(Image credit: Getty Images via @daylife)
At the AARP conference in May, an attendee came over to Barbara Floyd Jones' booth and shared a unfortunate tale of financial woe. A fake company masquerading as a government-affiliated housing agency had swindled the unsuspecting homeowner out of $10,000 amid promises to modify the mortgage. After coughing up cash for phony "processing fees", the victim was left five figures poorer with no mortgage relief in sight. It wasn't the first time Floyd Jones had heard such a tale nor will it be her last.
"Consumers are now more aware of scams, but because scams have gotten more sophisticated, consumers are not sure they know how to avoid them," says Barbara Floyd Jones, program manager for NeighborWorks America, the nonprofit organization behind the Loan Modification Scam Alert campaign rolled out in 2009 at Congress' behest.
During the housing bubble scams commonly manifested among fraudulent brokers issuing predatory loans or, as home flipping reached a feverish pitch, real estate gurus charging tens of thousands for get-rich-quick courses. When the bubble burst, many of those same swindlers set their sights on cash-strapped folks facing foreclosure.
But as housing recovers and technology evolves, real estate scams have not subsided. Rather, despite government initiatives on both the federal and state level, they've blossomed into more elaborate and sophisticated ploys. NeighborWorks America, for example, has tracked consumer complaints pertaining to loan modification fraud since its inception four years ago and counts roughly 35,000 complaints over that time period. Yet, despite mass efforts to educate the public, the number of complaints has not decreased. Roughly 6,000 of the organization's 35,000 registered complaints were logged in the first six months of 2013. And Floyd Jones says the cost of getting conned has jumped dramatically as well. In 2009, homeowners looking to modify were swindled out of $1,000 to $1,500 on average; today, the typical take ranges from $4,000 to $5,000 on average and Floyd Jones says more stories of five-figure losses like the AARP attendee's have been emerging.
As scams become trickier to spot, here's a rundown of some of the most suspicious scenarios plaguing real estate and how to avoid them.
Rental Scams
Most people commence their house hunts online. The National Association of Realtors estimates that 90% of consumers turn to the internet first. Scammers take advantage of listing data to target victims, illegally pulling online listings and re-posting them as their own.
As the rental market has boomed, so too have scams. The con person will scrape a listing, re-post on another site (for example, Craig's List), and pose as the agent representing the listing. In the most obvious cases, they'll ask for money upfront for the security deposit or their broker fee. In more covert scenarios, they may not directly ask for the cash, but request that you simply wire it to a friend to prove you have the funds. The scammer will then pose as that friend and collect the transfer.
One of the most widespread and least detected ploys -- especially in high-density, renter-heavy cities like New York -- revolves around phony application fees for credit checks. The huckster, having actual access to a home, advertises the property with an alluringly low price tag, hosts an open house, and then collects application fees from the plethora of prospective tenants who pounce on the deal on the spot and cough up the necessary downpayment to secure it. Those would-be renters never hear from the "agent" again or if they do, it's to be informed their "application" was denied.
The Federal Trade Commission lists rental scam warning signs on its website. Be wary if you are told to wire money; if you are asked for upfront fees before you've met or signed the contract; if they say they're out of the country and can't show you the place right now, or ask you to give money to a "lawyer" or "agent" on their behalf.
Loan Modification Scams
With millions of Americans facing foreclosure over the past five years and another nearly 10 million still upside-down on their mortgages, scammers have preyed on the most vulnerable of these borrowers. Among the most common schemes: fake foreclosure counseling, phony forensic loan auditing, nonexistent mass rejoinder lawsuits, bait-and-switch ploys, leaseback programs, and fraudulent "government" modification programs.
Many typically start with a cold call from a firm promising help in the form of a foreclosure-related service. In the case of a fake mass rejoinder lawsuit, the con man will offer the chance to join a group of distressed homeowners in a suit against a lender. He might promise the suit could result in lower mortgage payments or, better yet, freedom from foreclosure altogether, in return for upfront legal fees. Upfront fees are the red flag: while mass rejoinder suits do take place, lawyers do not typically take their cut until a legal decision has been reached by the court.
