The information below covers real property fraud specifically, as opposed to personal property. As a property owner, you should be diligent about your property and finances, since real property fraud can cost you tens or hundreds of thousands of dollars in a single transaction. Much of what follows draws on official warnings from the FBI and the FTC.
Wire Fraud: The Most Costly Real Property Fraud
Every party to a real estate transaction is a potential target of wire fraud, and can lose hundreds of thousands of dollars by simply relying on wire instructions received by email without further verification. If funds are being wired in connection with a real estate transaction, verbally verify the wire instructions through a known, trusted phone number before sending any funds.
• Never rely on emails purporting to change wire instructions. Parties to a transaction rarely change wire instructions mid-transaction.
• Always verify wire instructions — specifically the routing and account numbers — by calling the party who sent them. Don’t use the phone number in the email itself; use a number you’ve called before or can otherwise independently verify. Get the phone numbers of the relevant parties as soon as escrow opens. Don’t verify by email, since the address itself may be spoofed or the email intercepted.
• Use complex email passwords combining mixed case, numbers, and symbols, at least eight characters long. Change passwords regularly and never reuse them across accounts.
• Use multi-factor authentication on email accounts. Your provider or IT staff can walk you through enabling it.
Mortgage Fraud: A Common Form of Real Property Fraud
Mortgage fraud is a type of financial institution fraud, characterized by a material misstatement, misrepresentation, or omission related to a mortgage loan that a lender relies on. A lie that influences a bank’s decision — whether to approve a loan, accept a reduced payoff, or agree to certain repayment terms — is mortgage fraud. The FBI identifies two distinct categories.
Fraud for Profit
Those who commit this type of mortgage fraud are often industry insiders using specialized knowledge or authority to commit or facilitate it. Fraud for profit doesn’t aim to secure housing — it misuses the mortgage lending process to steal cash and equity from lenders or homeowners.
Fraud for Housing
This type of fraud is typically committed by a borrower motivated to acquire or maintain ownership of a house — for example, misrepresenting income or asset information on a loan application, or enticing an appraiser to inflate a property’s appraised value.
Common Schemes Behind Real Property Fraud
• Title Transfer: the most dangerous scheme is the “bailout” that never quite works. The homeowner surrenders title, believing they’ll remain in the home as a renter and eventually buy it back — sometimes told that surrendering title lets someone with better credit secure new financing to prevent foreclosure. The buyback terms are almost always so unfavorable that repurchase becomes impossible, the homeowner permanently loses possession, and the “rescuers” end up with most or all of the home’s equity, often evicting the original owner. A related scam convinces homeowners to transfer title to a “federal land grant” with the false promise this prevents foreclosure.
• Foreclosure Rescue Schemes: perpetrators target homeowners in or near foreclosure, misleading them into transferring the deed or retitling the property to an investor. They profit by selling to an investor or straw borrower, inflating equity through a fraudulent appraisal, and pocketing the seller’s proceeds or fees. Homeowners are sometimes told they can rent for a year and repurchase once their credit recovers — but the perpetrators stop making mortgage payments, and the property typically goes into foreclosure anyway.
• Loan Modification Schemes: similar to foreclosure rescue scams, perpetrators offer to renegotiate loan terms for homeowners behind on payments, then demand large upfront fees and either negotiate unfavorable terms or don’t negotiate at all. Homeowners usually still lose their homes.
• Equity Skimming: an investor uses a straw buyer with false income documents and credit reports to obtain a mortgage. After closing, the straw buyer signs the property to the investor via quitclaim deed, which relinquishes all rights with no guarantee of title. The investor makes no mortgage payments and rents the property out until it’s foreclosed on months later.
• Silent Second: the buyer borrows the down payment from the seller through an undisclosed second mortgage. The primary lender believes the buyer invested their own money, when it’s actually borrowed — and the second mortgage may go unrecorded to further hide it.
• Home Equity Conversion Mortgage (HECM) Fraud: a HECM is a reverse mortgage insured by the FHA for borrowers 62 or older who own their home (or have a small remaining balance), occupy it as their primary residence, and complete HECM counseling. Perpetrators specifically recruit seniors through local churches, investment seminars, and advertising, then obtain a HECM in the recruited homeowner’s name to convert their equity into cash — keeping most or all of it, sometimes without the senior’s knowledge. No repayment is required until the borrower stops using the home as a primary residence, and the inflated appraisal underlying the fraud often isn’t discovered until the homeowner dies.
• Commercial Real Estate Loan Fraud: owners of distressed commercial property manipulate the appraised value, sometimes using bogus leases to inflate perceived profitability under the income approach to valuation. Fraudulent appraisals induce lenders to extend financing; as actual cash flow falls short, the property deteriorates from deferred maintenance, and lenders are often left holding a dilapidated, hard-to-rent property once the loan defaults.
Warning Signs of Real Property Fraud
Anyone can be vulnerable to real property fraud and identity theft, but the elderly and economically vulnerable are traditionally targeted most. Common warning signs include:
- Receiving official documents indicating your property was transferred, with no knowledge of the transaction
- Not receiving a property tax bill — often the first sign something is wrong
- Receiving mortgage documents or payment books for a loan you never applied for
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Disclaimer: Every situation is different and particular facts may vary thereby changing or altering a possible course of action or conclusion. The information contained herein is intended to be general in nature as laws vary between federal, state, counties, and municipalities and therefore may not apply to any given matter. This information is not intended to be legal advice or relied upon as a legal opinion, course of action, accounting, tax or other professional service. You should consult the proper legal or professional advisor knowledgeable in the area that pertains to your particular situation.
