Don’t Bet On the House: Avoiding Real Estate Scams

By Jillian Sarmo, Investor Education and Public Affairs Coordinator ~

Despite what some have called a “cooling effect” on the real estate market in Colorado, home sales are still booming, and as we head into the spring season, it’s worth refreshing the topic of real estate scams. Scammers are always on the hunt, and they take advantage of popular trends to help them recycle old scams with a new pool of victims. Real estate buys are often the biggest purchases many consumers will make in their lifetimes, and big money equals big opportunities for criminals. Here are three current scams to look out for if you’re in the market for a new house or investment property.

1) Down Payment Scam – The Federal Trade Commission recently warned home buyers about an email and money wiring scam where hackers break into either a consumer’s or a real estate professional’s email account to get information about upcoming real estate transactions. After noting the closing date, the hacker will “spoof” an email account and pose as either the real estate professional or someone from a title company, and state that there has been a last minute change to the wiring instructions for the buyer. The new wiring instructions lead the buyer to send the down payment, often hundreds of thousands of dollars, to the scammer’s account instead of the title company. In a matter of minutes the buyer has lost everything.

2) Timeshare Reseller Scams – If you are already the owner of a timeshare, be on the lookout for a scam where owners are cold-called, mailed or emailed solicitations from an unlicensed business entity purporting to be a full service property management company, real estate brokerage or title and escrow company that lists and sells timeshares. These phony representatives have been identifying themselves using the names and license numbers of actual real estate professionals to gain the trust of their intended victims. When consumers respond to their solicitations, they are directed to forward various up front transaction fees (sometimes in excess of $5,000) to an out of state or out of country escrow company. Once the money is wired, it’s likely gone for good.

3) Real Estate Investment Schemes – While investment properties and “investment club” arrangements are common in both the real estate and securities industries, they may be based on fraudulent origination and/or closing practices. According to Freddie Mac, investment property schemes are usually spread by word of mouth and promise a large increase in property value (meaning high returns on investment) in exchange for the investment of large sums of money. “Investment clubs” involve individuals pooling funds in order to purchase real estate that the individuals otherwise could not afford. While this is a legitimate practice when it follows regulatory rules, misrepresentations or omissions about the facts surrounding a pooled investment are common, and may lead to devastating consequences for investors who haven’t done their own due diligence.

Jillian Sarmo

What’s the best way to avoid falling for any of these real estate-related schemes? The simplest answer is to verify. Anytime you are sending money, independently look up the contact information for the company. Call and verify that the account numbers and instructions are correct. Never rely on email instructions or numbers provided therein without double-checking the source. If you are cold-called or contacted by someone offering to purchase or resell your property, verify with the Colorado Division of Real Estate that the license of the professional is in good standing and hasn’t been flagged for fraudulent use. Further, never send money up front for services – fees should always come out of the closing costs. Finally, if you are involved in an investment opportunity, verify that the professional with whom you are working, as well as the offering itself, are properly registered with the Colorado Division of Securities. A little extra work can go a long way in protecting these important purchases!

The Division of Real Estate can be contacted at (303) 894-2166, and the Division of Securities can be reached at (303) 894-2320.