NATIONAL NEWS

According to the FBI, Real Estate fraud is one of the fastest-growing, white-collar crimes in the United States. Real Estate professionals have long known about this type of fraud, but con artists are constantly coming up with new scams, targeting homeowners and Real Estate professionals alike. As an agent, your best defense is education—learning how to spot the signs of fraud, how to prevent scams, and how to protect yourself and your clients from becoming victims.

Two weeks ago, Florida Real Estate agents were shocked when they received a fax from Coastal Escrow Services announcing that the company had shut down. The company catered to hundreds of agents in Florida, and managed millions of dollars in deposits. However, when agents tried to close sales after the company’s closure, the money was missing and the owners were nowhere to be found.

Michael Thorpe Real Estate has since sued Coastal Escrow, claiming it refused to return money owed to about 175 clients. The Real Estate brokerage filed a lawsuit, seeking $559,304 in interest and attorney's fees. In addition, there have been several complaints from other brokerages, and the local police are investigating this potential fraud. The owners of Coastal Escrow could not be reached for comment.

Real Estate agents, by the nature of their business, are common targets for scams. Many of these scams are considered legal but are designed to trick agents into unnecessary costs or expenses. For example, Roxanne, a Real Estate agent in Nevada, recently fell prey to a scam targeted toward Real Estate professionals. She received an e-mail from Money Tree, a company that offered her a list of pre-approved buyers who were looking for an agent to help them buy a home. She called the sales manager for more information, and agreed to pay a one-time fee. Unfortunately, she missed the small print on the blurry agreement fax she signed, which stated that money would be extracted from her bank account every month. “This is a scam I was seduced into,” says Roxanne. “I had to cancel my business [credit] card.”

Most Real Estate scams are against the law. However, scams like equity skimming do not always appear to be fraudulent, therefore many agents unwittingly become a part of this illegal practice. Equity skimming occurs when an owner sells his property to a straw (bogus) buyer at a price well above its actual value. An investor may use a straw buyer, false income documents, and false credit reports to get a mortgage loan in the straw buyer's name. Before the closing, the straw buyer signs the property over to the investor in a quit claim deed which relinquishes all rights to the property and provides no guaranty to title. In many cases, the mortgage payments are never made and the loan goes into default. This is an illegal activity, and one that agents may ultimately be liable for, even if they are unaware of the scam.

Cash back at closing is another illegal practice that agents must pay close attention to, as it is easy for agents and consumers to be fooled. At first glance, cash back at closing looks like a good opportunity for all parties involved. The buyer pays more than the actual home value up front, and the seller returns the cash to the buyer after the closing. It appears to be a win-win situation—the buyer has cash after the sale to invest in remodeling or home improvements; the seller gets more money upfront; the Real Estate agent gets a better commission; and the lender gets a bigger loan.

However, cash back at closing schemes are illegal and potentially damaging to buyers, lenders and the Real Estate industry. Lenders unknowingly take on risky loans and buyers are tricked into taking on inflated loans. Housing values in the area are artificially inflated, making housing less affordable and increasing property taxes. If a buyer, appraiser, Real Estate agent, loan officer, or another Real Estate professional willingly goes along with a cash-back scam, he or she becomes an accomplice and is subject to prosecution.

In addition to traditional frauds, a new category of fraud has surfaced—online fraud. Phishing is a relatively new scam that frequently targets Real Estate professionals. It is an e-mail scam conducted for the purposes of information or identity theft. In a recent example, the Arizona Association of REALTORS® contacted its members, warning them that a phishing e-mail had been sent to several Arizona REALTORS®. The phishing e-mail claimed to be from Arizona Association of REALTORS® and instructed recipients to provide additional information in order to restore account access. The e-mail led recipients to a separate site, where they were told to provide personal information. The Association encouraged its members to delete these e-mails and not provide any of the requested information.

This is just one example of a phishing scam. Many other legitimate-looking e-mails appear to come from companies like Citibank, eBay or PayPal. It is important to take a close look because the sender may be trying to empty your bank account or steal your identity. Always remember that no legitimate company will e-mail you an unsolicited request for your password or other confidential financial account information.

While these are some of the most common Real Estate scams, there are hundreds more, and fraudsters are constantly coming up with new ways to con people out of their hard-earned money. Real Estate fraud continues to grow every year, posing a major threat to homeowners and the Real Estate industry as a whole. Therefore, it is critical that Real Estate professionals know the law, obey the law, and refuse to play a part in any Real Estate scams.