Watch Your Step

This was the cov­er sto­ry in the August/September 2013 issue of Commonwealth. It was fun to write because it was all about the var­i­ous scams and fraud tar­get­ing the real estate mar­ket — Realtors and consumers.

Watch your step coverIt’s not sur­pris­ing. In times of trou­ble, you can count on the rats com­ing out of the wood­work — and the more chaot­ic the trou­ble, the more brazen the rats. That’s why, in the con­fu­sion of today’s hous­ing mar­ket, you can bet there are some pret­ty big rats indeed.

Fear, of course, is their prime breed­ing ground, and — “home of the brave” or not — we are a very fear­ful nation. Whether it’s dis­ease, ter­ror­ism, acci­dents, or sim­ply miss­ing a house pay­ment, we’re always scared of some­thing … and there is always some­one will­ing to take advan­tage of that with a pill, a pro­gram, a device, or a deal… or, as you’ll see, a threat.

There are home and real estate scams of all stripes out there, run­ning the gamut from sim­ple “We’ll fix your dri­ve­way with this left­over con­crete” to com­plex schemes to hijack Realtors’ listings.

Watch your back.

The “Craigslist” scam

You might think that all the advice you need is, “If it sounds too good to be true, it prob­a­bly is,” but the real­i­ty is a bit harsh­er. Real estate con artists are smarter and bet­ter equipped — they know who to tar­get, and they know how to ride the line between “too good to be true” and “good enough to take a chance.”

Perhaps the best-known real estate con is quite sim­ple: Offering a home for rent when it doesn’t actu­al­ly belong to you, then col­lect­ing deposits from inter­est­ed ten­ants. It’s some­times called the “Craigslist scam” because that’s where scam­mers will often ply their trade, but it has popped up on oth­er clas­si­fieds and real estate sites, includ­ing big names like Zillow.

Clearly that’s a prob­lem for poten­tial renters, but it’s also a prob­lem for Realtors and prop­er­ty man­agers. These scam­mers will often tar­get homes that are list­ed for sale or for rent because A) that means the house is emp­ty, just in case some­one dri­ves by, and B) it’s easy to copy the list­ing infor­ma­tion from a legit­i­mate real estate website.

It’s easy to pull off. When a Realtor posts a list­ing of a home for sale or rent (as she nor­mal­ly would), a scam­mer sees it, copies it — data, pic­tures, descrip­tions — and lists the same prop­er­ty for rent on Craigslist (or Zillow, or anoth­er such site) at a good price. Then he waits for poten­tial renters — prefer­ably from out of town — to con­tact him about the prop­er­ty via a dis­pos­able e‑mail address (think Gmail, Outlook.com, or Yahoo Mail).

Because there is a legit­i­mate list­ing (unbe­knownst to poten­tial renters), the scam­mer can send pic­tures and even sug­gest that the poten­tial renter dri­ve by. He explains that the rent is low because the own­er needs to leave the area soon, and that there are oth­er inter­est­ed par­ties — so putting a deposit down is a good idea — cash or mon­ey order only, please. He might even send a fake rental contract.

Either way, when the renter arrives with a U‑Haul, instead of find­ing his new home, he’s con­front­ed with a locked door and — soon — the real­iza­tion that he won’t be get­ting back that deposit. Hopefully he didn’t give out his cred­it card infor­ma­tion, too.

Some scam­mers take the con fur­ther by not only hijack­ing a Realtor’s list­ing, but by using her name as well. Who would know whether “janesmith68@gmail.com” goes to the legit­i­mate agent or to a scam­mer using her name?

None of this bodes well for the real Jane Smith, who’s look­ing at a con­fronta­tion with an angry vic­tim demand­ing the keys and insist­ing that he’s been cor­re­spond­ing with her for weeks. (He may have even spo­ken with her — well, some­one pre­tend­ing to be her. Between dis­pos­able mobile phones and Google’s free Voice ser­vice, get­ting a throw­away phone num­ber in the area isn’t hard.)

There are vari­a­tions on this theme. For exam­ple, homes that are vacant because of mov­ing or fore­clo­sure are an easy tar­get. It’s not ter­ri­bly hard to break in and change the locks, then offer the place for rent. In fact, it could be months or longer before the scam is dis­cov­ered — say, by a Realtor hired by the own­er (bank or indi­vid­ual) to sell the home. More brazen con artists might even offer to rent a “fur­nished” home if the own­er is on an extend­ed vacation.

So what’s to be done? Vigilance is impor­tant — odd phone calls about list­ings, for exam­ple (“I just want to check if that house at 123 Main Street is actu­al­ly for sale” or “I’m won­der­ing why 456 Elm Court is priced so low”) might tip you off that some­one has hijacked a listing.

