The U.S. attorney for the Southern District of Illinois recently indicted two California residents on charges related to a national telemarketing scam targeting real estate investors. The charges included conspiracy to commit wire fraud and mail fraud, and result from the two individuals’ participation in a scheme that involved selling fake lists of potential investment properties to would-be real estate investors and home-buyers for about $200. The indictment alleges that the two placed ads on Craigslist stating that houses were available for sale or rent at attractive prices, then, when people responded to the ads, they were told they would need to purchase a list of “pre-foreclosure” properties to get more information. The fee purported to cover title searches, deed transfers, and other transactional costs.
Unfortunately for the real estate investors who purchased these lists, once they had paid the fee they found that most of the properties on the list were not available. In fact, in many cases, the addresses did not even exist. When the properties did exist, they were not available for purchase at all, much less at a discount or using subject-to financing. Subject-to transactions involve taking over loan payments on an existing mortgage and are attractive to real estate investors because they do not require the buyer to take out a new mortgage loan before taking ownership of the property. These transactions, while legal, are complicated and usually only an option when a seller is extremely motivated.
Victims of the scam claim that they were told there were numerous potential deals available in their area of the country regardless of where they lived. After paying the fee and receiving the list, they were informed that the house they originally had found interesting was no longer available. The company operating the telemarketing campaign did so for about seven years.
It is important to note that an indictment is not a conviction, and the individuals and companies charged are considered innocent until proven guilty. Many real estate investors find the use of deal-location services similar to the one described in the Illinois charges to be highly useful. Before investing in such a service, however, run the same kind of due diligence on the company that you would on any real estate deal, including doing online research about the property that initially attracted your interest. If the information on that property proves flawed, proceed with caution.
Investor Insight: Not all sources of information are accurate. Do your due diligence on every property in advance.