In every field you can find both trustworthy professionals and not-so accountable ones, and the real estate market is no exception. Good advice is - always work with established agents with good references. That way you can avoid situations like these six most common types of fraud we're writing about in our article. And remember, a good realtor would never do such things.
This is the oldest, most basic type of real estate fraud. It doesn't happen often, but it does occur. It is, according to a story in the Globe and Mail, on the rise in Canada, "especially in areas where real estate markets are rising rapidly" such as southern Ontario.
The hustle: A criminally-minded individual acquires false identification in a person's name. The criminal uses the new identity is to take out an extra mortgage on that person's property. The scammer makes off with the cash. Months later, when payments on the new mortgage fail to appear, a lien is filed against the property. The owner wakes up to the fact that their identity had been stolen. A huge hassle to unwind the damage follows.
The Financial Consumer Agency of Canada (FCAC) suggests that when you buy a home you buy the title to the property. A lawyer will register you as the owner of the property in the provincial land registry system, which is slightly different than just holding a mortgage. Guard against a criminal gaining your identity by protecting against dumpster diving, mail box theft, phishing and computer hacking. As well, according to the Financial Consumer Agency of Canada, if you no longer have a mortgage on your home, or,
if you rent out your home to someone else, you might be a target for title fraud because in these circumstances it may be easier for them to use your property title to get a new mortgage or to sell your home.
That is, be careful.
An example of how this works: A homeowner is not careful about protecting their identity. Perhaps they throw out a key piece of ID, or the scammer steals a key piece of ID. The scammer uses this to create a fake identity in the name of the homeowner. The criminal goes into a bank and takes out a whole other mortgage on the property, and then collects the money from the bank.
This is the new and just-emerging type of fraud now alleged to exist in the Vancouver real estate market.
A certain real estate company, New Coast Realty, has been facing allegations of training its employees to solicit a low bid from a seller. The home is flipped several times in the days between the agreement and the signing of the sale (through amendments to the sale deal documents). The company takes up to fifty percent of the agent's commission in this case and so is doing well by having a house pass between owners a couple of times before the deal is closed. The original seller only realizes later that they could have made more on the sale.
Media reports writing about this issue talk about homes that are often sold by the firm a couple times to different people in China. A recent article in the Vancouver Sun reported one client of this firm had been threatened by the agent when he questioned the way a home sale was unfolding. The agent implied use of violence if any questions were raised about the process. The agent is said to have referred to "gangsters in Harbin" being involved in the deal, a seeming threat to the seller. This story is just emerging now in the Vancouver real estate market. Be aware. Be very aware. The term "shadow flipping" is the term being used to describe this British Columbia-based scam.
An example: A home seller contacts a real estate agent. The agent convinces that seller to take an early, but low bid on the house. The agent convinces the owner to lock that bid in and take it. In the weeks after, but before the sale closes, the agent flips the home to another client at a higher price, and even another buyer again. The 'extra' sales show up as conditions written into the original sale document. This generates fees for the agent and for the real estate brokerage, but the original seller loses out at as the proceeds from the higher sale prices go to the other 'owners' who made hold the home for just a few days. This a very new scam just emerging on the West Coast of Canada today.
Foreclosure and Home Equity Fraud
Fraudsters can also take advantage of people experiencing a cash crunch. If a criminal catches on that a homeowner is having problems making mortgage payments, the criminal will offer the homeowner a loan to help pay the mortgage. Part of the agreement will include immediate legal fees and a 'temporary' transfer of the property's title. You can see where this is going.
The criminal keeps the mortgage payments that the home dweller is making to him. The holder of the title ignores bills and taxes. The criminal remortgages the property, absconds with the money, leaving the former property owner without the home and still in debt. It takes a special kind of evil to do it, but it does happen. If you are going to leverage a property or borrow on the equity in your home thoroughly research the lender you'll work with. Make sure your counter party is a credible and responsible lender. Be wary of a lender who encourages you embellish and overstate details. If the lender is encouraging you to overstate income to get a bigger loan be very, very wary.
