After two decades of fighting white collar crime as a criminal prosecutor and as a civil trial lawyer, I have come to a very important conclusion: Con artists LOVE real estate scams because, to people who don’t mind the risk of incarceration, they are extremely lucrative and easy. I have battled four primary types of real estate-related crimes: mortgage fraud, rental property scams, foreclosure rescue schemes, and title theft.
Are real estate scams considered fraud?
Understanding fraud is key to understanding real estate scams. In my previous blog about Foreclosure Fraud (foreclosure fraud), I explained fraud this way:
“The easiest way to conceptualize fraud is: Theft by Lie. Did someone lie to you to get you to give them money or property or to get you to refrain from doing something? If you had known the truth, would you have taken a different course of action? If the answer to both of these questions is Yes, then you are a victim of fraud.”
As I describe the four primary types of real estate crimes, let’s focus on finding the lie.
Mortgage Fraud scams
The FBI defines mortgage fraud as follows:
“It is crime characterized by some type of material misstatement, misrepresentation, or omission in relation to a mortgage loan which is then relied upon by a lender. A lie that influences a bank’s decision—about whether, for example, to approve a loan, accept a reduced payoff amount, or agree to certain repayment terms—is mortgage fraud.”
Typically, the borrower lies about their income or assets on their loan application* or provide falsified financial documents, so that the bank will approve a mortgage loan for which the borrower really doesn’t qualify. This misstatement is material to the bank’s decision because the interest rate it charges is based on a complex algorithmic computation of the risk that the borrower will not repay the loan. The more likely it is that the borrower will default, the higher the interest rate that the bank wants charge.
Under Title 18, United States Code, Sec. 1001, et seq, it is a violation of federal law to lie on a loan application.
There are three primary perpetrators of mortgage fraud:
1) Homeowners/Homebuyers – Many homeowners and homebuyers believe it is “no big deal” to lie to mortgage lenders and banks, and even if (hypothetically) you believe that is morally true, it is in fact a felony under state and federal laws.
2) Mortgage brokers – Mortgage brokers only get paid after their clients successfully obtain a mortgage loan, and typically after a certain number of months, they are no longer responsible if their borrower defaults on the loan. For this reason, unscrupulous mortgage brokers will provide false information to the lender about their unqualified client’s financial condition so that the loan gets approved anyway.
3) Fraudsters – Further down in this article, I describe the crime of title theft. Once a con artist gains control of a property title, then they often obtain a mortgage loan to siphon the equity out of the home. To do so, they have to lie to the lender about the true state of ownership of the property. Obviously, if a bank knew that the applicant had obtained title through fraud, they would not approve the loan.
Rental Property Scams
The FBI described a typical rental property scam this way:
“The scammer duplicates postings from legitimate real estate sites, alters them, and reposts them. Often, the scammers use the broker’s real name to create a fake e-mail address, which gives the fraud more legitimacy. When the victim sends an e-mail through the website inquiring about the home, they receive a response from someone claiming to be the owner. The “owner” typically says he and his wife are doing missionary work in a foreign country and need someone to rent their home while they are away. If the victim is interested, he or she is asked to send money to the “owner” in the foreign country. These funds go directly to the scammer, and the would-be renter loses his or her money.”
Obviously the lie in these cases is that the con artist claims to have the authority to rent the property (either as the owner or as an agent of the owner) but does not.
This happened to a recent client of mine, whose house was empty while they renovated it and listed it for sale. The fraudster grabbed the photos that my client’s real estate agent had posted online, and used them to create a fake rental advertisement on Craigslist. Fortunately, Craigslist took down the ad within 20 minutes after were reported it. This is typical: the fraudsters perpetrate these scams on Craigslist for rental properties. My quick YouTube search for “Rental Property Scams” turned up 100s of news reports about case across the country.
I recall about a dozen years ago, hearing about a rental property scam in a nearby city. The con artist had obtained first and last month’s rent from a dozen families and told all of them all to show up on the same day to move in. You can imagine their confusion, frustration, and anger when they discovered that the person who took their money had no connection to the home whatsoever.
Foreclosure Rescue Schemes
I described this scam in detail in a previous blog entitled Foreclosure Fraud News (fraud news).
In short, the con artist targets homeowners who have fallen behind on their mortgage payment and the bank has begun the foreclosure process. The fraudster lies and makes promises to these vulnerable people that he cannot keep: “I can get your loan modified” or “I can get you a new loan” and “Don’t worry, you won’t lose your house.”
The con artist charges the homeowner a monthly fee and tells them they don’t have to pay their mortgage. He then uses forged deeds and bankruptcy fraud (both are forms of lies) to delay the foreclosure indefinitely, while he collects the monthly fee from the homeowner.
Title Theft is real
I described this scam in detail in a previous blog entitled Can Someone Steal Your Home Title (can someone steal your home), where I explained:
“The short answer is: Yes…and No. By committing deed fraud, criminals can make it appear that you sold or gave away your home or lost it to foreclosure. By doing this, they take away your ability to control what happens to your home. Once they have control of your title, they can take out a mortgage against it [mortgage fraud] or even sell it to unsuspecting buyers, and in this way, it certainly feels like they stole your home title.”
The frustrating thing for homeowners who are victims of this fraud is that they actually have to file a lawsuit eliminate the fraudulent deed that the con artist filed with the county recorder’s office. This lawsuit can cost 10s of 1000s of dollars and can drag on for years. Some homeowners simply don’t have the wherewithal to understand what has happened and hire the right attorney, and they end up losing their homes even though the law is on their side.
Real Estates Scams can be devastating
Con artists love Real Estate Scams because the property is a tool they can use to convince people to give them money. In mortgage fraud and title theft, their lies typically convince banks and mortgage lenders to give them mortgage loans based on false pretenses. In rental property scams, they persuade renters to give them security deposits based on their false statements. And, in foreclosure rescue schemes, the lie to homeowners who are in already in desperate financial predicaments and persuade them to part with their last dollars.
In all of these cases, real estate scams are both financially and emotionally devastating to their victims.
– David Fleck, CEO