs to look for.
- Claiming to have an amazingly high success rate (“90% of our customers get lower rates!!!”)
- Guaranteeing results no matter what your circumstances
- Asking for payment up front
- Telling you not to contact your lender, lawyer, or credit counselor
- Asking for the mortgage payment to be sent to them, rather than the lender
- Asking for the deed to the home for any reason, including ‘rent to buy’ schemes
How can someone avoid being taken in? There’s a single, major step that can make all the difference: Find a legitimate, HUD-approved foreclosure counselor. The service is free, and it will help you avoid the bad apples. It’s easy to find one, too — just go to makinghomeaffordable.gov where you can find a list for every state. That simple.