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| Property Scams - Don't be a Victim |
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The only place where Pay comes before Work is in the dictionary.
Real Estate is a big ticket item and the returns to the fraudster are high relative to the insignificant penalties
if they are caught.
If someone robs a bank and steals $5,000 they are likely to be sent down a very long time. However if they
scam ten times that amount from the same bank, they are likely to receive a not so severe slap on the wrist
with a wet bus ticket.
We have singled out a few scams and pitfalls. They are representative but by no means comprehensive.
| Money Laundering There was a recent Wellington case of a lady signing up numerous Sale and Purchase agreements through various real estate agents. She always paid a substantial deposit in cash. Shortly thereafter, she cancelled the contract on some pretext, and requested the deposit to be returned. This refund was always made by cheque from the Real Estate Agents trust account turning ‘dirty’ money into clean. In these cases no individual was out of pocket and it represented more nuisance value in that the seller may well have missed out on a legitimate buyer while their property was effectively off the market. |
| Pump & Dump Pump & dump is an oldie but a goody in the stock market. It is a matter of convincing enough people that a low priced ‘penny’ stock is about to hit the big time. Naturally the fraudster has pre-purchased a large number of these. When the stock spikes, they quit the stock for a tidy profit and the value then collapses. The real estate equivalent is called Inflate & Crash. It works a bit like this. The buyer sometimes with the collusion of a bent agent purports (to the lender) to have purchased the home for more than it’s actual cost. This is usually achieved by altering the documentation. The property is then financed on the basis of the inflated price, in other words they borrow more than the actual sale price. The fraudster never intends to make any payments on the loan and lets the property fall into mortgagee sale. When the property is on sold by the lender for its true market value, the fraudster has absconded with the balance. A twist on the above scheme is where the "buyer" offers the seller much more than the home is worth, secures a loan for the over-valued price, gets cash back from the vendor and then pockets the difference. There have been a couple of more extreme examples in the United States where the fraudster convinces the seller to finance some of the cost of the mortgage. The seller ends up handing cash to the "buyer," who has no intention of actually purchasing their home. Targets of the fraud: generally the lenders, although the latter example clearly targets individual house sellers. Avoidance tips: Obtain a registered valuation. If some body offers you cash back, avoid it like the plague. |
| Mortgagee Sale Scams These are particularly nasty crimes as the fraudsters prey on the most vulnerable. The victims are mainly the elderly and low-income families. This crime is reasonably common in the United States where it is known as a ‘foreclosure rescue’ scam. However with the New Zealand real estate market facing a downturn and many borrowers living beyond their means, it is only a matter of time before somebody tries it here. How it works is that the fraudster poses as a "foreclosure rescuer". They promise to bail out homeowners by paying off the arrears on the outstanding mortgage. The homeowner sells their home to the company for a substantial discount, and are told they may rent their home until they are able to buy it back. The purchaser, however, has no intention of leasing the property back to the homeowner. Instead, the purchaser evicts the homeowner within months after the transaction and walks away with equity the homeowner had built up. A rather nasty twist on this scheme is instead of purchasing the property outright the “rescuer” will charge a fee to help out the homeowner. They may ask the homeowner to pay the mortgage payments directly to them. Naturally these payments never find their way to the lender. In the worst cases, the "rescuer" may also obtain a second loan on the property, take the proceeds and skip town, leaving the homeowner to face the music |
| The Gold Coast Marketeers Clearly this piece of dishonesty is not limited to the Gold Coast but reached its crowning glory there to the point where the State Government had to step in and change the law. To work it needed a couple of elements:
