Scamming an investor by offering a quick sale of a property at her named price

Question

My mother-in-law was approached by an old friend who she hadn't heard from in a couple of years with a "business proposition" which is almost certainly a scam. I don't really understand how the scam works, though.

Here's the story:

My mother-in-law is a smart and successful real estate investor, owning many rental properties. Approximately 10 years ago, she had a friend who was interested in getting into the same type of investing. She helped with advice (not financially): she helped the friend find a real estate agent, helped the friend locate a property she was interested in, helped the friend through the purchase, etc. Then, about 4-5 years ago she lost touch with this friend.

Fast forward to the present: this friend calls my mother-in-law and asks to meet with her. They meet at a restaurant and spend a few hours getting caught up. Sometime during the meeting the friend tells the following story:

She has been renting out this property for all these years. Some time ago her granddaughter became involved in the business (I don't know the details) and she discovered that the granddaughter has been stealing money. In order to put a stop to this, she wants to sell the property, but she wants to do it quickly and quietly, before the granddaughter finds out. So she wants my mother-in-law to purchase the property from her - for whatever price she wants - but it has to be done quickly.

My mother-in-law, being a smart investor, smells a rat and does not agree to this. So they continue talking and the friend makes another request: She has a niece who lives in Texas (we're in California) who wants to buy a house out here. Could the niece send the money to my mother-in-law, who would then write a check. I'm not clear on the details of this story - ie. why the niece would need to do this - because my mother-in-law apparently shut this down immediately.

The second request is a pretty clear "deposit money for me and pay to a third party" scam and I understand how that works (thanks, largely, to questions on this site!).

But I don't understand how the first request works. My wife suggested that maybe she is dumping assets prior to declaring bankruptcy, but that doesn't seem like a scam to me - a bad idea, sure, and maybe illegal, but not benefiting the scammer in the same way. I'm thinking that, since the friend also tried an obvious scam, that this must be a similar scam in some way.

My wife suggested to her mom that she tell the friend to find a real estate agent and work through the property sale in the normal way.

Can anyone explain how this "buy my property" scam works?

Answer 1

It is not always easy to tell how a given scam will end up making money for the scammer. This is due to a lot of things, such as intricacies of paper trails, or story details that get passed on / omitted (ie: perhaps your mother's friend wanted the money deposited in a weird way that allows the scam to occur, or it was in a particular jurisdiction that made real estate loopholes possible so that something can be taken advantage of).

That's why it is more important, in my opinion, to do what your mother did: reject a scam based on the smell test alone. How would your mother's friend make money / how would your mother lose money in a particular scam? It could be that she doesn't own the property at all, so she would be buying a fake deed. Or it could be that her current tenant is simply awful, so the property wouldn't sell for full value on regular timing. Regardless, what is important here is that the scammer is attempting to sell a house (a normally significant and labourous process) without apparent use of lawyers or review. It doesn't matter how the scam will work, what matters is simply that, by going outside the very regular methods of purchase (which exist to protect both buyer and seller), the scammer has tipped their hand.

I understand the academic interest in how the scam works, but I don't believe that's what is important. Because if someone answers this with "the scam works because A then B then C", then the risk remains that a subsequent, cleverer scammer, will say "ah, but A does not apply and you are protected by B because of X, and therefore C will never happen and this is all above board!"

In a scam, the scammer controls the information. It is hard to fight an information war when you don't have all the facts. This particularly applies if you are, for example, trying to convince an elderly relative not to give money to the nice Nigerian prince. If you explain the specific mechanics of how such scams usually work, to your relative (who, unlike your mother, may be naive or even gullible, to consider the offer in the first place), then that relative could perhaps be convinced by the scammer to give money anyway, after carefully waving away your relayed concerns. Instead, you should explain to your relative what they already know - "What is too good to be true, is, and no one ever contacts someone they have never met to offer them a cut of a $100 Million inheritance".

So, how would that scam work? It is hard to say without knowing all the facts. It's possible that the true scam itself doesn't happen for another few days. The reason scammers are also called "confidence tricksters" (or, more commonly, con-men), is because most scams rely on an initial stage of building up confidence in the scammer's trustworthiness. Letting the target in-on the profit opportunity ("Help me teach my nasty niece a lesson, and there will be a reward for you!") is a common way to start. Then perhaps on day two, the actual scam comes in ("Now before you buy the house, I need to have a valid home appraisal per the condo board regulations - but we need to do this fast, and I know a guy who will do the appraisal over the phone, no questions asked. You just need to wire him $500, and you can take that cost out of your return!").

