As originally published exclusively in “Escape Artist Insider Magazine – May 2023 edition”.

Note: Some of you probably won’t get to the end of this eight-page article and will miss the opportunity to download the Consumer Resource Guide. If you are even remotely considering property ownership overseas, download this valuable resource right now. It’s free, but only because I want you to be the best-educated consumer possible. And yes. The guide is self-serving. If 75 percent of my competitors fall by the wayside when you examine them under intense scrutiny, so much the better for me. But more importantly, for you too. Download the Consumer Guide now. 

THE REALITY OF REAL ESTATE SCAMS

Real estate is a popular and lucrative investment opportunity for a variety of great reasons. To own a dream home in a magical destination. The opportunity to diversify your portfolio. The ability to earn outsized returns. However, the excitement of a dream home and/or the potential for high returns is exactly what makes real estate so popular for scammers, fraud, and deception, too. 

Domestic or foreign, the world of real estate has a small, dark underbelly filled with shady characters and unscrupulous tactics. While it’s actually a small number of actors and a tiny percentage of the deals that transact, the damage these criminals do in the marketplace has an outsized impact on perception, especially on overseas transaction security.  

Let’s start with the facts. We don’t know what we don’t know. This is always true. And overseas, it’s even more true.  

Investing in a foreign market exposes you to different laws, regulations, and business practices. In an unfamiliar environment, it’s easier for scammers to take advantage of us as unsuspecting, unprepared, and naïve investors. 

It is important to know the risks and red flags associated with common real estate scams. Here, you’ll see some examples of several types of scams, warning signs, and simple strategies for protecting yourself when investing in international real estate. 

Understand the risks. Be vigilant and informed. Be humble. Do these things, and you will minimize risks and make smart, informed decisions when investing in international real estate. Proper due diligence allows you to successfully navigate the world of international real estate with confidence and avoid falling victim to scams, fraud, and deception.

REAL ESTATE SCAMS ARE A GLOBAL ISSUE 

In a survey of real estate professionals conducted by the Royal Institution of Chartered Surveyors (RICS), 40 percent of respondents reported seeing an increase in fraudulent activities within the real estate sector over the past five years. The same survey found the most common types of fraud were a misrepresentation of property details, title fraud, and rental fraud. 

According to a 2020 report by the Federal Trade Commission (FTC), real estate scams were the second most common type of fraud reported in the United States, accounting for nearly 8 percent of all reported fraud cases. The same report noted the number of real estate scams reported to the FTC increased by 15 percent from the previous year. These statistics highlight the importance of being aware of the risks associated with investing in real estate, as scammers are becoming more sophisticated and their tactics more difficult to detect. 

Real estate is a particularly vulnerable asset class for fraud and scams due to its high dollar value and deal complexity. The large amounts of money involved in real estate transactions make it an attractive target for scammers looking to make a quick and large profit. 

Moreover, real estate transactions often involve multiple parties, such as buyers, sellers, real estate agents, lawyers, and financial institutions, which create loophole opportunities for scammers to exploit. Real estate deals come with a mountain of paperwork and legal documentation. This can make it difficult for investors to navigate the process and creates opportunities for scammers to use fake documents or manipulate information. 

And, of course, real estate markets vary significantly from one country to another, which can make it difficult for investors to understand local laws and regulations. These reasons, and more, make it easier for scammers to take advantage of international investors not familiar with the local market and legal requirements.

COMMON TYPES OF REAL ESTATE FRAUD 

Title fraud is a particularly insidious form of real estate scam. It can be especially difficult to detect as scammers use sophisticated tactics to create fake titles or deeds that look legitimate. Victims of title fraud may only discover the scam when they attempt to sell or transfer the property or when they receive a notice of eviction from the rightful, legal owner.  

Title fraud occurs when scammers use false documents or information to transfer ownership of a property to themselves or use fake titles or deeds to convince investors to transfer funds or purchase a property the person selling the property does not own. Scammers will forge a signature on a title or deed, use falsified documents, and even impersonate the real owner of the property. The victim pays for a property but in the end, has no legal recourse and no legal claim.

Preventing title fraud requires common sense, vigilance, and serious legal attention to detail. In most cases, I recommend the buyer of a property hire two (or three) different and unrelated lawyers to research the property, title, and purchase documents. This is especially important in a civil law environment, where simple typos can have devastating consequences. At least two independent and unrelated lawyers must ensure all paperwork and legal documents are 100 percent perfect and legally legitimate and all signatures are genuine. More on this later in the article. 

