How to avoid falling prey to real estate scams

The last thing anyone should be worrying about when purchasing or renting a home is being scammed. Unfortunately, fraud is becoming increasingly prevalent in the real estate industry, and it is essential to be vigilant.

This is according to Grahame Diedericks, Manager Principal in Midrand for Lew Geffen Sotheby’s International Realty who adds that fraudsters’ increasingly sophisticated scams are not only fleecing buyers, sellers, and prospective tenants, but also property practitioners.

Con artists are by no means a new phenomenon in the industry but the strident technological advances that have made our lives so much easier in recent years, have also opened up a whole new world of opportunities for fraudsters”.

And, as a result, it has become far more prevalent, with the spike in digital fraud prompting financial institutions to urge clients and property professionals to keep their eyes open for any irregularities and to ensure they verify all credentials”.

In fact, the increase in scams perpetrated by the electronic interception of communication between attorneys, estate agents, and their clients, has been so significant that the Attorneys Indemnity Insurance Fund no longer covers attorneys who fall victim to cybercrime, says Eduan Milner of Eduan Milner Attorneys, Notaries and Conveyancers.

Electronic communication scams

Losses arising out of cybercrime include payments made into an incorrect and/or fraudulent bank account where either the insured – or any other party – has been induced to make the payment into the incorrect bank account has failed to verify the authenticity of such bank account which includes a face-to-face meeting” comments Milner.

This type of fraud is actually quite sophisticated, and it entails a phishing-type email aimed at intercepting email correspondence to one of the parties and the progress of the transaction is then monitored, with the fraudster sometimes even brazenly phoning for updates”.

Shortly before payment is due to happen, they send a mail from an almost identical email address notifying the purchaser or conveyancer of a change in bank details. The email addresses are sometimes so similar that it is easy to miss the small discrepancy”.

If successful, this scam can have serious ramifications for all concerned. “If the buyer is deceived into paying into a fraudulent account, he or she can no longer financially perform in terms of the agreement of sale which places them in breach of contract and liable for damages to the seller”.

It is a horrible two-fold blow because not only do they lose their money, but they do also not get the house and they have to pay an additional fee for damages”.

Milner adds that the fact that the breach is due to fraud is not a viable excuse as neither the seller nor the conveyancer was at fault, and they cannot be expected to carry any of the loss. Similarly, if conveyancers get duped into paying the fraudster, they are also liable.

He also cautions that fraud can happen at any point of the transaction – even after a sale has been cancelled.

In one case, after a property sale had been cancelled, the conveyancer sent an email to the purchaser’s Gmail account, advising her that the refund would be paid into the bank account from which the payment had been generated. He received an email response stating that the bank account had been temporarily discontinued. He thereafter received an email with details if an account held with another bank, into which the refund should be paid, and he duly made payment using electronic banking”.

In the meantime, the purchaser received emails (ostensibly from the conveyancer) apologising for the delay in the transfer of the funds and by the time the conveyancer became aware that the alternative bank account did not belong to the purchaser, all the money had been withdrawn from the account”.

Savvy syndicates

Diedericks cautions that there are many other hoaxes to be wary of, including those run by syndicates that have people who very convincingly pose as estate agents, sellers, and even registered attorneys.

One method is to sell homes that are not actually up for sale, and this is usually done in one of two ways. The first is when a syndicate member poses as the owner and the property is transferred and proceeds paid without the seller being aware that his or her property has been sold”.

However, this will only be successful if the estate agent and conveyancer are negligent in authenticating the identification of the seller to transfer the title of a property in which you need an original title deed and a special power of attorney from the property owner, authorising the conveyancer to make the transfer”.

The fraudsters may also identify homes that are legitimately on the market and post an advert on sites such as Gumtree. One of the syndicate members poses as an estate agent and takes an unsuspecting buyer for a view and, if keen to buy, they are taken to the ‘agent’s’ lawyer to sign a sale of agreement”.

The buyer is then instructed to deposit the sale amount to the seller’s bank account, but the money is immediately transferred to various other accounts and withdrawn”.

Milner cautions that buyers can also be liable for committing fraud when they intentionally misrepresent or omit information which financially impacts the seller.

For example, if a buyer misrepresents his or her financial status to enter into a contract, but later pulls out due to a lack of funds, thereby causing the seller to miss other sales opportunities as a result, the seller may have grounds to pursue a fraud case against the imputed buyer”.

Similarly, omissions about a property’s history can also lead to fraud charges, especially if a seller fails to provide necessary information relating to zoning restrictions on the property, significant structural damage, the presence of undiscovered nuisances, mould, or other toxic damage”.

Rental racket

Diedericks cautions that it is not only in property sales that people need to be wary, but also in the rental arena.

The best line of defence is to use a reputable agency as both landlords and tenants are thoroughly vetted, but if you are considering renting a property directly, my advice would be that if you have any doubt at all, do not do it”.

Never take a property sight-unseen, never transfer deposits to secure a property unless you are 100% sure the agent or landlord is authentic and if there are current tenants when you view, be sure to ask a lot of questions and do not ever come across as desperate as dishonest people very skillfully prey on that”.

He adds that you can also insist that an attorney holds the funds in their account to be released to the landlord once the ingoing inspection is done.

Milner offers the following advice to protect all parties against fraudulent real estate scams:

  • It is important for agents and attorneys to verify and to know their clients and always personally verify any change in payment instructions.
  • Be especially vigilant if bank details are changed and independently verify the bank account details directly with the bank. Most banks have systems to enable conveyancers to do this.
  • Never pay money into an account that does not belong to a bona fide party to the transaction.
  • Confirm that your estate agent is legitimate. You can also do so via the Estate Agency Affairs Board (EAAB) website where all agents who are marketing properties must be registered.
  • Never click ‘reply’ to an email when you are sending important information. Rather create a new email and input the email addresses directly from your address book. This will ensure that you never send information to a fake email address that looks similar.
  • Buyers and sellers should always ask for verification of the bank account into which any funds are being paid.
  • All correspondence requesting a change of banking details should be viewed with suspicion.
  • Only use banking details provided in an email if you have confirmed authenticity.
  • Nowadays, face-to-face meetings are not always possible but, important documents should always be signed in person and verification of bank details always completed.
  • Be on the lookout for the following red flags: spelling errors in emails or other messaging systems, the presentation of sudden changes or decisions as having strict deadlines, hasty changes to terms and conditions, refusal to speak on a phone call.
  • Property professionals should be adequately insured.

Now, more than ever it’s critical to appoint well-established and accredited property professionals,” says Diedericks.

Experienced conveyancing attorneys and estate agents affiliated to a registered and recognised brand will not only safeguard you, but they are also always current on all aspects of the industry, including potential pitfalls and dangers like fraud”.

They will also have systems in place to detect fraud and should carry insurance to cover incidences like negligence or being misled by a fraudster”.

Whether you are buying or renting, property usually accounts for the bulk of our monthly spend and is often the largest investment any of us make, so never let your guard down,” advises Milner, “and do not be too embarrassed to ask for confirmation or verification and follow your gut instinct if you feel uneasy about any aspect of the transaction”.

And if you do have the misfortune of do falling victim and paying into a fraudulent account, contact the fraud department of the recipient bank and of your bank immediately as they may be able to stop the money leaving the account.”