A sim­pler way is to cre­ate a Google Alert for each of your list­ings (google.com/alerts). Essentially, you enter the address and Google will noti­fy you if that term appears in any­thing new on the Web. So if some­one cre­ates a Craigslist post or oth­er­wise takes one of your list­ings, you’ll hope­ful­ly be notified.

If you see your list­ing appear some­where it doesn’t belong, noti­fy the site imme­di­ate­ly. Craiglist, Zillow, and most oth­er legit­i­mate list­ing sites have a mech­a­nism in place to have scams removed quickly.

And, of course, help spread the word — fore­warned is forearmed.

Patent trolls

Not every scam tar­get­ing Realtors is even relat­ed to prop­er­ty. One oth­er thing the real estate busi­ness is known for is forms — lots and lots of them. That makes Realtors a good tar­get of a dif­fer­ent kind of mod­ern-era scam — a patent troll.

In this scam, a com­pa­ny claims to have a patent on the process of e‑mailing doc­u­ments from a mul­ti­func­tion copi­er. (Many of these machines can not only copy and fax, but also scan and e‑mail a doc­u­ment as well.) It demands a “licens­ing fee” — $900 to $1,200 per employ­ee, accord­ing to NAR, which has received a num­ber of com­plaints about this — or it’ will take you to court.

The patent troll — a com­pa­ny called MPHJ Technology Investments, but which oper­ates under names like “AllLed,” “AdzPro,” “GanPan,” and “HeaPle” — appar­ent­ly does have some kind of patent, but the like­li­hood that it’s valid is pret­ty slim. Still, that doesn’t stop MPHJ and its attor­ney, Texas-based Farney Daniels, from threat­en­ing busi­ness­es — par­tic­u­lar­ly small ones that might see it eas­i­er to pay a fee than to hire a lawyer.

NAR is wary of offer­ing any spe­cif­ic advice for a firm receiv­ing a troll let­ter, although it points out that the threats seem to be sent out hap­haz­ard­ly: “There is no evi­dence that MPHJ knows of any infringe­ment before send­ing these letters.”

NAR’s advice ranges from sug­gest­ing that you respond by demand­ing more infor­ma­tion (“Ask why your equip­ment or soft­ware infringes the patents”) or to deny that there is any infringe­ment. You can also join oth­er com­pa­nies in chal­leng­ing the patent’s valid­i­ty, or, as a last resort, pay the license fee (known as “feed­ing the troll”). In any of these cas­es, you should con­sult an attorney.

Mortgage scams

Realtors aren’t mort­gage bro­kers, but the mort­gage process is obvi­ous­ly key to the whole house-buy­ing thing. Your clients’ backs may bear a lit­tle watch­ing, too.

There are plen­ty of bad hats out there wait­ing to take advan­tage of them from the moment they begin a house hunt. In fact, the Federal Trade Commission ranks real estate and mort­gage scams in its top 15 issues for the past three years running.

When mort­gage shop­ping, many peo­ple will turn to trust­ed insti­tu­tions such as their banks or cred­it unions. But oth­ers will shop in the more, shall we say, seedy parts of the vir­tu­al mort­gage mall, where they’ll meet peo­ple who will try to take advan­tage of them.

Breaking from the price sheet. Every day, lenders give a price sheet to their bro­kers with the day’s post­ed mort­gage rates — the var­i­ous com­bi­na­tions of inter­est rates and points avail­able, e.g., “4.125% at 0 points.” In com­pa­nies where bro­kers earn com­mis­sion, they typ­i­cal­ly earn more if they can get bor­row­ers to pay a high­er rate.

One easy way is for an unscrupu­lous lender to sim­ply not show the day’s prices to a prospec­tive bor­row­er — to quote a high­er rate and hope the bor­row­er hasn’t done his home­work. (“Hmm… 4.5 per­cent? Sounds good.”)

Another scam, accord­ing to Jack M. Guttentag, author of The Mortgage Encyclopedia, is to offer a bor­row­er a rate that includes a rebate… but not men­tion the rebate. Some high­er-rate loans will offer one- or two-point rebate — cash in hand, essen­tial­ly. A bor­row­er could choose between, say, 3.75 per­cent and zero points, or 4.25 per­cent with a two-point rebate. A sneaky mort­gage bro­ker would offer the 4.25 per­cent rate, and, if that’s accept­ed, hide the rebate infor­ma­tion in the fine print and pock­et the cash.

