Real Estate Scams

Can you recognize the most common real estate scams?

It's a fact of life that wherever you find people with money, you'll also find crooks trying to separate them from it with real estate scams.

But you don't have to fall victim to these thieves if you know can tell the scams from the real deals. These are some of the most common real estate scams you may encounter:

Home equity fraud - You've owned your home for a few years and have been making steady mortgage payments. The house is valued at $100,000 and you owe $90,000. That means you have $10,000 equity in your home.

A lender approaches you about a home equity loan. It sounds like a good deal - not like a real estate scam - so you take the loan. Only it comes with hidden fees and outrageous rates that get tacked onto your $10,000 loan. Say, $1,000, just as an example. You're down to $9,000 equity.

Then the lender returns and offers an even lower interest rate. And another one after that, and another after that. The lender keeps convincing you to churn the second mortgage, slipping in those hidden fees each time. Pretty soon, your equity is gone, you owe more on the house than it's worth, can't keep up with the payments and lose the home to the lender.

Or, in another version, the lender offers to refinance your home at a low, low rate. You sign the loan paperwork, but don't examine it closely. That lower rate actually turns out to be higher once all the extra fees and points are included. The mortgage payments are more than you can afford. The lender forecloses.

Stay out of trouble by not accepting loans you don't need. If you do need the cash, try a regular lender, such as a bank. And if you still want to take the "low interest" loan, don't sign anything until an attorney looks it over and tells you it isn't a real estate scam.

Deed forgery - You're in the market for a Home and see a "for sale by owner" ad in the paper that looks just right. The owner meets you at the property, shows you around and tells you he is willing to sell for below market because his job has moved him out of state.

One thing leads to another, and, before you know it, the sale is complete. You move in with your family, about ready to settle comfortably into your new home. Suddenly a stranger shows up, asking what you are doing in his house.

Turns out, you've just bought a home from a thief. In this real estate scam, the con man has managed to locate an unoccupied property with an absentee owner who doesn't check on it frequently. He gets his hands on the deed and forges the name of the real owner.

Avoid this real estate scam by always asking for identification from the people with whom you are doing business. However, someone able to get the deed to the house may also be able to come up with phony ID. So, it is always a good idea to ask around the neighborhood about the owner, especially if he claims he has lived there for a while.

And, above all else, buy title insurance if you go through with the deal. It can help protect you in the event of fraud.

The Nigerian scam - This real estate scam is a version of the old e-mail con that has been circulating for nearly 10 years. Everyone has gotten one of those e-mails from some luckless person trapped in a dangerous situation in a foreign country with $25 million needs to be transferred to the U.S. ASAP.

The con man offers you a healthy chunk of the millions if only you will allow him to move the money into your bank account. Of course, you will need to send him some kind of earnest money to prove your integrity. He ends up with the cash, and you get nothing.

Now, there are reports that this has morphed into a real estate scam targeting home sellers, especially those using the Internet. The con man contacts you and offers to buy your house, without even a visit. He, of course, is located in a dangerous foreign country, and is in a hurry to get out.

He offers to send you a check. He will even make it for more than the amount, provided you are willing to forward most of the extra to a business partner of his. In this real estate scam, you actually get a check, which you deposit. Then, you send the additional amount to the partner, presumably because the first man is in such a dangerous position, he can't do it for himself.

The check you deposited is bogus. The money you sent to the partner is very real. Guess who gets stuck paying back the bank?

Never reply to offers like this originating from another country, and it doesn't have to be Nigeria. Any deal that involves you depositing a check and forwarding money is a real estate scam. Period.

Mortgage fraud - It sounds like a great offer. An investor wants you to buy a piece of property, using your name and credit. For your help, you will get a 10 percent cut of the purchase price. The mortgage will be in your name, but the investor promises to make the payments.

The investor has already purchased the property and gotten phony property appraisals inflating the actual worth of the property. For example, he paid $100,000, but the appraisals show it to be worth $150,000. The mortgage company loans you enough to buy the property at the inflated value, not realizing it is a real estate scam.

You give the investor $150,000, getting $15,000 back for your services. The investor pockets the rest, less his own expenses for buying the property. He maybe makes a few payments on the mortgage, then stops. The bank forecloses on the property, ruining your good credit. The investor has long since disappeared with a $35,000 profit.

Mortgage industry experts put the losses associated with mortgage fraud at more than $4 billion dollars a year. That's gotten the attention of the FBI and the IRS. Agents are actively making cases against people who commit mortgage fraud, and list California as one of the top 10 states for these real estate scams.

This one is simple to avoid. Don't let greed control your decision-making. If someone approaches you with an offer too good to be true, the old cliché is right - the deal isn't good.

Mortgage rescue fraud - You're in trouble with your mortgage payments, falling further and further behind, and foreclosure is inevitable. Or so you think, until a special lender approaches you with a deal.

You pay the company a fee, usually ranging from $1,000 to $2,500, according to the Los Angeles Police Department. In exchange, the company will take the deed to your home, arrange a short sale, lease the home back to you, and make the payments to the mortgage company.

Once you're back on your feet, you will have the option to buy the home back. Except that the company never makes a payment on the mortgage, the house goes into foreclosure, and you are left without a house and none of the equity you had put into it.

Instead of taking a deal like this one and falling victim to a real estate scam, look for a regular bank or mortgage company equity loan, or sell the house to get out from under. Unfortunately, the quick and easy fixes are almost always going to be cons.

The bottom line on avoiding all these real estate scams is to exercise a healthy degree of skepticism and consult your real estate attorney before signing paperwork on any deal.