Your mother had the right approach - if it sounds too good to be true, or fails the 'smell test', then just walk away.

Answer 2

A similar one that happened to me was someone offering to pay a $38K loan debt to me by quit-claiming a shared property deed we had (different transaction). So he was "giving" me his half of the property, worth at that time about $40K, for that $38k debt. About 2 years later when I went to sell that property, I discovered he had a $50k IRS tax lien against it. He had never paid his taxes and during the time we owned that property together, the IRS had filed the lien and he somehow had managed to make sure I didn't see the notice. I told my sad story to the IRS agent, he said "That sucks. But you owe the money..." So I got stuck with his $50k debt in exchange for my $38k loan to him. I learned my (expensive) lesson about Quit-Claim deeds.

My point is that this kind of thing may have been the "step two" part of their confidence scam; they would "simplify" this rush-rush vengeance transaction by using a Quit-Claim deed in exchange for a cash amount, and stick your MIL with some larger debt that was already filed against the property.

Answer 3

Your MIL probably knows this, but all property should be purchased through a title agency with title insurance. As long as that process is followed, your MIL is protected. They title company may unearth some undisclosed property owners, or liens which could block the sale. However, they may not. In that case the title insurance protects the buyer.

Perhaps the "do it quickly" is to avoid going through the title company and avoiding title insurance.

At the end of the day: Good for MIL for smelling the rat, now she just needs to jettison this person from her life.

Answer 4

As has been mentioned by others here, it is really hard to determine exactly what the seller is after. However we know that the seller wants to restrict the time the buyer has to do her due diligence. The seller is likely not trying to make extra money from the deal (though that is a possibility), they are probably just trying to pass along a problem or mistake.

So here is a non-exhaustive list of things that could be wrong with the property that can be found out by doing your due diligence:

1. The seller doesn't own the property (Brooklyn Bridge). Either outright scam or there is someone else who has a stake in the property.
2. Not up to code. In many places the selling of a property triggers an inspection. Got aluminum wiring? That's going to be expensive.
3. It needs non-code related repairs. There's no agency telling you you have to fix it but when the roof leaks like a sieve, you still have to fix it.
4. Mold issues. Mild to "why are all the walls painted black?"
5. Liens. Property tax, Water, IRS, and Contractors are just some of the ones who can put liens on a property. They don't care who they get their money from.
6. Bad tenant. Some areas have very favorable (to the renter) laws or friendly (to the renter) judges. It can take 6 months to 2 years to get someone out in some areas (while they are paying no rent).
7. Gang/crime or noisy/smelly factory area. Good luck finding a renter.

Answer 5

Glass-half-full view here.

First rule, go with your gut. (On the side of caution, that is). Face to face is good, because it provides human factors your mother can't even relay to you, let alone post here. Your mother knows the friend, knows her history, her ways, etc. Hard to hide a lie from a friend.

It's not weird or scammy for the friend (my friendships don't have expiry) to approach your mom about the house, since they practically bought it together. I would expect that, as a courtesy: a "first right of refusal". And it makes sense financially: the original title company has all the older research in their file, and only need research recent encumberances. This will expedite the sale, so entirely reasonable.

OP is in the US. In the US, it would be unusual to hire a lawyer for purchase of a single family home as primary residence. Legal work is done, yes - mostly by the title insurance company. They are self-motivated to do a good job, because they pay legal or buy your house if some unexpected third party shows up out of the blue with a claim. It's part of the consumer protection laws that protect transactions. Because in the US...

All real estate deals are scams

...until proven otherwise. This one isn't special. Human greed is so powerful as to be presumed Remember, America is "the wild west" and California still has a lot of that spirit, despite some urbanity. With all due respect to those frantically trying to protect you from fraud, but the system already does that when you use it in full.

And the system is built on this presumption, and has a system of interlocks to protect transactions.

For instance when your driveway crosses a railroad, they typically charge an annual $500-ish maintenance fee. But when the railroad sells the line, theytry to get people to convert to a one time payment (which they finance). They keep the money and the next railroad has to do the maintenance. Greed.

We hear about foreigners paying $250 for a "title search" only-- that would be a la carte. I've bought those on properties I was curious avout. Buy it from the title insurer you'll ultimately use, since they'll just fold its cost into the title insurance if the sale completes. Title insurance is more like $1000 one-time.

I got a cute $300 check from the escrow company to settle the title search I had prepaid, which was then folded into the title insurance the seller paid.

Buying a US house without title insurance is crazy. Among other things, the title insurer handles many other legal formalities and detail work which you would now have to do yourself. Whoops!

