7 Real Estate Scams That Are Trapping Investors In 2015
By JD Esajian on September 25, 2015
1. Occupancy Status: This is quickly (once again) rising as one of the top types of fraud that is setting up many mortgage borrowers for disaster. It has become so prevalent in 2015 that borrowers are taking to online real estate forums like BiggerPockets to herald their success at maximizing financing by buying several ‘primary residences’ with no intention to do anything but rent them out. This may have been a bit of a grey area 10 years ago, but considering that many of the homes being bought today belonged to those currently still in jail for doing the same thing, it doesn’t seem to make much sense. The bottom line is that whether it was your idea or your mortgage broker or bank loan officer’s; if you sign to say you are going to live in the property, you need to do that. If not, by signing those closing documents you are committing a very serious crime. Add up the direct years for each offense, then add on sentences for ‘wire’ and ‘mail’ fraud, and possible tax fraud, and you could easily be looking at a life sentence in real prison. You aren’t going to be able to blame anyone else in court. The judge simply isn’t going to buy that. Of course no one expects to get caught. But lenders now have even more tools for monitoring occupancy status to identify criminals. If you have done this, the best solution is to refinance out of those loans today, with the appropriate occupancy status
2. Stated Income Loans: Stated income home loans are back. These and other more exotic mortgages are creeping their way back into the market, and more are sure to come. They are not bad in themselves. In fact, they can be very beneficial to savvy real estate investors and home buyers. They are even needed in some cases. But that isn’t a license to misuse them. Remember the lessons. This was another ‘grey issue’ a decade ago. Then hordes started being dragged off to jail for incorrectly stating their income. Sometimes it wasn’t their plan. Often it was the banks. Again, it doesn’t matter in court. And it’s unlikely you can afford a bigger and better legal team for longer than the banks or government. Be sure to understand how to use them, and don’t sign any documents that aren’t correct.
3. Wholesaling Houses: Contrary to some misguided sensationalists wholesaling houses is not illegal. Just like it is not illegal for Walmart or Costco to buy inventory at great discounts and resell them at attractive prices. Neither is it illegal to use official attorney or Realtor contracts with pre-written assignability clauses, and then assign them. However, there are some ways that some individuals do break state real estate laws because they haven’t invested in their real estate education. Not knowing any better is not an excuse that will fly with the judge. So invest in a legit wholesaling course, and do it the right way.
4. Phantom Properties: Craigslist in particular has become a hotspot for real estate scammers. Often the properties being advertised don’t even exist, or at least the advertisers have no legal right to sell them. Often these real estate advertisers will attempt to gain individual’s personal information or even request money to be sent. Always do thorough due diligence for attempting to by a property.
5. Taking Deposits: A number of scammers have recently been revealed for taking deposits for properties and then never delivering them. Others haven’t delivered on profits or returns promised. Sometimes individuals and new firms just can’t deliver on what they hoped. Sometimes they are victims of scams and go bankrupt too. This is starkly different to those purposely taking people’s money and running away with it. So carefully vet who you do business with, and deposit money with your own real estate attorney or title company.
6. Shady Renovations: This hasn’t yet become big news this time around, but given how lazy and dangerous building and remodeling practices took hold during the last real estate surge it is critical to watch out for. If you are rehabbing properties, then do it right. That includes vetting the materials and laborers you bring in. If you are buying or selling properties do due diligence, and check warranties.
7. Promise Future Lending and Credit: Another emerging issue is likely to be lenders promising the ability to finance and get credit in the future. There are no guarantees of future credit. There are so many variables between your credit and equity, the market, and new regulations that banks really can’t promise that rates will still be low when you want to refinance in two years, or that you will qualify. If might work out, but if you need to be sure, then lock in a long term financing deal now.