Buyer loses $40,000 in Earnest Money Deposit Scam
In March we reported that a wave of earnest money deposit scams had reappeared and warned brokers and buyers to be vigilant. Here in June, these same scams are still occurring, and the perpetrators are absconding with even larger deposits.
This type of scam does not involve cybercrime, email phishing or identity theft. It’s an old-fashioned scam that appears to follow the same basic format. An agent claims to have a listing for a short sale (or probate or other distressed property), but the property cannot be shown. After acceptance of an offer, the buyer makes an initial deposit usually in the $5,000 to $10,000 range, but as high as $40,000, into the listing broker’s non-independent broker escrow.
As with most short sale or probate properties, the process can take several months, and the buyer’s agent is assured that the listing agent is working towards lender approval – it is just taking more time. Then the communication slows down, the selling agent begins to get concerned and calls the listing broker’s escrow. There is no answer, no return call, no other number to contact, and the earnest money deposit is gone.
This scam is nearly the same as a series of scams that appeared in the Los Angeles area about two years ago. The Los Angeles County sheriff eventually arrested the wrongdoers but only after millions of dollars had been lost.
How to Avoid Falling Victim to Earnest Money Deposit Scams
- Check to see what type of escrow it is, such as broker-owned, independent or controlled through a title company
- Depending on the type of escrow, check the license status of the escrow on the government agency site responsible for licensing that escrow for fraud or other violations. If independent, check the status of the company on the Department of Business Oversight site. If controlled through a title company, check the status on the California Department of Insurance site. And if a broker-owned escrow, check the status of the broker through the Department of Real Estate Website.
- Be wary of properties offered for sale which are unavailable for actual investigation or access.
- Check this “Potential Fraud Warning” that C.A.R. put out in May for details of a particular broker who is currently under investigation by DRE.
- Be extra cautious of short sales, probate or other distressed properties.