Investment fraud occurs when scammers convince investors to put money into a real estate project or opportunity that does not exist. This usually involves false promises of high returns, fake documentation, and pressure to invest quickly. Once the scammer has received the investment funds, they disappear, leaving the victim with no recourse.

Fake rental fraud occurs when scammers post fake listings for rental properties, often using photos and descriptions taken from legitimate listings. In some cases, scammers show the property to the victim, posing as the landlord or property manager, in order to gain their trust. They then ask for a deposit or rent payment upfront before disappearing with the money. The opposite can also occur when a property manager rents out your home while vacant and pockets the cash. 

REAL-LIFE REAL ESTATE SCAMS

Sadly, there are many real-life examples of investors and homeowners who have fallen victim to fraud and deception. Here are a few:

• In 2018, a group of scammers in Spain were arrested for running a timeshare resale scam targeting elderly British citizens. The scammers convinced victims to pay upfront fees to sell their timeshares but then disappeared with the money without providing any services.
• In 2018, a group of scammers in Canada were arrested for running a fake rental scam netting them over $100,000 in fraudulent payments. The scammers had created fake listings for rental properties and collected deposits and rent payments from multiple victims before disappearing with the money.
• In 2019, a real estate developer in Dubai was sentenced to 15 years in prison for a fraud scheme involving selling properties that did not exist. The developer had collected over $200 million from investors for properties never built.
• In 2019, a group of scammers in Florida were caught operating a fake real estate investment company promising high returns on investment. The scammers used a sophisticated website and social media presence to attract victims and even held a grand opening for a non-existent office. Victims lost over $2 million in the scam.
• The “Buy Belize” scam ran from California for many years. The company advertised on TV, radio, in magazines, and online inviting people to Belize to visit their development. Sensational boat rides at sunset, plenty of alcohol, and some high-pressure tactics combined to produce the largest real estate scandal to date for the FTC. The case was tried in court, and the ringleader was convicted recently. A full description of the scam and resulting legal proceedings are at the link below: Sanctuary Bay mastermind Andris Pukke charged with embezzling investor funds
• In 2020, a real estate company in Turkey was found to be running a Ponzi scheme promising high returns on investment in luxury properties. The company collected over $100 million from investors before collapsing, leaving many victims with significant financial losses.

These examples, both domestic and international, demonstrate the wide range of real estate scams occurring and the devastating impact they can have on victims. But with over $2.8 trillion in real estate transactions worldwide in 2022, the percentage of fraud in the industry is minuscule. However, you absolutely want to make sure you stay clear of that small fraction. 

HUMILITY IS THE ANSWER

Investors and homeowners must be vigilant and use enhanced due diligence to protect themselves from fraud and deception when buying international real estate. So, how do we do that if we don’t know what we don’t know?   

In one word; humility. And it’s not the word we usually associate with due diligence, is it? Humility is the one attribute helping us to be open to the fact that we don’t know what we don’t know. 

Humility gives us a willingness to listen, to hear what doesn’t make sense. It allows us to acknowledge what is real and try to fit that reality into our analysis. It also encourages us to ask others with more experience to be a guide in this unknown territory. The stance we need to model in a world of “We don’t know what we don’t know” is humility. It’s either that or humiliation and the cost of tuition that comes along with it.

THE RED FLAGS OF REAL ESTATE SCAMS

Note the warning signs to help identify potential real estate scams: 

1. High-pressure tactics: Scammers use high-pressure tactics to try to force victims into making a quick decision without giving them time to consider the details or seek professional advice. This always includes creating an extreme sense of urgency while using aggressive sales techniques. Very few deals, if any, are today only.
2. Unsolicited offers: Unsolicited offers for real estate deals, particularly from individuals or companies not vetted or verified, should be approached with extreme caution. Scammers frequently haunt popular tourist areas and bars scouting for easy prey.
3. Serving alcohol before and during the sales process: While using alcohol (or other drugs) may void a real estate contract in many countries, the use overseas, especially in vacation destinations is quite common. Margarita Madness is the name given to buying real estate while on vacation and drunk. Transact only when sober. 
4. Service fees upfront: Scammers here will ask for upfront payment or deposits before services are provided. These might include processing paperwork or securing financing. This is a common real estate scam to suck as much money out of a victim as possible, for as long as possible, and is a red flag for fraud. There is usually no intent to deliver any real service or product, and preys on the “hope” factor of the victim. 
5. Lack of transparency: Scammers may be evasive or unwilling to provide detailed information about the property or transaction. They may also avoid answering questions or refuse to provide written documentation. Conversely, investors may be presented with a mountain of data and tons of fine print to give the perception of legitimacy. 
6. Unbelievable promises:  Promises or claims too good to be true, such as guaranteed returns or extremely low prices for high-end properties, usually are.

