A caution on real estate investment scams, typically spread by word-of-mouth, has been issued in a release by The Florida Office of Financial Regulation.
“Real estate investment scams typically spread by word-of-mouth and require consumers to invest large sums of money in investment properties. This type of scam promises a large increase in the value of the property resulting in high returns or unusually high interest on contributed funds,” according to the release.
“This is not tied to any specific event,” said Jamie Mongiovi, director of communications for the Florida Office of Financial Regulation. “I routinely meet with our investigations team,” she said, adding that this advisory is something she felt should be issued to make consumers and real estate investors more aware.
“The scammer will usually purchase multiple properties and recruit prospective buyers. It is not uncommon for them to use unknowing family members or close friends to do the recruiting. Some real estate investment scams involve a fraudulent property “investment club” where individuals combine funds in order to make large investments.
“By promising that the purchased properties will be rented out and mortgage payments will be made, the scammer gives investors a false sense of security, luring them into the scam.
Unfortunately, victims of this scam can end up with loans that are upside down in equity, owing more than the properties are worth,” according to the release.
5 red flags to help you avoid becoming a victim of real estate investment fraud
- Straw Borrowers: A straw borrower is used when the actual buyer has poor credit and is unable to obtain financing. The actual buyer promises to make all payments and may compensate the straw borrower for the use of his credit. It is illegal to misrepresent the identity of any party in the transaction to the lender.
- Abnormally High Appraisals: An appraisal is expected to be a truthful representation of the value of a property. Scammers will give unusually high appraisals in order to lure potential investors into their scam, especially those with poor credit histories. Keep in mind that most legitimate lenders will use the lower of the appraised value or purchase price.
- Evasion of Purchase Guidelines: Be wary of anything unusual during the beginning stages of the purchase and contract process, such as missing or withheld information and falsified income. Always research your investment professional or organization by verifying their license and history.
- Large Number of Purchased Properties: A large amount of properties purchased is a common characteristic of real estate investment fraud cases.
- Investor Locations: Historically, real estate investment fraud cases involved investors living close to the purchased properties. Today, however, it is common for investors to be located several states away.
If you feel that you may be a victim of fraud or to report suspicious activity, please file a complaint with Florida click here or call (850) 487-9687.