In the cases of foreclosure counseling and forensic loan auditing (in which documents are reviewed to make sure a lender is complying with state and local laws), the huckster promises to review your loan paperwork and offer advice in return for a fee. In the most extreme scenarios -- bait-and-switch ploys and fake leaseback deals -- you surrender the title or deed to your home, either unknowingly in the case of a bait-and-switch scheme or under the belief that you will have the opportunity to rent it out and buy it back in the future.
Most commonly, though, scams revolve around fake ties to government housing programs like the Home Affordable Modification Program (HAMP) or the Home Affordable Refinance Program (HARP). In this scenario the fraudster will claim government program partnership, collecting your information and charging fees to "modify" your loan. He may instruct you to stop making payments on your mortgage.
And it might be easier to be taken than you think. These fake companies utilize website addresses that look somewhat official, incorporating elements of a government program name into the url or even the term"gov." According to recent complaints with NeighborWorks, the caller id on a phone call may even pop up with an official name like Making Home Affordable (a housing program instated by the Obama administration), with the scammer on the line pretending to work for the Treasury Department.
The request for money may not come initially either, as owners have become increasingly aware of modification scams. It may be presented in the second, third, even fourth meeting, as a "processing fee" necessary to move forward with applications. ""We tell consumers to pause and not conduct business with anyone asking for money," warns Floyd Jones, who believes these types of scams will persist well into 2015.
That's the key to circumventing this ploy: do not proceed if you are ever asked for money. Foreclosure counseling is free from agencies approved by Housing and Urban Development (HUD). It's also vital to contact your lender -- tedious and murky though that the process of modification may be -- to investigate your options. Check out the actual government sites and their approved links -- like the Loan Modification Scam Alert website -- for more tips.
Workshop Scams
They're back. Get-rich-quick schemes were prevalent during the housing bubble and now that housing affordability remains near its record high, more people have renewed their interest in real estate investing. In this scenario, a self-proclaimed investment guru will host real estate educational seminars that they promote online or with infomercials or published books. You come across their pitch and sign up for an initial course that may cost little to no money. You arrive to the seminar, veiled in mystery and ambiguous tips, and the sales pitch continues. The guru promises to bestow upon you a torrent of information -- maybe even actual properties to invest in -- if you shell out tens of thousands of dollars for an advanced course that promises the opportunity to become a millionaire.
You fork over your hard-earned cash for the advanced course and it turns out those dollar sign-inducing promises of double-digit returns and fast money are never realized. You feel taken advantage of, but here's the catch: when you enrolled in the courses you signed a release form that prevents or limits your ability to take legal action. And that's the reason many of these workshop gurus continue to operate -- despite complaints -- and make millions in the process themselves.
This is not to say that every workshop educator is a con artist, quite the contrary. But to avoid being scammed, do your homework and vet an investment advisor before you shell out money for a seminar. Check out the company's rating at the Better Business Bureau and see if it is affiliated with or members of credible industry associations. This will not only help identify scammers but likely yield the names of bonafide, vetted educators.
The Takeaway
Do your homework. Take the extra steps to ensure a workshop's credibility or a property listing's authenticity, be it cross-checking different listing sites and verifying a broker or company's licenses. It's amazing what a simple Google search can yield. Review government websites for recommendations, tips or to search for complaints.
If you are going to shell out money for a product or service or application fee, try not do it with cash. A credit card or PayPal account allows you to track that money or put in a claim if, heaven forbid, you've been swindled. Be wary of cold calls and of course, any time upfront fees are charged, be very suspicious. As with any scam, if it seems to good to be true, it probably is. When it comes to real estate, don't let your emotions get the better of you. And remember: there's no getting rich rapidly in real estate -- even for the pros.
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