Be aware of these warning signs. Investors and international property buyers can protect themselves from real estate scams and avoid becoming victims of fraud and deception with acute awareness as the first step in the process.

DUE DILIGENCE AND LEGITIMACY VERIFICATION 

As obvious as it sounds, conducting due diligence is the most crucial step in verifying the legitimacy of a real estate deal or agent. Sadly, it’s one many people skip in the heat of the moment because they are excited about owning their new vacation property or investment. Here’s how to avoid most scams:

1. Research the property and agent: Conduct a thorough online search of the property and agent. Check reviews and ratings on real estate websites to see if there are any complaints or negative feedback. Look for both positive and negative feedback. No one person or company is perfect. Remember, Bernie Madoff never had a down month—a huge red flag most excited investors missed. Look for longevity in the marketplace. Track record is critical.  
2. Check licenses and credentials: Verify the agent or company is licensed and registered to do business. Check for any professional certifications or credentials indicating their level of expertise and legitimacy. Many countries have license laws on the books but may not enforce them. Anyone can be a “realtor” if their business card says so. But not really, of course. Just because they say it doesn’t make it true.  
3. Work with trusted professionals: It is essential to work with reputable real estate agents familiar with the local market and who have a proven track record of success. Only a licensed real estate agent in their home country, and a member of the National Association of Realtors (NAR), can call themselves a realtor. NAR has members worldwide who agree to adhere to NAR’s Code of Ethics. Many realtors also carry the Certified International Property Specialist (CIPS) designation. These professionals can help guide investors through the complex process of buying or selling property and ensure all legal and financial requirements are met. In most cases, the seller pays the buyer’s agent fees, making their service free for you. 
4. Request documentation: Early in the process, ask the agent or seller to provide all necessary documentation, such as title deeds, property survey reports, and inspection reports. Hire one lawyer immediately to review the documentation carefully and verify legitimacy. Hire a second lawyer near the end of the process to validate all the documentation created by the first lawyer. This may sound excessive, but when hundreds of thousands of dollars are at stake investing a few more to verify transaction legitimacy is a wise move. 
5. Verify ownership: Early in the process, have your lawyer check that the person or company selling the property is the rightful owner. If it’s an agent of any kind, validate that they are the legal representative of the owner. Secrecy for any reason should be seen as a huge red flag. 
6. Verify title type: Ensure the type of title or property registration type is valid for a transfer. Note: many scammers will use words like “ROP Title.”   ROP is “Rights of Possession” and is not a title. Cooperativa and Ejido lands usually can’t be transferred. Your lawyer can check all of this by reviewing public records. As a last measure when it comes to title and ownership, any story beginning with, “Well, you see…” should be a huge red flag. 
7. Conduct thorough local market research: Before investing in a property, understand the local real estate market, including prices, trends, and legal requirements. A basis of comparison gives perspective helping you avoid a potential scam because the deal was simply too good to be true.
8. Use secure payment methods: Using secure payment methods, such as escrow services and reputable banks minimizes risk. Investors should be cautious when using wire transfers or other forms of payment that are difficult to trace or retrieve.

BE CAREFUL, BUT DO IT

Purchasing a property overseas can be a dream come true. Make it that. Ensure a successful, wonderful, and lucrative outcome when you buy property overseas. 

Solid due diligence tactics are necessary and effective when put into practice. But the best tool is humility. Slow down. Listen more. What’s your gut telling you about the opportunity, the players, and the situation generally? Pay attention to these soft signals as they are mother nature’s best alarm bells. When we go overseas, we are Dorothy in Oz. It’s a strange new world no matter how similar it feels.  

Investing in international real estate is an excellent opportunity to diversify a cash-flow portfolio, own a vacation property, or find a place to call home overseas. Conduct thorough research. Work with trusted professionals. Remain cautious throughout the entire process. 

And remember… We don’t know what we don’t know. That’s why having a tool like the Consumer Resource Guide to Property Ownership Overseas is so absolutely critical. You’ll get the “15-Questions” to ask when buying property globally, along with some articles digging a little deeper into the necessary due diligence techniques you need. Be sure and download your free copy right now.   

Michael K. Cobb is the CEO and co-founder of ECI Developments which has properties throughout Latin America. He speaks all over the world on international real estate and is a board member of the National Association of Realtors.

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