Suggests Guttentag: “This abuse can be avoid­ed by ask­ing first about ‘the low­est rate pos­si­ble’ and how many points it would require.” He also sug­gests ask­ing to see the lender’s sched­ule of rates and points — the orig­i­nal fax or com­put­er screen. “If the loan offi­cer insists on tran­scrib­ing them to a sep­a­rate piece of paper,” he writes, “ask point-blank if she is adding an overage.”

Using sneaky ter­mi­nol­o­gy. The FTC cau­tions bor­row­ers about buzz­words like “very low rates” that could refer to a low inter­est rate or sim­ply a low pay­ment rate; the lat­ter can lead to a dev­as­tat­ing bal­loon pay­ment or a loan that goes into “neg­a­tive amor­ti­za­tion” and is nev­er paid off.

Another exam­ple from the FTC: lenders offer­ing great “fixed” mort­gages, where unsus­pect­ing bor­row­ers don’t real­ize that the fixed part isn’t the inter­est rate, but the pay­ment rate. The inter­est rate in fact adjusts with the mar­ket, and bor­row­ers can end up upside down when the rates adjust up and their pay­ments don’t.

Even ads tout­ing a “fixed rate” mort­gage can be sneaky … if it’s only fixed for 30 or 60 days. (Now you see why the Consumer Financial Protection Bureau is insist­ing on clear and stan­dard­ized forms and dis­clo­sures.) Borrowers who don’t under­stand the fine print are sur­prised when their month­ly bill skyrockets.

“Float abuse.” In this trick, a lender takes advan­tage of the fact that it can wait days or even weeks to lock in a borrower’s rate after she’s applied for a loan. For exam­ple, Jane applies for a mort­gage and is quot­ed a rate of 4.00 per­cent. But the rate isn’t locked in for a week, after which the lender quotes 4.25 per­cent, say­ing that rates have gone up. Jane now has the option of accept­ing the high­er rate, or start­ing the mort­gage process all over. Solution: Lock in the rate immediately.

BOLO

Listing hijack­ers, patent trolls, and mort­gage sneaks may be the most note­wor­thy kinds of scams you’re like­ly to encounter, but they’re far from the only ones. There’s plen­ty more to be on the look­out for.

Like a kitchen sponge, your inbox is a seem­ing­ly benign place … but one that can har­bor some nasty crit­ters. You may have noticed — espe­cial­ly if you’ve only been in the busi­ness for a few years — that once you start­ed doing a lot of real estate work you began to get a lot of real estate spam.

Most true junk mail is obvi­ous, and most will (or should) be snagged by your spam fil­ter. But the ones you have to wor­ry about — for your­self and for your clients — are the ones that sneak past the radar.

Reasonable-sound­ing deals from legit­i­mate-sound­ing com­pa­nies might look like some­thing you’d want to save or pass along. But beware — lis­ten to your Realtor-Sense, keep in mind the “if it sounds too good” mantra, and con­sid­er one sim­ple thing: How much trust do you put in a com­pa­ny that sends you unso­licit­ed mail? (Of course, search­ing on the com­pa­ny name can’t hurt, either.)

Scams aren’t lim­it­ed to your inbox. With all the news about real estate investors mak­ing bank, a lot of peo­ple want to get in on that pot. Many — most — of those invest­ments are legit, but if you don’t know the warn­ing signs of a Ponzi scheme or even a sim­ple mon­ey grab, you could lose a lot. (In 2010, a for­mer Henrico County police offi­cer was sen­tenced to 10 years in prison for bilk­ing friends and neigh­bors out of mil­lions with a real estate invest­ment fraud scheme.)

There are some obvi­ous signs of poten­tial fraud in the works: promis­es of unusu­al­ly high returns or of spe­cif­ic num­bers (“10% per year, guar­an­teed”), an unclear or undis­closed invest­ment strat­e­gy, an aggres­sive sales­man, or a request to “spread the word.” But even smart peo­ple can be bilked. If you’re invest­ing with some­one while sit­ting in his liv­ing room, maybe think twice.

In fact, “think twice” is good over­all advice. Yes, there will always be those who are out to sep­a­rate good folks from their mon­ey, and you don’t have to be a fool to fall for the schemes. A lit­tle cau­tion, a lit­tle cyn­i­cism, and a lit­tle trust in your own inner alarm bells will go a long way to keep­ing you out of harm’s way.


Ranks and ratings

Online review sites give the pow­er to the peo­ple — and, as we all know, pow­er cor­rupts. That means some peo­ple have tried to take advan­tage of the fact that so many peo­ple look to the Internet before buy­ing… or hiring.

One com­pa­ny has already tried to use rat­ings to extort Realtors. It cre­at­ed a site — Realtor-complaints.com, then began con­tact­ing Realtors claim­ing that a com­plaint or bad review had been post­ed. For a small fee it would remove that review.

