Real Estate Scheme: The Money Deposit Scam
Sadly, Real Estate scams are common. A popular real estate scheme called an “Earnest Money Deposit Scam” that you as a real estate investor should be aware of. These scammers will fraudulently try to sell you a house that isn’t fore sale and commit wire fraud.
This is not a new scam, but these types of scams will start to happen more often as more short sales and bank owned properties are expected to hit the market later this year. How does this scam work?
An agent claims to have a listing for a short sale, a probate, or other type of distressed property, but the property cannot be shown. Viewing is through a drive-by only, no interior access to the property is available.
Explaining wire fraud in Real Estate
The agent immediately starts to pressure you hard for a large earnest money deposit, usually in the $5,000 to $10,000 range. You take the bait and wire to the agent’s escrow account. As with most short sale or bank owned properties, the process can take several months, and the agent assures you that he or she is working towards lender approval – it is just taking time. When the communication slows down or stops, you begin to get concerned.
When you call, the number is disconnected. What happened? The agent and the listing were both phony. How then, would you avoid falling victim to this Earnest Money Deposit Scam?
How To Protect Yourself From Real Estate Fraud
Be extra cautious of short sales, probates or other distressed property sales when it comes to giving earnest money deposits. With so many US homeowners behind on their mortgages, this type of scam will become more frequent as real estate investors are eager to find distressed properties to buy in the next year or so.
Be wary of properties offered for sale that are not listed and are unavailable for access with only a “drive by” viewing.
Check to see what type of escrow it is where you’re supposed to wire your earnest money deposit. Is it broker-owned, is it independent, or is it controlled through a title company?
Depending on the type of escrow account that you’re supposed to wire to, check the license status of that escrow company on the government agency site responsible for licensing that escrow. If independent, check the status of the company on the Department of Business Oversight site for that state.
If controlled through a title company, check the status on the Department of Insurance site at the state level. And if a broker-owned escrow, check the status of the broker through the Department of Real Estate Website at the state level.
This earnest money deposit scam is certainly not a new scam. But it takes new victims when in a competitive real estate market or in a market with more distressed properties expected to be available, which could happen this year with so many homeowners behind on their mortgage payments.
Be aware of this real estate scam and share this video with other real estate investors that you know who are on the hunt for good deals. The next good deal may turn out to be a scam if you don’t know what to look out for!