Tips for Avoiding Real Estate Fraud

Although the real estate market has taken a nosedive in the last few months, it doesn’t mean that people have stopped buying or selling. It also means that if you’re one of those people, you need to be aware of real estate fraud. The last thing you want when investing in real estate is to run into a scam. Here are some ways to avoid getting caught.

Lease-Options -- Not Really An Option

Lease-options occur when real estate investors save you from foreclosure through buying your home and leasing it back to you. These deals sound attractive, but the problem is that even if you can buy your house back, the contract may not have the lease payment go toward buying your home back.

Do not sign a lease-option if the monthly lease payment is the same or more than your current mortgage. One missed payment means that the investor can legally evict you. If you really need to get out of your mortgage, get out of the house by selling it. You can avoid foreclosure by reaching a settlement with a real estate investor, thus saving your credit and moving into a home you can afford.

Buying On Assumption

The “Sub-To” scam occurs when a real estate investor agrees to assume the mortgage with the idea that they will get to share the sale of the home. Then the investor leases the house to someone else, collecting the payments without paying the mortgage. Once the payments start slipping, you’re in trouble.

Selling on assumption is not a safe bet, since it doesn’t eliminate legal obligations. If your house goes into foreclosure and your loan is assumed, creditors can still hit you up. Even though it looks like a quick fix, buying on assumption could mean future denial of a loan.

Stay Away From Straw Buyers

Straw buyers pretend to be a buyer to the mortgage company for a loan, but claim they will live in the property to get the lender to lower the interest rate. What happens is you end up selling your house to an identity theft while the lender hands the money to someone who was not going to live in the house or pay the mortgages. Make sure the person bidding on your house will be taking over the same mortgage loan. Using a straw buyer is a federal crime and those involved can end up in prison.

One last note -- do not agree to sell your home for a number over your asking price if you’re told to refund the difference after it closes. If the contract says that this extra money earned will go toward house repairs, just say no.

This is a red flag to get money from the mortgage lender and makes you a liable partner in the scam. Additionally, if you ever feel that you may be caught in a scam, get a real estate attorney to help you sort out contracts and uncover any deception you feel you are encountering.