Fraudulent Real Estate Contracts: What You Need to Know to Protect Yourself

As a real estate attorney, I’ve seen firsthand how fraudulent contracts can wreak havoc on unsuspecting buyers and sellers. The real estate market, while lucrative, can also be a breeding ground for scams. Fraudulent contracts often appear legitimate but conceal harmful provisions or outright lies designed to take advantage of people unfamiliar with the fine print. Here’s what you need to know to protect yourself from falling victim to these scams.

Red Flags of Fraudulent Real Estate Contracts

While some contracts are overtly shady, many fraudulent real estate contracts are sophisticated and difficult to identify at first glance. However, certain red flags can signal something isn't quite right:

1. Unclear or Missing Property Information

Fraudsters often fail to provide comprehensive details about the property, such as its legal description, title history, or boundaries. Be wary of contracts that gloss over or omit important property details. In legitimate transactions, sellers or agents should always provide a full description of the property, including any known defects or encumbrances.

2. Unlicensed Agents or Attorneys

One of the most common tactics in real estate fraud is the use of unlicensed individuals posing as agents or attorneys. Always verify the credentials of the professionals involved in the transaction. Check with your state's real estate licensing board or the bar association to ensure your real estate agent and attorney are properly licensed and in good standing.

3. Pressure to Sign Quickly

Scammers often create a sense of urgency, pressuring buyers or sellers to sign quickly before “losing the deal.” If you’re being rushed to sign a contract without proper time to review or consult with an attorney, this is a major red flag. A legitimate real estate transaction allows all parties ample time to conduct due diligence.

4. Unusually Low Prices

If a deal sounds too good to be true, it probably is. Unrealistically low prices can lure buyers into a false sense of security, but these deals often hide serious legal or financial problems with the property. Scammers know that people tend to overlook details when they think they’re getting a bargain. Always question why a property is priced significantly below market value.

5. Suspicious Payment Methods

Be cautious of sellers or agents requesting payments through unconventional methods, such as wire transfers to foreign bank accounts or cash payments. Legitimate real estate transactions typically involve secure, traceable payment methods.

Key Steps to Avoiding Fraudulent Real Estate Contracts

Now that you’re aware of some red flags, here are some proactive steps you can take to protect yourself from falling victim to fraudulent real estate contracts.

1. Hire a Qualified Real Estate Attorney

A real estate attorney is your first line of defense against fraud. I always recommend that buyers and sellers engage an attorney to review any nonstandard contracts before signing. We are trained to spot problematic clauses, inconsistencies, and legal loopholes that could put you at risk. A small investment in legal review upfront can save you significant time and money in the long run.

2. Conduct Thorough Due Diligence

Before signing any contract, ensure that thorough due diligence has been conducted on the property. This includes verifying ownership through a title search, reviewing zoning laws, and obtaining any necessary inspections. If any part of the due diligence process is rushed or avoided, reconsider the deal.

3. Verify Identities and Credentials

Make sure that everyone involved in the transaction is who they say they are. This includes verifying the identities of the buyer, seller, agents, and any other parties involved. Ask for government-issued identification and cross-check their credentials with appropriate licensing bodies.

4. Review Every Document Carefully

Contracts can be long and full of legal jargon, but reviewing every clause is essential. Look for hidden fees, unusual contingencies, or clauses that benefit one party disproportionately. If any part of the contract is unclear, ask your attorney to explain it.

5. Use Secure Payment Methods

Make sure that all funds are handled through secure means. Avoid making any direct payments to the seller or real estate agents without proper documentation. Question any foreign check or any request to make wire transfers to foreign banks. 

What to Do if You Suspect Fraud

If you suspect you’ve encountered a fraudulent contract, the best course of action is to halt the transaction immediately and consult with a real estate attorney. We can help you investigate the legitimacy of the deal and advise you on the next steps. In some cases, you may need to report the fraud to law enforcement or regulatory agencies.

Final Thoughts

The real estate market offers incredible opportunities, but it also comes with risks. By staying informed and vigilant, you can protect yourself from falling victim to fraudulent contracts. Always consult with a licensed real estate attorney before entering into any real estate transaction, and don’t be afraid to walk away from a deal that feels off. Remember, it’s better to lose out on a deal than to fall prey to a scam.