How To Avoid Real Estate Investment Scams

Doug Bastin
July 2, 2014

The global slowdown has shaken everyone's investment portfolio in one way or another, while real estate values in most geographical areas continues to rise. No doubt many investors are asking themselves if they should be putting more of their money into real estate.

Real estate is one of the biggest investments people make. Unfortunately, criminals and con artists go where the money is which means real estate and mortgage fraud. While there is no centralized database that tracks figures, most experts agree that real estate fraud is on the rise.

Common Scams

Title fraud is one of the most devastating types of scam. Imagine coming home to find your house has vanished into thin air. In some ways, this is what happens with title fraud, in which a criminal assumes your identity and uses forged documents to sell your house or get a new mortgage. This kind of fraud is often perpetrated against houses that are mortgage free which means it often targets seniors. Scammers can also use personal information to impersonate you when applying for a loan or mortgage, leaving you the unsuspecting victim on the hook for the loan.

Foreclosure rescue and home equity fraud preys on those struggling with their mortgage payments. The homeowner pays up-front fees and transfers the property title to a new lender in exchange for a consolidation loan and/or lower monthly payments. The scammer then has the victim's monthly payments and the option to sell or remortgage the house without the victim knowing.

Of course, owning a home is the way most investors will get into the real estate market, but those wanting more might look at real estate syndicates, in which a pool of investors become limited partners in a real estate project, and are part-owners of the assets. The general partner or syndicator manages the assets and investment on their behalf.

Sounds easy, right? Yet last year in Ontario, a well-known real estate syndicate collapsed into bankruptcy, and in April of this year, a real estate financier from Chilliwack faced the BC Securities Commission, accused of fraud and misleading investors through millions of dollars raised for Falls Capital Corp. and Deercrest Construction Fund. The allegations have not been proved in court and no charges have been laid, but these examples should serve as cautionary tales.

Tips for protecting yourself

  • First and foremost, make sure you are following best practices in protecting your personal information. Protect your SIN, shred documents before recycling and put a lock on your mailbox. Don't give personal information over the phone unless you initiated the call. Learn how to protect yourself from phishing, update security software regularly and change your passwords on a regular basis.

  • Be skeptical in all transactions scammers are successful because they engender trust. Rely on your own team of experts to verify the fine print. Know and understand what you are signing. Ask questions. Never sign incomplete documents.

  • When money changes hands, ensure the funds are held in trust until the paperwork clears.

  • Do some basic research on the property. A land title search can show you the name of the owner, mortgages and liens, and a record of previous transactions.

  • Regularly check your credit report to make sure there are no surprises. Consult the provincial land registry office to make sure your house is in your own name.

  • Consider purchasing title insurance to protect against title fraud.

Remember the golden rule of investing if it sounds too good to be true, it probably is, and there's no such thing as a guaranteed return. Don't be swayed by fancy marketing. Do your research, get professional third-party advice, and you may well reap the rewards.

See also:

Tips for Getting Good Tenants (and Avoiding Bad Ones)