As if the life of a real estate investor isn’t hectic enough, fraud looms over every transaction. As real estate investing as a whole grows more popular, it is reasonable to believe that so will fraud in the industry. There is research to support that the industry is currently an easy target for fraudsters due to the resurgence of interest in real estate investing, coupled with the fact that, lenders, brokers, and title companies have not yet begun to adopt strong security measures. This is a legitimate criticism of any industry in the current stage ours is in, mainly due to the continual increase in home prices and loan volumes.

As firms are stretched thin and employees are met with more work and distractions, it opens the door to false information that otherwise might have been caught. It would be a wise more for an investor’s team of realtors, brokers, lenders, title companies, contractors, etc. are reading up on fraud prevention. If not, right here and now is a perfect place to start.

Fraud prevention and transparency really starts with the first call. An investor calls a company that could possibly be in contention for the investor’s business and it’s to be expected that all information is forthright and accurate. Keeping notes on relevant information during calls and continually look for anomalies in the narrative delivered by potential borrowers is key. Once information is disclosed, it cannot be unheard and must be factored into the decision of whether or not to issue a loan. Of course, there are ways to verify some of the information when background/credit checks are run, bank account statements, pay stubs and W-2s are received, but following along with the vision of the customer/parties involved and their ability to commit to a straightforward answer are all necessary to making sure the partnership will work for everyone involved.

There are various methods to keep from being accused of fraud as well.

• Descriptive quotes/estimate templates ideally filled out with all fixed information, so that a sales representative can easily update the variable items for a customer.
• Be clear on points, rates, fees, but also clearly describe how the company’s process works. Written descriptions of draw procedures or step by step instructions of closing day go a long way in making sure that there are no surprises at closing, during the length of the loan or at the culmination of it.
• Transparency not only aids in acquiring a customer’s business, but liberates the company of a future blame game – a game always worth avoiding.

Outside of miscommunication and lack of transparency in conversations leading up to closing, wire fraud is a huge risk in the private lending business if the proper due diligence is not taken. In 2017, wire fraud saw $969 million diverted or attempted to be diverted from real estate purchase transactions and wired to criminally controlled accounts. American Association of Private Lenders’ (AAPL) member, Rehab Financial Group, encountered such attempts three times in 2018, alone. One attempt involved fraudsters impersonating representatives of a title company. The fraudster had an identical signature and had obviously been monitoring the closing process; their knowledge of the transaction was sufficient enough to pass as a title company.

Another fraudster hacked into an email account, monitored exchanges, and then made monetary requests by impersonating senior members of the company. Through the safety measures lenders put in place, the wiring of funds was prevented, but it goes to show that it’s imperative to stay on guard. Noticing oddities via email should be escalated or at least conversed about. Chances are – especially with the increasing attempts of wire fraud in this industry – many have found themselves in a similar predicament.

AAPL and its members, like Rehab Financial Group, continually explore options to keep borrowers as secure as possible. Unfortunately, with the increasing popularity of alternative lending solutions, it could happen to anybody. Even the most educated, experienced professionals can get ripped off. It’s important for both borrower and lenders to do their research. Always be diligent about your due diligence to help avoid even the most sophisticated of scams.