An example of this type of scam might see an organized crime member reach out to a financially distressed homeowner. An offer to cover the immediate bills is made with an agreement that title to the property is temporarily handed over to the lender. Once title is shifted the scammer takes out another mortgage on the property and takes off with the cash.
Online Rental/Sale Scams
This real estate-related scam is becoming much more common as renters and owners use online market sites such as Craiglist and Kijiji to market and find product. These scams are now a constant element on these sites.
The way the hustle works is basic: A property is put up for rent. The person pulling the scam grabs photos from Google maps to use in the ad. The scammer makes up an excuse about how it is they are overseas right now and so can't attend a meeting at the property. The prospective renter is cajoled into sending along a deposit to an offshore account, with a promise the keys will be made available on the move-in date. With the rental market so tight in downtown Toronto students desperate to find a place to live will say yes. What happens next is that person shows up at the address to move in. The person living in the property—oblivious to the deal struck—answers the door one day to find a person standing there expecting to move in.
The flourishing of digital payments, online photo tools, e-marketplaces, as well as a rush of young millennials wanting to live downtown has seen this type of scam flourish of late. Beware if the ad contains incitements to urgently settle the deal. If the renter or seller says they can't meet you at the property, but promises to send along the key later, is the most telling sign you're being scammed.
As an example, these scams typically involve the offer of a rental property online. The owner convinces the perspective renter to deposit money into an account with the promise that the keys will come in the mail. When the money is deposited the fake owner disappears with the cash.
Property Investment Courses
You've likely seen the ads. Spend some money to take a class. Make out like a big money real estate tycoon like Donald Trump. Even more lucrative than real estate are the fees that come from offering expensive classes to learn how to buy a house. This is something you can learn on your own. There are reputable (and cheap) classes run by local community organizations or libraries in many areas. You don't need to go into debt to by a high-pressure, flashy real estate course. Often they're bogus, and are simply run to make money. Even Donald Trump ran one for a while, so that tells you something.
If the course seems more like a motivational event than a simple lecture in the rules of selling a house, beware. If the lecture is begin given by a loud-talking "self-made" millionaire be extra alert. Watch out for high priced textbooks, or deals offered to the class on the first night. If the presenter is urging you to borrow a large amount of money to get in on the deal, steer clear. Do your own research on the property. If the pitch man is describing a "can't miss" opportunity in in the lightly-regulated Costa Rica property development sector just google the name Donny "Golden Boy" Lalonde, and read. In this example investors poured money into a proposed development, but when investors began to question the developers about the lengthy time their money had been tied up, it was discovered that the development site was bare, had barely been worked on.
When oil markets were booming Alberta is said to have become such a hotspot for these types of scams the Alberta Securities Commission was forced to crack down.
Too Good To Be True Home Improvement Offers
The other type of real estate-related scams are door-to-door contractors. They ring bell, point out some work that needs to be done, offer to do it this week. These frauds are typically less damaging financially than mortgage-related frauds. The hassle and annoyance that ensues is similar. The typical offers are driveway sealing and roofing. They'll tell you they have material left over from another job in the neighborhood. They offer a deal that is too good to be true.
Close the door if there are high-pressure sales tactics involved, or they require you to close a deal right then. Take the time to research the company. If the guys offering the deal can't handle that condition, you're likely avoiding being scammed. If they demand money up front, slam the door. The Canadian Council of Better Business Bureaus added "rogue door-to-door contractors" to its Top Ten list of scams a couple years ago.
These scams typically occur during the summer. Someone posing as a contractor will knock on your door, say they "just happened to be in the neighborhood," and noticed that your roof needs fixing. After signing a contract and taking a down payment the scammer disappears, never to be heard from again.
It's always better to invest a bit of time to check who you decide to work with. A real professional will give you a good advice and find the solution that suits you the best.