How it worked is that the ‘developers’ flew plane loads of seminar attendees out for a free holiday on the Gold Coast. Part of the deal was that they were to look at purchasing one of the developer’s properties, often for minimal or no deposit. They were often subjected to high pressure selling tactics. The prices of these purchases were often over inflated by guaranteed rentals which were above market levels. Everything was pre-arranged by the developer including financing, legal and valuations. Many of the purchasers secured their little piece of paradise on the strength of their credit card. Where they tended to come unstuck was when the rental guarantee expired after 2 or 3 years and the rent reverted to market levels. Often the value of these properties fell by as much as 50% below the initial purchase price, leaving a trail of very damaged people trying to pick up the shortfall. The practice became so prevalent that the state government changed the law relating to contracts. Intending purchasers now have a ‘cooling off period’ in which they can seek INDEPENDENT advice. How to avoid: If you are offered a ‘package deal’ always seek professional advice from parties not connected with the developer. If you want to calculate the effect of EXCESS RENTAL which is what a rental guarantee is likely to be refer to VCNZ’s free excess rental calculator. |
| Advance Fee Scams Advance fee scams all work on the principle of making you pay for something which is either not delivered, or not worth the amount charged. Examples include:
or deceptive claims or pressure you to buy into investments that will end up losing make misleading or deceptive claims or pressure you to buy into investments that will end up losing deceptive claims or pressure you to buy into investments that will end up losing you money. The claims or pressure you to buy into investments that will end up losing you money. The investments you money. The investments that the seminars offer are often over-priced and you may have to pay investments that the seminars offer are often over-priced and you may have to pay fees and that the seminars offer are often over-priced and you may have to pay fees and commissions that the fees and commissions that the promoters did not tell you about beforehand. The seminar promoters commissions that the promoters did not tell you about beforehand. The seminar promoters might promoters did not tell you about beforehand. The seminar promoters might offer ‘rent guarantees’ or might offer ‘rent guarantees’ or discounts for ‘buying off the plan’. Be aware of the latter and if you are discounts for ‘buying off the plan’. Be aware of the latter and if you are tempted, always seek you are tempted, always seek independent advice from professionals not connected with the promoters. tempted, always seek independent advice from professionals not connected with the promoters. independent advice from professionals not connected with the promoters. promoters.
Signs to avoid:
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| Home Improvement Fraud Many homeowners have discovered to their cost that, good tradesmen can be hard to find. If you are planning a home-improvement project, referrals for reputable contractors from friends and family provide an excellent resource. Steer clear of contractors that knock on your door and tell you that they're "working in the area today" or offer to arrange a "home-improvement loan" to do work for you. Good contractors don't need to go door-to-door looking for business. These con artists typically target the elderly with this scheme, and their work is often substandard. At worst, they will skip before the job is actually done. One very important tip is that most professional contractors don’t expect UP-FRONT payment for work and materials. Although do expect to pay a reasonable deposit upon signing a contract. Always get a written quote for any sizable job. It’s amazing the number of suckers that don’t and then get a heart stopping surprise at the end of the job. Common New Zealand ‘door knocking’ scams include chimney sweeping, gypsy painters and section clearing. How to avoid: Don’t respond to unsolicited calls. Never pay anything up front. The only place where Pay comes before Work is in the dictionary |
| Bait & Switch The target of this is people with poor credit history. From necessity they are forced to look to second tier lenders. Here is how the scam works is the borrower is offered a specific rate when they apply for the loan but are pressured to accept higher rates and charges to close the transaction. The consumer, who fears losing the loan, agrees to the new terms. Don't let yourself be pressured. Never sign on the dotted line before all of the documents have been reviewed - particularly if you suspect that loan terms have changed. If your loan officer is present, do not sign anything until all your questions are answered and you feel comfortable. If there have been changes in the loan terms prior to settlement, they should be disclosed to you prior to and not at settlement. Remember under New Zealand law the lender must make full disclosure of the ‘real’ interest rate. You have strong protection under New Zealand law. If the lender tries to pull the old bait & switch they have far more to loose than you if you choose to complain. |
We had fun researching these and will add to our hall of shame as new scams come to light. If you know of any or were a victim of a hustle, send us an email. We would love to know. The more that these matters are dragged from the shadows, the more difficult it is for these low life to prosper. |
| PO BOX 9018, Wellington 6141 | phone: (04) 240-0124 | fax: (04) 232-4414 | email: valuer@ vcnz.co.nz Innovation + Experience |
Innovation + Experience |