This bundling of title search, title insurance and other recording services keeps everyone honest and gives a fair deal for US homebuyers.

People keep floating the opinion that "surely your friend is trying to trick your mom into bypassing title insurance and escrow" -- you didn't say that, though. I for one really doubt it -- the friend knows perfectly well that Mom is a real estate master, who would never do that. I've bought property from guys I'd trust implicitly with a suitcase full of cash - we did title insurance and escrow, that's just what you do.

I've also bought property from the next guy over, who I think is a meth head. Never a worry because of the system.

Title insurance isn't about the seller. The seller agreed to sell the house. It's about surprises.

Both title insurance and escrow can be done fast if you have a good team. Half-full scenario: that's why friend came to Mom.

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As for the three-way check deal, a little weird but I'm not willing to leap forward and call it a check advance scam, for several reasons.

• First, it's both real estate fraud and bouncing checks, each an out-and-out "go to state prison" type crime, especially in Texas. That's a big risk.
• Check21 makes normal checks clear too fast for the scam to work.
• Check advance scams mostly depend on a magic check that takes a really long time to bounce. These are the product of "Nigerian" professionals, a random citizen won't know how to make one. A friend of many years, dealing face to face, precludes any likelihood of that.
• You could moot the entire issue by asking to get paid via wire transfer.
• Mother could walk directly into friend's sister's bank and talk to a banker, boom. There are just too many ways for a multiway check scam to get busted. Equating an old friend with a "Nigerian" scammer is silly.

"Sometimes a cigar is just a cigar." - Sigmund Freud

It may be legit and the secrecy/urgency may have a sensible reason. I bought several properties in secret. Many of the normal delays in buying a home can be expedited, especially if you're an experienced regular with a "team" of title insurers, inspectors, etc. who are willing to hustle because it's you.

So, if the seller is legit, and knows your mother and the biz, the seller may be at your mother's door precisely because she knows your mother has the chops to do this, which she couldn't count on from a stranger.

Regardless, do it full and legal. Period.

Dot all the i's, cross all the t's... Just do it quickly and discreetly. Maybe even discreetly from the friend. That will satisfy the friends's stated requirements.

First thing you (Mom) do is have the title company do the "title search" part of the job. They will often do this for sane cost. You don't even need to tell the friend you are even doing this, and don't mention it until the expected time.

Then you go to the friend and ask for full disclosure of all the facts relating to the property - something they are legally obliged to do in any case farther along in the sale. Write it down at the time, either at the meeting (esp. if that's her method) or afterwards Comey-style.

Any serious deviations between claimed facts and discovered facts, will expose whether this is a scam or not.

Also, if your friend has a big problem with going through the process legit, that too is a red flag. Least: it means she learned nothing.

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The profit in a legit deal is obvious: the seller gets out from under a house that's a problem house for them. Stuff like this does happen: A pushy family member who is forcibly occupying the property saying "would you arrest your own kin?" and implying they'll kick out all the drywall if you evict them. A daughter who takes a little too much of the rent check for the property management services she provides. And yes, "I sold the house and now you deal with a stranger" is an excellent way to sever that entanglement.

If it's a scam, obviously the profit is in collecting money for a house they don't have a right to sell, or that has a hidden lein (i.e. They don't own it), etc. Her intent may even be to rip off the title insurer, not your mom.

Best case: useful house. Worst case: the title insurer now has a serious problem. Buying it without title insurance ain't gonna happen.

Answer 6

I have one answer to how the scam might work (I've seen this happen to someone in my social circle)

In that situation, seller posed as being in a financial emergency and wanting to sell quickly, and sold the property to two different parties, then disappeared. Unfortunately I don't know the exact details of how the seller got away with it.

Answer 7

The scam is to:

1. Bypass title agencies, banks, attorneys, etc.
2. Deposit monies (Where it would be cashed)
3. Disappear

The crime is probably going to be obtaining prop false pretense, fraud.

Always be aware of anyone wanting property transactions to occur quickly and quietly. It is meant to leave you vulnerable.

Answer 8

The 'whatever price she wants' could be hyperbole. Any price? How about $1? Implied in that statement, it would appear to me, is any reasonable price she wants. Most scams rely heavily on the greed of the victim, so if it is any reasonable price, it sounds a little more like desperation.

Also, I would not dismiss your wife's bankruptcy comments so quickly. In some states, there may be no exemption or only a very low exemption for rental (non-homestead) property. If she owns it free and clear and is looking at a bad bankruptcy, but to get $5,000 or $10,000 (maybe to pay the bankruptcy attorney) than to lose it all.