The real estate market can be a lucrative place for investors, but it also has its pitfalls. There are real estate scams out there waiting to take advantage of those who aren’t aware of these tricks. According to the FBI, in 2020 around 13,638 people fell victim to real estate scams.
California continued to experience real estate fraud on an alarming scale in 2022—from fraudulent tenancy agreements to fake listings. Here we discuss some of the most common real estate fraud schemes in California and the steps we can take to spot them and protect ourselves against fraud.
What Are Real Estate Scams?
Real estate scams are any kind of fraudulent activity that involves real estate transactions. Fake realtors, fake listings, and other forms of real estate fraud can cost unsuspecting victims thousands of dollars or more. These types of scams may be difficult to spot and can be especially damaging if they go unnoticed.
Common Real Estate Scams in California
It’s important to learn the common types of real estate fraud to stay safe. In 2022, the top types of scams in California were:
Rental Fraud
Rental fraud is when a scammer poses as a legitimate landlord or rental agent and lists a property for rent on an online platform, such as Craigslist or Facebook Marketplace. These listings usually appear real and include pictures of the property.
Unfortunately, after someone has paid a security deposit or rent in advance, they discover that the listing was a scam. To protect yourself against rental fraud, always check public records to make sure the landlord is real, and never pay any money without seeing the property first.
Real Estate Flipping Scam
This is when a real estate investor purchases a property for much less than its market value, then resells it for significantly more than what they paid for it. In some cases, real estate investors may even use dishonest tactics like falsifying appraisals or creating false documents to inflate the value of the properties they are flipping.
To protect against real estate flipping scams, always verify that a real estate investor is licensed and check public records to ensure the property has not been significantly overvalued. Verify that the appraiser is also licensed and the comparables in relationship to the appraised property listed in the appraisal are valid.
Title or Deed Scam
This scam involves a fraudster who poses as the legal owner of a property and then sells it to an unsuspecting buyer without revealing that it is not legally theirs. This can leave buyers in a difficult position, unable to get their money back or take ownership of the property.
Always confirm the real owner of a property before agreeing to purchase it and ensure all documents are real and legally binding. Most importantly, since California is a Title Insurance State, never purchase real estate without the Seller providing you with a valid and binding Title Insurance policy.
Rent-to-Own Scam
In this scam, a renter agrees to pay rent and a deposit in exchange for the promise that the property will eventually be purchased. The scammer will then demand more money from the tenant, often promising title or deed ownership, but never delivering on their promises.
Always verify that the owner of the real estate is the real owner, check public records to make sure the property is not already owned by someone else, and never pay money without a contract. Again, since California is a Title Insurance State inquire about obtaining a Preliminary Title Report, and/or Full Title Policy Report to verify ownership before turning over your hard-earned money to anyone.
Home Inspection Scam
Home inspections are a necessary aspect of the home-buying process and ensure you’re paying a fair price for the property you’re buying. In a home inspection scam, an inspector may inflate the cost of the inspection or provide subpar service, leaving you with an overvalued property and no real protection.
Prevent this type of real estate scam by asking questions, inspecting the property yourself, and researching the inspector’s credentials before letting them inspect the property. Make sure the inspector is a licensed General Contractor with the Contractors State License Board (“CSLB”) in California.
What Can We Learn From These Scams?
It’s important to be aware of property scams, as they can cost buyers and renters thousands of dollars. To protect yourself from real estate fraud, here are some tips:
- Always do research before making any real estate decisions. Research the property, realtor, and contract to make sure they are legitimate.
- Be aware of real estate scammers’ tactics, such as pressuring you into signing any agreement, and/or promising property ownership.
- Use reliable real estate websites and licensed professionals that verify and vet listings before publishing them.
- Make sure you understand the terms of any real estate agreement you’re signing.
- Hire a real estate lawyer to review real estate contracts and other documents before you sign.
Stay Vigilant Against Real Estate Scams with Mellor Law Firm
Taking proactive steps to protect yourself from real estate fraud is crucial. At the Mellor Law Firm, we are dedicated to helping aspiring homeowners stay safe from scams. Our team of experienced real estate attorneys can review documents and advise you on the best course of action for your situation.
Schedule a consultation today to learn more about how we can help protect you against real estate fraud and get the home of your dreams.