How to Spot a Cash Home Buyer Scam Before It Costs You Your House

How can you tell if a cash home buyer is a scam?

A cash home buyer is likely a scam if they ask for money from you, want you to sign the deed over outside a proper closing, or avoid using a title company or attorney. Legitimate buyers pay you, put their deposit with a neutral third party, and close through a licensed title company or real estate attorney.

Most scams fall into a few patterns:

What are the biggest red flags?

The biggest red flags involve your deed, your money and pressure. Walk away, or at least slow down and get a lawyer, if a buyer does any of the following:

1. Asks you to sign a deed or quitclaim deed directly to them before or outside a closing. The New York Attorney General warns that one of the most common deed theft methods is getting homeowners to sign over a deed without realizing what they are signing.
2. Asks you to pay anything to get an offer, an appraisal or a closing.
3. Wants to hold the earnest money themselves instead of a title company or attorney.
4. Will not show proof of funds.
5. Pressures you to sign today or says the offer disappears tonight.
6. Tells you to stop talking to your lender or stop making mortgage payments.
7. Promises to stop a foreclosure for certain or says they work with the government.
8. Will not name the title company, or picks one you cannot find on your own.
9. Will not say whether they are buying or assigning the contract.
10. Leaves blanks in the contract or will not give you a copy to review.
11. Sends wiring instructions by email or changes them at the last minute.
12. Offers to let you "stay and rent" after you sign over the deed with no lawyer involved.

The FTC warns that scammers may try to get you to transfer your deed, and that if you do, "you're not likely to get it back."

Why should you never sign your deed directly to a buyer?

You should never sign your deed directly to a buyer because once it is signed and recorded, the house is legally theirs, whether or not you were paid. Getting it back usually means a lawsuit.

In a proper sale, you sign the deed at closing in front of a notary arranged by the title company or attorney. That closing agent holds the deed and only records it once the buyer's money has arrived and your loan and liens are paid. That is the protection. A buyer who wants to skip it is asking you to give up the one thing that keeps you safe.

Scammers often target people who are older, behind on bills, recently widowed, or who own their home free and clear. California's financial regulator notes that elderly owners, absentee owners and people with paid-off homes are common targets for title fraud.

What is proof of funds, and how do you check it?

Proof of funds is a recent document showing the buyer has the cash to close, such as a bank or brokerage statement or a letter from a lender who is funding the purchase. Ask for it before you sign, or as a condition in the contract.

Check that:

• The name on the proof matches the buyer on the contract, or the buyer explains the link (for example, their company).
• The amount is at least the purchase price plus closing costs.
• It is recent, ideally within the last 30 days.
• If it is a lender letter, you can find that lender on your own and call to confirm.

Proof of funds does not guarantee a closing, but a buyer who refuses to show any is a buyer you should not wait on.

Where should earnest money go?

Earnest money should go to the title company, escrow company or closing attorney, never to the buyer or wholesaler. It is held there until closing, then credited to the buyer.

Get the title company's receipt in writing. If the contract says the buyer will hold the deposit, or the amount is tiny, the buyer has little at stake if they walk away. Some states now require it. Oklahoma, for instance, requires a wholesaler's earnest money to be kept in an escrow account with a federally insured bank in the state.

How do you check out a cash home buyer?

Spend 30 minutes checking a buyer before you sign anything. Here is what to look up:

• Online reviews. Search the company name plus "reviews" and "complaints." Look at Google reviews and the Better Business Bureau. Read the negative ones.
• State business records. Search your secretary of state's business database to confirm the company exists and how long it has been registered.
• License status. If they say they are an agent or broker, check your state's real estate license lookup. Some states require wholesalers to be licensed. See what is real estate wholesaling.
• Recent purchases. Ask for addresses of homes they bought nearby. County property records show who owns them.
• The title company. Find its phone number yourself and call to confirm it is real and handling your file.
• Your attorney general. Many state AG offices post consumer alerts and accept complaints.

Cash Offer Desk should get the same checks. We make written cash offers, and in many deals we assign our purchase contract to an investor partner before closing. We tell you that up front, in writing, and the price and terms in your contract do not change. That is exactly why we tell you to ask every buyer, including us, "Are you buying this house yourself, or assigning the contract?" Sellers never pay us a fee. We earn the assignment fee or the profit when we resell (how we make money).

How does wire fraud happen at closing?

Wire fraud happens when criminals send you an email that looks like it came from your title company, agent or attorney, with "updated" wiring instructions. The money goes to the criminal and is very hard to recover. The FBI has warned about this scheme in real estate deals for years.

As a seller, you are usually receiving money, so the risk is that your proceeds get sent to the wrong account. Protect yourself:

1. Give your bank details to the title company in person or by phone, at a number you looked up yourself.
2. Treat any email that changes payment instructions as fraud until confirmed by phone.
3. Call your bank to confirm the deposit arrived.

If it happens, call your bank immediately and file a report at ic3.gov.

What does a safe cash sale look like?

A safe cash sale has a written contract you read in full, a deposit held by a neutral title company or attorney, a closing at that office or with its notary, and payment to you from the closing agent. Every step leaves a paper trail.

Where can you report a cash home buyer scam?

Report scams to your state attorney general and the FTC at ReportFraud.ftc.gov, and report wire fraud to the FBI at ic3.gov. Then check your county recorder's office for any documents recorded against your home. Many counties offer free alerts when something is recorded in your name, which California's DFPI recommends signing up for.

If you are facing foreclosure, be extra careful. The FTC says it is illegal for a company to charge you before it delivers a written offer of mortgage relief from your lender that you accept. A free HUD-approved housing counselor is a safe first call. See selling a house facing foreclosure and check your state guide for local rules. If you have any doubt about a document, have a real estate attorney read it before you sign.