AP Photo/Reed Saxon
- Real estate professionals say they've seen a surge in housing fraud over the past year.
- It's a consequence of tight conditions sparking desperation from both buyers and sellers.
- Some experts say they expect the situation to get worse as market dynamics continue to shift.
When fraud victims contact Mark Berman, an attorney at Ganfer Shore that frequently deals with cases of real estate fraud, they're often distraught. Many of them were close to closing on a property when they received a legitimate-looking email or text asking them to wire a chunk of money to wrap up the deal.
It becomes clear later that the request was sent by a fraudster, part of a wave of similar scams looking to take advantage of frustrated homebuyers and sellers clamoring to transact in a tough market.
Berman and other industry professionals told Insider that real estate fraud has surged, a trend that's being driven by tight market conditions. With high interest rates and anemic transaction volume, homebuyers, sellers, and brokers are often trying to close deals as fast as possible, experts say, and this can make it easy to miss a scammer.
Analytics firm CoreLogic found that the risk for property fraud in which a seller misrepresents information about a house on the market, increased 23% in the second quarter of 2022 from the prior year.
Wire fraud — when a fraudster siphons money from the buyer at some point in the transaction — and title fraud — in which a scammer transfers a the title of a property to an illicit third party — have also spiked.
Transactions where wire and title fraud were a risk factor notched an all-time-high in the fourth quarter of 2022, according to data from FundingShield, with a little over half of all transactions bearing potential signs of wire and title fraud risk. That's nearly double the risk of this kind of fraud seen in 2021, FundingShield told Insider.
Though Berman said it was difficult to estimate an exact number, he says that real estate fraud cases have gone up "exponentially" in recent years, with his clients often including home buyers, brokers, and real estate lawyers. Though some of his clients are industry professionals, they also fall into traps set by fraudsters simply because of how clever some of the scams have become.
"Some scams are so damn good," Berman said. "Scams are getting very sophisticated and real estate agents, brokers, they're not keeping up."
Why is this happening?
The spike in fraud comes at time of shifting dynamics in the US housing market.
Rates on the 30-year fixed mortgage soared from pandemic lows to touch 7% in late 2022 and have hovered near that level since. Meanwhile, home sales, housing starts, and new home listings have all cratered, leading some experts over the last year to warn of a housing market crash that could bring on a steep correction in home prices.
But while some prospective buyers have been sidelined, those who are in the market are increasingly desperate to close, experts say, leading to a rise in questionable deal-making.
According to CoreLogic's principal of industry solutions, Bridget Berg, it's becoming harder for people to sell homes as the cost of borrowing stays near a record high. That's helped drive higher instances of property fraud.
Wire fraud has increased for similar reasons, according to FundingShield CEO Ike Suri. Higher interest rates and sluggish housing activity create more pressure for real estate professionals to close on a deal, which can mean they're not properly verifying if an email or a text is from a legitimate sender.
"Chaos creates a perfect time for cyber criminals to take advantage of these, especially in the housing industry," he said, adding that each transaction between parties is an opportunity for a fraudster to strike.
"They end up being exposed to phishing, hacking, spoofing, to name the different schemes out there."
Berg told Insider that she expected to see an uptick in mortgage fraud in coming years, with CoreLogic's National Mortgage Application Fraud Index having increased 30% from its low during the pandemic. The index is a predictive tool, currently suggesting 30% higher risk of fraud in mortgage applications.
Kip Medrygal, a partner at Locke Lorde who also frequently encounters real estate fraud cases, told Insider he too is expecting an increase in scams, though it's also contingent on housing demand and other market conditions.
He speculates that fraud could increase as much as 20%-25% over the next few years if the market remains tight.
The shifting market dynamics have experts divided over where US housing goes from here. The Fed is expected to pull back on high interest rates later this year, which could influence a decline in mortgage rates.
Nadia Evangelou, chief economist at the National Association of Realtors, previously told Insider that she believed easing interest rate expectations would help the market avoid a crash. She said that housing sales likely bottomed out in early 2023, with the year overall set to be a "turning point" for the market.