The good news is that NAR was able to have the site closed because of trade­mark infringe­ment. The bad news is that that’s the only rea­son it was able to have it shut­tered. There’s noth­ing nec­es­sar­i­ly ille­gal about post­ing bad reviews about some­one. (True, you could get into issues of libel, but that’s a bit of a stretch — and a cost­ly one at that.) Restaurant own­ers across the coun­try are suf­fer­ing from what’s been dubbed “Yelp extor­tion,” where cus­tomers demand extra ser­vice (from quick­er seat­ing to free food) in exchange for avoid­ing a neg­a­tive review on Yelp.


Bank walk-aways

This isn’t a scam, per se, because it’s not ille­gal yet — but it’s still some­thing home­own­ers need to be aware of.

It works like this: A lender sends a home­own­er a notice of fore­clo­sure. The home­own­er, know­ing he won’t be able to refi­nance, says his good-byes, emp­ties the home, and turns the keys over to the bank. (He’ll take a sig­nif­i­cant cred­it hit, for sure, and may owe the lender mon­ey depend­ing on what the house even­tu­al­ly sells for.)

But then, unbe­knownst to the own­er, the bank qui­et­ly changes its mind and doesn’t go through with the fore­clo­sure process. It “walks away” from the prop­er­ty with­out inform­ing the homeowner.

Months lat­er, the home­own­er begins to get legal notices and bills from the munic­i­pal­i­ty for things like an over­grown yard or an unshov­eled walk… or worse. He tries to explain that he no longer owns the prop­er­ty because of the fore­clo­sure — and that’s when he first learns that the bank walked away. By then he’s like­ly to have incurred huge debts to the coun­ty or city as the home deteriorates.

The only way to avoid this is sim­ply not to leave a home, even if you’ve been fore­closed on, until ordered to do so by a court — and you have all the paper­work in hand.


8 Mortgage-relief and foreclosure scams

A par­tic­u­lar­ly insid­i­ous type of scam tar­gets peo­ple who are hav­ing seri­ous trou­ble pay­ing their mort­gages. You can find them on late-night TV com­mer­cials, and via e‑mail with sub­jects like “Stop fore­clo­sure now!” or “Obama Cuts Refi Requirements”

The scams are sim­i­lar: The com­pa­ny offers to reduce the homeowner’s pay­ment, save his cred­it, keep him in his home, and so on. But that ain’t what hap­pens. Instead, home­own­ers end up deep­er in debt… at best.

In the mildest cas­es, the com­pa­ny will charge a fee for cred­it coun­sel­ing. But gov­ern­ment-approved agen­cies offer fore­clo­sure pre­ven­tion coun­sel­ing free.

In oth­er instances, the com­pa­ny promis­es to reduce the homeowner’s month­ly pay­ment by work­ing with his lender — for a small fee, nat­u­ral­ly. But here’s the rub: It’s ille­gal for a com­pa­ny to col­lect any fees from a home­own­er until he has received and accept­ed an offer of relief from his lender. 

Other com­pa­nies offer a “mort­gage audit” or “foren­sic audit” in which they say they’ll have attor­neys review the loan to look for some kind of loop­hole… again, for a small fee. Up front. Not sur­pris­ing­ly, you don’t typ­i­cal­ly find any such loop­holes these days. Banks are pret­ty good about that sort of thing.

Then you get into the real­ly bad apples — the com­pa­nies that trick home­own­ers into open­ing a sec­ond mort­gage, or refi­nanc­ing with the scam­mer, or trans­fer­ring the deed, all in the name of stop­ping fore­clo­sure proceedings.

If you’re using TV com­mer­cials or e‑mail spam to make finan­cial deci­sions, you’re already in trou­ble, but there are some warn­ing signs to look for.

  • Claiming to have an amaz­ing­ly high suc­cess rate (“90% of our cus­tomers get low­er rates!!!”)
  • Guaranteeing results no mat­ter what your circumstances
  • Asking for pay­ment up front
  • Telling you not to con­tact your lender, lawyer, or cred­it counselor
  • Asking for the mort­gage pay­ment to be sent to them, rather than the lender
  • Asking for the deed to the home for any rea­son, includ­ing ‘rent to buy’ schemes

How can some­one avoid being tak­en in? There’s a sin­gle, major step that can make all the dif­fer­ence: Find a legit­i­mate, HUD-approved fore­clo­sure coun­selor. The ser­vice is free, and it will help you avoid the bad apples. It’s easy to find one, too — just go to makinghomeaffordable.gov where you can find a list for every state. That simple.