Con artists take advantage of vacant homes in limbo
More than 5 million homes have been lost to foreclosure since 2006. That's a lot of real estate, and con artists are determined to put it good use.
When Ted Brass visits the homes he manages, he expects them to be vacant.
"Wow! Somebody's here. You know, put the key in the door, the key didn't work," says Brass.
Brass works with foreclosures and bank-owned properties in Inglewood, California, southwest of Downtown Los Angeles. About once a month, he finds someone living in a home he's trying to sell: "And a young man came to the door, and says, yeah -- they actually had a lease agreement from the person they paid cash to. And I said uh, this property is not for rent."
This is what's known as a foreclosure rental scam, where con artists list bank-owned properties as rentals, usually on Craigslist. They put unsuspecting tenants in the homes, and collect rent until they're found out. That's exactly what happened to Vance Pritchett. He's a 27-year-old tattoo artist who recently found a great deal on Craigslist. It turned out to be the same house that Brass was trying to sell.
"A house, which was a two story house. The guy came, he gave receipts to the individuals that was paying rent," says Pritchett.
His housemates agreed to pay cash for a break on the rent. Pritchett worked out a deal to fix up the place in exchange for a room.
"We went to Home Depot, bought rakes, lawn equipment, towels, toilet paper. A couple days after that, I went to school, and when I came back, I was met by Ted Brass," says Pritchett.
Brass says that scammers prey on people who might have trouble getting a lease otherwise. They conduct their negotiations via email and disposable cell phones, and weed out tenants who ask too many questions. These fake landlords collect first and last month's rent in cash. And then, they vanish.
"Ted said we had to move out, that the police was there. I packed up the same day and moved out, because there was nothing I could do about it," says Pritchett.
Since the housing crisis began, Brass has hired inspectors to check in on the properties he manages.
"So, I do weekly inspections to these homes to make sure that nobody has actually moved in," says Vance Pritchett, Sr. He came to help his son move out of Brass's property. Brass was impressed with the way Pritchett handled a tense situation, and he offered him a job as a home inspector. Together, we're driving from foreclosure to foreclosure in an area of L.A. County where nearly 8 percent of homes are vacant.
"We come into a vacant home, and it echoes," says Pritchett, Sr.
Most of the homes that Pritchett inspects have for-sale signs out front, and many are owned by the mortgage lender Freddie Mac. He takes pictures, checks the lights and water, and locks up again. Rob Hagberg is associate director of fraud investigations at Freddie Mac. He described foreclosure rental scams as a "crime of opportunity."
"Florida, Nevada, California -- it would seem that any area of the country where there's a large inventory of foreclosed properties is going to be vulnerable," says Hagberg.
In Los Angeles, these crimes have been on the rise. Scams relying on foreclosed properties now account for close to half the real estate fraud cases in the county. Even so, Hagberg says that this type of fraud often goes unreported. Wait a minute, unreported?
"Calling law enforcement is a double-edged sword," says Adam O'Neill, a real estate investor who buys bank-owned homes throughout Los Angeles.
"What often happens is that law enforcement will ask for a lease, and when they see that lease, they'll determine that it's a civil matter," says O'Neill.
If police aren't confident the lease is fake -- and usually they aren't -- they may decline to get involved.
"In this situation, there's a couple things we can do. We can try to evict them and go through a legal process, which is costly and time consuming, or you can negotiate a cash for keys situation," says O'Neill.
Cash for keys is another type of foreclosure rental scam. Con artists occupy a house just as it sells, and demand several thousand dollars from the new owners before agreeing to move out. O'Neill says that he and other investors almost always decide to pay up.
"You make a business decision, even though you know this is really criminal activity," says O'Neill.
O'Neill and his partners buy and remodel up to 20 "distressed" homes at once. They do whatever they can to avoid scams: they board up homes within hours of buying them, install alarm systems, even pay their own employees to live in them, moving from house to house to house. O'Neill says new homeowners should try to secure their homes or move in as soon as possible. As for renters, Freddie Mac's Rob Hagberg says,
"If it looks too good to be true, it just might be," says Hagberg.
Some basic tips? Google a property's address to see if it's for sale, don't pay cash, and ask a lot of questions.