This office has seen first-hand a rise in real estate fraud whereby someone simply claims to be the “owner” of a property, obtains a loan against the property, and is off and running with your home’s equity. It’s shockingly easy and not surprisingly, it’s on the rise in California and elsewhere.
Inherited properties, paid off properties and vacant properties are prime targets for this fraud, as the scammer presumes such homes are plump with equity (making the loan easier to obtain), are often owned by elderly individuals or foreign nationals, and therefore the true owners (or heirs) are less likely to be actively monitoring their home.
Law enforcement agencies and District Attorney offices around California are reporting a sharp increase in real estate fraud involving identity theft and the sale of vacant land and unencumbered property. Likewise, the California Department of Real Estate has issued for formal alert to real estate licensees to be on the lookout and help curtail such fraud.
This article discusses the fraud and what you, and real estate professionals, can do to be on alert.
THE SCAMS
There are many variations of these scams, often using simple techniques such as fraudulent identification, non-establishment and hard money lenders, and notaries that are less-than-discerning when checking the identification.
Loan Fraud – Example (NOT a ‘how to’!): The scammer simply pretends to be the property owner and approaches a lender to obtain a quick cash loan. Hard money lenders are often involved, as their very business model is to lend money quickly and with fewer checks than traditional institutional lenders. The scammer obtains fraudulent identification purporting to be the property owner and notarizes the loan paperwork (sometimes a notary is involved in the scam and the fraudulent identification is then unnecessary). The scammer requests the funds to be sent to their own bank account. The funds are wired to the scammer and then swiftly transferred elsewhere (often into less traceable assets such as crypto currency, gold, jewelry and things of that nature). The owner often does not find out about the fraud until much later.
Sale or Rental – Example (NOT a ‘how to’!): The scammer poses as the property owner and contacts a real estate agent to list the property for sale (often via email or text only). The scammer requests that the property be listed below market value to generate immediate interest, requests that no “For Sale” sign be posted on the property and notes a preference for a cash buyer. An unwitting real estate agent, eager for the opportunity, lists the property for sale and unknowingly assists the scammer to quickly accept an offer. Then, much like the above loan example, the scammer signs and notarizes documents, pretending to be the owner, has the funds transferred to their own account, and quickly transfers those funds elsewhere.
Other red flags include:
- Communication via email or text only.
- Demands for a quick sale and quick closing.
- Demands for cash only buyers.
- Demands for a fast cash loan.
- Refusing to meet in person.
- Refusing phone or video conference.
- Claiming to be out of the area or out of the country.
- Demands to use their own notary.
- Demands to wire funds to foreign bank accounts.
On their own, these seller or owner demands may not be red flags; however, when several occur, the risk becomes more apparent.
HOW TO PREVENT THE SCAM
As a real estate agent, lender, escrow or title representative, before accepting a listing or sale transaction, take steps to establish and verify the identity of the property owner. Some tips to do that include:
- Request an in-person or virtual meeting and see proper government-issued identification.
- If they won’t meet, require them to utilize the services of third-party identity verification service provider.
- Conduct an online search using the name of the property owner. Look for a phone number and recent photo. If you find a number, contact that person and verify they are the actual owner.
- Send via overnight mail a copy of the electronically signed listing to the address or record with a request to confirm the listing’s accuracy. This may help alert the legitimate owner of potential fraud.
- Require that the property owner provide a copy of a voided check with the seller’s disbursement authorization form.
- Use a wire verification service or confirm wire instructions match account details on the seller’s disbursement authorization form.
The DRE has also encouraged brokers to develop written policies with respect to listing properties in which the licensee and seller have never met in-person.
As a property owner, there is less that can be done, but one simple tip includes to not make public (i.e. do not post online) the fact that you have paid off a home, own a home with no mortgage or inherited a property.
If you inherit a property, the faster you take action to change the title into the proper name and update the mailing and billing address with the county (and thus on the public records for a lender or real estate agent to review), the better. Unfortunately, elderly and deceased owners are prime targets.
If you own a property that is vacant, consider selling or renting it soon – a vacant property is simply ripe for all kinds of problems.
Alleged cases of real estate fraud should be reported to local law enforcement authorities or local District Attorney’s office immediately. Many District Attorney’s, including Orange County and Los Angeles County, have dedicated real estate fraud departments. If there is another real estate licensee potentially involved in the fraud, you should provide the information to DRE through its Enforcement Online Complaint System.
Additional Resources
San Luis Obispo County District Attorney’s Office – Press Release
California Association of Realtors – Press Release
American Land Title Association – Seller Impersonation Fraud Handout
State of Oregon Real Estate Agency – Seller Impersonation Fraud Article
Lucas Real Estate
REALTORS® and related Real Estate Law & Tax Considerations
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