As has certainly been the case lately, the real estate industry is constantly evolving. Like our industry as a whole, the ever-growing threat of real estate fraud schemes and the perpetrators who carry them out are constantly evolving as well. If only these fraudsters used their ingenuity for good, right?! The most successful schemes are the ones that are hardest to spot, so read on to become familiar with the most common real estate fraud schemes here in Florida and how to identify and avoid them.
Fraudulent Seller Scheme
This extremely common scheme seems to have taken hold in Florida in the last five years or so, and it has not let up. If anything, it has only become more common. This tells you all you need to know about how successful it is. The scheme goes a little something like this: a listing agent is contacted suddenly by a “Seller” whom the listing agent is not familiar with and is informed that the Seller would like the listing agent to list his property right away. The listing agent tends to be new to the industry and, therefore, excited to land a listing out of nowhere. The Seller then tells the listing agent that he is out of town or otherwise not available to communicate by phone, so he instructs the listing agent to let him know when it is ready to close so he can sign the closing documents. Finally, the Seller signs a deed for the property and instructs the title company on where to wire the proceeds. There is only one problem: he, of course, is not the owner, and now the proceeds are gone forever. This same scenario has been playing out across the state with increasing frequency for years, and it is at times difficult to spot if you do not know what you are looking for, so keep these other clues in mind:
- The property will oftentimes be vacant land and almost always unencumbered by a mortgage.
- The property will oftentimes be owned by a foreigner in order to reduce the likelihood that the true owner ever finds out what is going on.
- The “Seller” might state that his job makes it impossible for him to be reached (“working on an oil rig” is a common excuse).
- The “Seller” will make up excuses why they cannot provide IDs or will provide IDs that appear fuzzy.
- Seller’s documents oftentimes arrive from somewhere other than where they claimed to live. For example, the Seller might state that they live in China, but the documents arrive from S. Africa.
Fraudulent Buyer Scheme Common Real Estate Fraud Schemes
This scheme has not been as common in years past but has been much more common recently in Florida. Just this week, our firm discovered an instance of this scheme where a “Buyer” entered into a contract for $6,000,000.00 with an understandably excited Seller. Like the Seller scheme described above, this Buyer seemingly came out of nowhere and could not be reached because he worked on a “rig” in Europe. The Buyer provided a proof of funds letter, a seemingly valid ID, and plenty of emails and other documentation regarding his employment status, financial standing, and explanations for where he would be during the closing process. It was only due to experience and diligence that our firm knew to dig a little deeper. When we did, we discovered that the financial institution that provided the proof of funds letter did not even exist, that the ID provided was fake, and that the documentation and emails the Buyer provided had numerous inconsistencies.
So what is the goal of this scheme you ask? Although this scheme can play out in many different ways, the goal of the fraudster is to send the Seller or title company a check for the earnest money deposit and, then before the check bounces, come up with a compelling story about why they need the funds wired back to them right away. Sometimes, the story will be, “Oops, I sent $500,000.00 when I really meant to send $50,000. I need the overage back by wire right away!” Again, there are many ways a fraudster can convince an unsuspecting seller or title company to send them money using this method.
How to Avoid These Common Real Estate Fraud Schemes
- Unless you know the Buyer or Seller personally, always ask for an ID as a starting point.
- If they refuse to have an in-person, zoom, or phone conversation, then walk away.
- Send a letter to the address of record for the owner found on the property appraiser’s website.
- If the property is vacant and you do not know the Seller, assume it is fraudulent.
- Most importantly, if something seems off, it probably is, and you should walk away.
By staying vigilant and following these tips, you can avoid these schemes and protect your customers from falling victim to them. If you have any questions about real estate fraud or any other real estate related questions, please don’t hesitate to reach out to your local trusted real estate attorney.
