Scammers in the neighborhood

Freddie Mac is sounding the alarm on fraudsters targeting consumers to illegally rent out foreclosed on for-sale homes

Oct.October 19, 2012 09:00 AM

No one wants to take the blame for the housing bust in this political season, but scammers and rip-off artists in the hundreds are working overtime to siphon dollars out of the wreckage of the crash and its still-vulnerable victims.

You’ve probably heard about the loan-modification predators who promise financially ailing homeowners that they’ll prevent or forestall foreclosures. But they are really after thousands of dollars in fees, for which they do nothing.

Now the second largest source of mortgage money in the country — Freddie Mac — is warning about a troubling new wave of post-crash fraud: scammers who illegally rent out its foreclosed and for-sale homes to unsuspecting consumers shopping for houses to lease. The bogus landlords don’t own the properties — Freddie does — and they have no right to offer them to anyone. But they use Craigslist and other online sites to advertise them to prospective tenants.

Typically the rents are tantalizing — say $1,200 a month for a three-bedroom home in a neighborhood where similar houses command double that — and the terms are straightforward: Pay us a one-month security deposit and one or two months’ rent upfront — always in cash or money order — and we’ll give you the keys, no questions asked. The fraud promoters sometimes change the locks on the front door, remove the “lockbox” installed by the broker marketing the house for Freddie Mac, and they tell prospects: Oh, and don’t worry about that real estate sign in the front yard offering the house for sale. We tried to sell the house but it didn’t work out, so now we’re renting it.

According to real estate brokers who work with Freddie, this type of scam can bilk unsuspecting rental home shoppers — some of whom have themselves lost their own homes to foreclosure or short sales — out of hundreds or thousands of dollars. According to Robert O’Hara, a foreclosure specialist with Re/Max Synergy in suburban Chicago, one victim told him that she lost a total of $10,000 in upfront fees and rental payments to a fraudulent landlord before being forced to leave the property.

“This is happening all over the place, in every price range,” said O’Hara. “They take the [victims’] money and disappear.”

Sometimes the tenants don’t even get the keys; they fill out a fake lease application, disclose sensitive personal information such as Social Security and financial data, send the money and never hear a thing again.

Other times they move in and are later discovered by property managers or the real estate agent who listed the house for sale. If they refuse to move out, they’re evicted, though in some areas of the country, this can take extended periods of time.

Robert Hagberg, Freddie Mac’s associate director of fraud investigations, said in an interview that foreclosure rental scams are becoming a significant problem, in part because of the sheer number of foreclosed properties on the market for sale. Freddie Mac had more than 53,000 houses — spread from California to the East Coast — listed for sale, under contract or being readied for sale as of June 30. Hagberg estimated that there have been “dozens” of houses recently affected by foreclosure rental scams. During the past few months alone, he added, there have been more frauds of this type than were reported in all of 2011.

Another reason why foreclosure scams are becoming more commonplace: In the backwash of the worst economic downturn since the 1930s, rental markets are unusually hot and competitive in many cities. People who would have purchased or owned homes in previous years are now shopping for deals on rental houses and condos. When they check out what appears to be a legitimate listing online — there are color photos and detailed property descriptions, plus a bargain rent — they bite.

For consumers shopping for rental homes and condos who want to avoid getting ripped off, here’s what Freddie Mac recommends:

• Check to make sure the property is not already listed for sale. Google the house address and drive by to see if there are for sale signs posted. You can also check Freddie Mac’s foreclosure listings at

• If you discover that the “rental” is already listed for sale, notify the listing agent immediately.

• Under no circumstances should you submit online lease applications, including personal credit data, until you have verified that the house is a bona-fide rental. Otherwise you risk not only losing upfront deposits and rent payments to swindlers but your financial identity as well.

Kenneth Harney is a syndicated real estate columnist.

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