Real estate transactions are complex and involve substantial sums of money. It’s no wonder they also attract charlatans who, seeking easy fortune, carelessly plunge others into a world of legal problems, monetary loss, and emotional distress. It’s a serious problem. A momentary lapse of caution can make all the difference between a solid investment or the financial equivalent of stepping on a landmine. Here is a short guide to understanding real estate fraud.
In this Guide:
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What is Real Estate Fraud?
Real estate fraud is a deceptive practice in financial transactions that involve real property. It can be committed by the buyer or the seller at any point during the transaction. Real estate fraud devastates its victims and enriches the criminals while their schemes go undetected or unpunished.
Real estate fraud is theft. Most forms of it fall under Colorado’s statutory definition:
“A person commits theft when they knowingly obtain or exercise control over anything of value without authorization, or by deception.” Colorado Revised Statutes 18-4-401
Common Types of Real Estate Fraud
What makes real estate fraud so dangerous? In addition to the stolen money, the victimization, and unknowingly signing away property, con artists get extremely creative to swindle someone.
Fraud can occur at any point during a transaction. It also can happen in many types of real estate deals, including but not limited to:
- property sales
- property transfers
- rental income
Mortgage fraudsters lie or leave out crucial information to obtain an unfair advantage in transactions involving the acquisition of property. A borrower or a lender can commit mortgage fraud. C.R.S 18-4-401 (9)
Borrowers tend to commit fraud for the property. They submit misleading information, also known as Financial Statement Fraud (C.R.S 18-5-209) to acquire or hold onto property they couldn’t otherwise afford. For example, a buyer exaggerates his income on a mortgage application to secure a loan or better terms.
Industry insiders, such as lenders, appraisers, and bank managers, commit fraud for the profit involved. They use inside information to trick honest borrowers and buyers into fraudulent deals.
Mortgage fraud is a felony.
Creating a false document or deed with the intent to defraud is a class 5 felony in Colorado. Anyone who creates, completes, alters, or utters a false document commits forgery. C.R.S 18-5-102
This includes forging a deed to a property to make it appear that the property is owned by the forger or to facilitate a fraudulent transfer.
Escrow Wire Fraud
This insidious form of theft tricks home buyers into wiring their escrow funds to a fraudulent entity posing as their lending company. The criminals hack into the email account of a lending firm or real estate company, home in on an imminent wire transfer, and then use fraud to intercept the funds.
Wire fraud has so concerned Coloradans that we published an in-depth legal guide about it.
In May of 2022, Colorado’s Division of Real Estate learned fraudsters were trying to sell plots of vacant land to potential buyers and real estate brokers. The catch? The fraudsters didn’t own the land they were selling.
Here’s how For Sale by Owner fraud happens: criminals scout areas for “free and clear” land, then market it as FSBO even though they do not own it. They solicit buyers through text or email seeking quick cash transactions while claiming to be out of state. Once a buyer transfers funds, the fraudsters disappear with the money.
How to Spot Real Estate Fraud
Real estate crimes can be hard to spot because the perpetrators blend in so well with the rest of us. The criminal can be a shadowy hacker spoofing a legitimate bank’s email form or the affable agent who shakes your hand and makes pleasant small talk.
Nevertheless, here are some red flags to look for:
- discrepancies in the title or closing forms
- unusual terms of sale
- pressure to act immediately
- deals that are too good to be realistic
- demand that you wire money
It is important to confront the other party over any detail that arouses suspicion. They may claim it’s only a mistake, but if they show no interest in resolving it, it’s likely a scam.
Do I Have a Fraud Claim?
Fraud cannot be proven over an apparent “mistake.” You must show the individual or company intended to defraud you.
How to Establish a Fraud Claim
First, you’ll have to prove intent. You must be able to show the defendant knew they concealed facts or details from you. You’ll also have to prove that the alleged fraudster intentionally deceived you to complete the transaction.
Finally, you must establish how much financial damage you suffered due to the alleged fraud.
What Can I Recover if I Was Defrauded?
A buyer who suffers financial loss from a fraudulent real estate purchase can recover all costs for actual damages and may also be awarded exemplary (punitive) damages. C.R.S § 13-21-102(1)(a)
For example, if a seller fails to inform the buyer of a known problem with the property before the sale, actual damages would include reimbursement for:
- costs of repair
- decrease in value
- storage costs
- noneconomic damages for mental suffering and emotional distress
- damages for the loss of the use and enjoyment of the property
- statutory interest for money “wrongly withheld” (C.R.S. § 5-12-102)
- lost profits if the property was to be rented
Exemplary damages mirror the amount of the actual damages. For example, if actual damages totaled $122,000 dollars, then the exemplary would be an additional $122,000, for a total award of $244,000.
Buyers who win real estate fraud lawsuits are also entitled to reimbursement of all their attorney fees.
Note: The example above represents cases when a buyer has been defrauded by a seller. But, as we noted earlier in the article, real estate fraud can take other forms, and those remedies can vary.
Think You Have a Real Estate Fraud Case?
Let’s find out! Our real estate attorneys have experience helping clients successfully file fraud claims. Begin by scheduling your free case assessment at 303-688-0944.