Since there is so much money involved when it comes to selling and buying a house and so much potential income for a seller, the real estate industry has its frauds and scams. When it comes to real estate, people buying or renting a house are usually the ones getting scammed. Because they are the ones who are paying.
Some of the best ways to avoid scams is to be vigilant and know the most common kinds of fraud, while understanding how you can prevent them. In this blog, we will go over how to avoid fraud when buying a house in Reno Nevada.
Common Kinds of Fraud
Today, there are a variety of real estate scams and frauds that house buyers need to look out for. Knowing these is the first step to avoid home buyer fraud in Nevada.
Loan Origination Fraud
Loan origination fraud occurs because mortgage brokers have a key role to play in the borrowing process. The job of a mortgage broker is to work with a buyer by getting their requirements then pairing them to a lending institution and mortgage program. Then taking care of the majority of the loan process. The broker receives a commission for the loan.
A mortgage broker to only give out loans to individuals who are able to make their payments on time. Loan origination fraud typically happens when a lender takes advantage of a borrower by telling the buyer they can qualify for a loan that actually exceeds their capacity or ability to make payments long term.
These types of practices is what caused the previous crash where a large amount of homeowners were defaulting on their home loans after being taken advantage of.
Most of the time, a broker will commit this type of fraud so they can get a bigger commission from a larger loan. Even if you cannot make the payments each month.
Illegal House Flipping
House flipping has become extremely popular over the last few years. House flipping occurs when an individuals buys a property then renovate and repair it. After it is renovated, they sell it for a profit.
You need to be aware of of illegal house flipping to avoid fraud. Illegal flipping looks exactly the same on the surface, but varies in that the “investor” sells the house at a much higher price than its actual value, usually after making only small repairs. The fraudster makes a lot of money, and the buyer overpays for the price of a house that is not worth the price. The seller will also pay off the appraiser to get a bogus appraisal on the house.
With the increased use of technology in the real estate industry, comes a rise in wire fraud. Wire fraud is increasing and it can be financially devastating. This occurs with an intent to fraudulently secure a property or money through a wire transfer. This can happen anytime in a transaction, buy usually occurring towards the end of a transaction when money is normally exchanged.
This usually happens when a scam artist obtains someones email or phone number and acts as if they work for the bank or escrow company. They try to obtain your bank information, social security number. Also try to get you to transfer them money or e-sign a deceitful document.
An example of how this occurs is as follows. A scammer emails or calls the buyer and tells them they need to wire their down payment. All while claiming they’re the escrow company. The buyer wires them the money and never hears from them again. When it’s time to close, the actual escrow company never receives the money and the buyer is unable to buy the house.
Wire fraud, is becoming common in the real estate industry and you should be aware so you do not become a victim.
What Can You Do To Avoid Fraud When Buying A House In Reno Nevada?
Educating yourself about the numerous scams in the rel estate industry is one of the first steps you can take to avoid fraudulent activity. So how do how can you stop it?
Know What The Lender Can And Cannot Do
Knowledge is power. Understanding the rule will go along way. Legitimate lenders can not persuade or force you to borrow more than you can actually afford to repay. If the lender is trying to get you to sign the loan documents with inaccurate or incomplete details, such as your duration of employment, debt history, or income, you should be cautious.
Know What you Are Signing
Home loan documents can be long and filled with terms you might not understand. However, you need to take the time and make s strong effort to read and understand them. Never sign something you do not fully understand. If they are unwilling or able to explain everything you need to know, you might want to think about using someone else to assist you.
Verify Before You Send Money Or Sign A Document
Always verify what you are signing and when you you are about to send money. They’re several documents that will need to be sign throughout a real estate transaction. You will also need to pay particular bills at the same time. For example the home inspector.
This can take up a lot of time and you might want to rush trough it so you can get it over with. This is the last thing you want to do as it can hurt you in the long run.
If a title/escrow company sends you wire instructions, contact them to make sure they sent it and if the transfer numbers are correct. Do not use the contact information in the email. Go online and check what their publicly listed number is and call them. If they call you, tell them you will call them back and again go online a verify their contact info.
HAVE A GOOD TEAM
The most important strategy you can take to avoid fraud when buying a house in Reno Nevada, is hiring a good real estate agent to help you throughout the entire process. They can help you make the right choices and guide you down the right path. While also helping you avoid common home buyer mistakes.