When you come across a “red flag” on a property–something that tells you there may be something fishy going on– you need to make certain you understand the meaning before proceeding with a real estate transaction, as it could mean fraud or forgery. Your Realtor or Broker can investigate, but if you are doing so yourself you need to know what questions to ask to make certain there are no real problems. It is imperative to connect with the title company to verify anything you feel is suspicious before proceeding with any property transaction. Here are the important things that should cause you to do so:
1. Is the property free and clear? If there are no liens showing on the property you need to find out why. Some property is free and clear of liens, but most property is not. This is where your title company comes in handy.
2. Title was obtained by uninsured deed. An uninsured transfer is usually ok if it was from the grantor to the grantor’s family trust, or from one grantor to himself and his spouse as joint tenants. If one of these is not the case in an uninsured deed in the chain of title, you need to contact your title company for further investigation.
3. Customer is a new escrow company or broker you do not know. Make sure to know with whom you are doing business.
4. Third party disbursement of funds. Beware of a seller’s instructions to pay a third party who does not hold a secured lien.
5. Buyer walking away with money, or substantial buyer credits made outside of closing. If a buyer is walking away with money instead of paying money this is a red flag for loan fraud. This is not to be confused with credits to the buyer for things agreed upon under contract, such as repair issues.
6. Reconveyance is not accompanied by a transaction that could have paid off the deed of trust. Most people do not pay off a deed of trust with cash instead of with a new loan. Although it can happen it is rare, so be aware if this is the case, as it could be fraudulent.
7. Proceeds are being wired offshore. This is a big red flag, which could place you at the helm of money laundering on behalf of the bad guys.
8. No documents are executed in the escrow office. Often paperwork is NOT signed in the escrow office, with mobile notaries out of area buyers, for example. But if this is combined with other flags of forgery–beware!
9. Absentee owner. Obviously there are many out of area owners, but forgers prefer to prey on property where the owners are not around, so beware. This also brings up another (off topic) issue relating to rentals: if you are renting property and the owner is out of area you have to use extreme caution before sending any money to the owner…but that is a subject for another blog. I did post a blog on this topic relating to Craigslist scams).
10. Trust you instincts! Even if none of the above scenarios are in place, if you feel that something is not right then trust your instincts. If you feel a red flag is waving then address it with your Realtor, Broker or management.