How Real Estate Investors Can Protect Themselves From Scams

Tarek El MoussaBlog, Real Estate Business0 Comments

To any hard working member of the real estate business community, the “scam” revelations, especially over the last few years, are shocking and very sad. Unfortunately they don’t seem like they’re going away any time soon either. While Christina and I believe most real estate businesses are legitimate, there’s no denying scams continue to be a big problem in our industry, running the gamut from somewhat shady to outright fraudulent. Con artists prey on anyone from older folks all the way to desperate families trying to avoid foreclosure. And then, there are the real estate hucksters offering get-rich-quick workshops and elaborate property purchase schemes. This category of real estate scams in particular make us especially angry. I realize addressing this issue is a gutsy topic to write about. Especially because my business is real estate coaching and mentoring with Success Path. But in our view, you don’t run from controversy, you hit it head on.

Let’s look at the most common real estate scams you might run across when you’re looking to buy a house, renting a house, or purchasing a rental property.

“Renting” Empty Houses

This real estate scam is, unfortunately, becoming more and more common. Here, a con artist will look for a home that’s been standing empty for an extended period of time. Maybe it’s someone’s vacation home, or it’s tied up in divorce proceedings, is the subject of probate, or is an “ugly home” that’s been neglected by its owner. Then they post a listing for the home online (often on Craigslist.com) and they’ll claim to be the homeowner or an authorized rental agent. Sometimes these con artists will break into the homes and change the locks, other times they’ll get access by finding the spare key that’s been hidden on the property. It also isn’t that uncommon for these criminals to sweet talk a locksmith and convince them they’re the real owner (disturbing, but true). The con artist will pull together some official-looking rental documents for the renter to sign, take a security deposit from them and continue collecting the rent until the actual homeowners return or the scam is uncovered. Meanwhile, the poor renter is left substantially out-of-pocket, red-faced and homeless. Always verify ownership of rental properties through county records. It pays to do your homework.

“Renting” Houses in Foreclosure

This scam can work a couple of different ways. Sometimes the con artist is the homeowner himself, who is facing foreclosure, and in a desperate bid to get money, rents his house to an unsuspecting family while the bank continues with foreclosure proceedings. When the eviction date arrives, the poor family is literally turned out on the street.

Another way this can work is that scam real estate investors, who are in negotiations with the banks on a foreclosure, rent the property out to an unsuspecting family. Taken to another extreme, this real estate scam can even involve a fake real estate agent who gains access to a house in foreclosure (usually by breaking in) and taking the family on a tour of the home. The purchase price is offered at substantially lower than market value. Once the buyer decides to move forward, the fake agent collects a deposit and disappears for good. Sometimes fake agents will take deposits from multiple buyers. It’s a heart-breaking situation — especially as many of these home buyers can be first-time home buyers or have saved up their deposit over a number of years.

Loan Modification Scams

At a recent AARP conference in May, an attendee came over and shared an unfortunate tale of financial woe. A fake company, masquerading as a government-affiliated housing agency, had swindled the unsuspecting homeowner out of $10,000, amid promises to modify the mortgage. After coming up with the cash for phony “processing fees”, the poor victim was left many thousands of dollars poorer with no mortgage relief in sight. With millions of Americans still facing foreclosure and another nearly 10 million still upside-down on their mortgages, loan modification scams are among the most common, and may include: fake foreclosure counseling, phony forensic loan auditing, bait-and-switch tactics, leaseback programs, fraudulent “government” modification programs and reverse mortgage offers. Many typically start with a cold call from a company, promising help in the form of a foreclosure-related service. NeighborWorks America, the nonprofit organization behind the Loan Modification Scam Alert campaign, is an excellent resource to help protect you or your loved ones from loan modification scams.

Real Estate Workshop Scams

This is a big one and, as we are real estate coaches who mentor thousands of students every year, it makes me very angry to see the good name of our industry dragged through the mud by those few unscrupulous real estate “gurus” who take your money and run, and make millions in the process themselves.

So how can you tell a good real estate workshop from a scam one?

Here are some tips. First, do your homework on the presenters. Who are they, what is their background in real estate investing and — most tellingly — how many actual real estate deals do they do a year? As an example, Christina and I have been real estate professionals for over a decade and average at least 50 deals a year. One of our colleagues, Doug Hopkins, has done over 10,000 real estate deals in his career. That’s impressive by anyone’s standards! Call the number up on the marketing piece you received and interrogate the person who answers. What you want to know in particular is — is this real estate investor someone who did some deals five or six years ago (when the market was hopping and you only had to fog a mirror to be successful), and is now teaching out-dated strategies? Or does this guy (or gal) look like the real deal?

Next, whatever first step you take — whether it’s attending a preview workshop (like we offer through Success Path) or some other kind or workshop — don’t go if they’re asking you to pay money before you know what they’re offering. Do your homework first. Get to the event if it looks like it might be interesting, take a notepad and pen and review the content of the workshop. Keep an open mind. Good real estate workshops are valuable. How many strategies do they share? Do they provide real examples of recent deals they’ve done? Take the addresses if you can, and look these deals up by searching county records. You can do it on your iPhone while the workshop is underway. If the company offered you a free gift to get you there, do they make good on their word and give it to you? Or do they “mysteriously forget” about it? What kind of a guarantee do they offer if you want to take the next step and attend a more intensive workshop? At Success Path, we offer a triple guarantee on our three-day workshop. If they don’t offer a guarantee, then they clearly aren’t prepared to stand behind the education they provide you with. If that’s the case, then run, don’t walk away from the seminar, and take your checkbook with you.

Just one final word of advice — when doing your research on your real estate mentor, look for trends. Does this mentor, on balance, seem like a good guy or a bad guy? With the social media explosion these days, it’s virtually impossible to please everyone, so just because you find one or two negative reviews doesn’t mean you should automatically rule them out. Even people like Warren Buffet get occasional bad press. They might not know it, but those negative reviews are like a stake to my heart. Christina and I take them very, very seriously. We deeply care about the feedback, experience and success of our students.

To sum up — protecting yourself from a real estate scam is simple: do your homework, trust your gut instinct, and remember that if it sounds too good to be true, then it probably is.

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