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Imagine owning your family lot for decades, only to suddenly learn that, without your knowledge or permission, a house is being built on it. Upon realizing what has happened, you rush to the lot. Much to your surprise you see not only a $1.5 million house being built on your property, but learn the lot was sold to a developer for $350,000. According to one Long Island doctor, this fraudulent scheme happened in May of this year (2023). And it’s happening to others.

Across the country fraudulent schemes have been on the rise since the start of the COVID-19 pandemic. The real estate market has not been immune. Notably, seller impersonation fraud cases have increased in the past year. Even the US Secret Service Cybercrime Investigations division released an advisory earlier this year warning of the danger of seller impersonation fraud and ways to prevent becoming a victim of the scheme.

Seller impersonation fraud typically occurs when a fraudster pretends to be the owner of real property, lists the property for sale via a real estate agent, and then “sells” the property to an unsuspecting buyer. Fraudsters target vacant or unencumbered properties, such as vacation homes, rental properties, and abandoned properties, listing them below market value to create immediate interest and quickly accept an offer. When closing a sale, fraudsters will provide falsified documents, such as forged drivers licenses, and resort to remote notary signings to impersonate the notary. This was the case for the above mentioned Long Island doctor.

In that case, though still under a criminal investigation, the fraudster remains unknown. The fraudster likely reached out to a broker, who then listed the property for sale originally for $270,000 and then sold the property two months later for a much higher price of $350,000.[1] The fraudster then allegedly provided a fraudulent power of attorney that was supposedly signed before a notary in the US consulate in South Africa, which then allowed an attorney to sign the necessary documents to let the sale move forward. Sound familiar? 

Thankfully, many seller impersonation fraud attempts are unsuccessful, as most real estate agents pick up on the suspicious behavior during due diligence. For example, an agent may become suspicious and halt a sale if a seller refuses to talk over the phone or meet in person, delays simple requests like providing drivers licenses, and prices the property well below market for a desired location. But a number of fraudulent sales unfortunately still go through and oftentimes the perpetrators are not known.

Another fraudster in Newtown, Connecticut was not so lucky. There, the buyer contacted a real estate agent about a lakefront property, who gave the buyer the real owner’s name and several phone numbers for someone with the same name.[2] The buyer then called one of the numbers and the fake owner, who had a similar name to the real owner, answered and agreed to sell the property. The sale and wire transfer were completed, with the fake owner providing a notarized deed. The property was sold for $65,000, despite it being assessed for more than $250,000. The real owner, who left the property vacant for years, was tipped off by neighbors and called the police. It was not until a year later that the fake owner was arrested and charged with money laundering, identity theft, larceny, criminal impersonation, and forgery. On August 1, 2023, the fraudster pleaded guilty and was sentenced to a Class B felony. The buyer was eventually able to buy the property, though at a loss.

Not all real owners are as fortunate. If a fraudulent transaction goes through, the actual owner, in order to recuperate their property, may be forced to go through the courts. For example, in the case of the Long Island doctor, the doctor is suing the property developers to void the sale, remove all structures or materials from the lot, restore it to its condition prior to the trespass, and receive compensation. The lawyer who allegedly handled the closing is also named in the lawsuit (closing attorneys may want to examine whether their own insurance policies include coverage for seller impersonation fraud).

In cases where the actual owner is unaware of the fraudulent sale, the real owner is at risk of having the property foreclosed if any unpaid loans or mortgages have been placed on the property.[3] This can ultimately lead to a negative impact on the real owner’s credit score. Because fraudsters disappear behind fake names and disconnected numbers, restitution through the criminal process may not be easily available.[4]

For unsuspecting buyers to recoup their money, they may have to go through title insurance claims, which can be time consuming. The process could also become protracted in the courts because buyers may not be considered bona fide purchasers for value in seller impersonation fraud cases.[5] In other words, because fake sellers have no right to sell the property, real buyers cannot take title from a thief, leaving unsuspecting buyers with fewer options for relief when defrauded. 

Fortunately, there are ways for real buyers and real owners to avoid falling victim to seller impersonation fraud. Foremost, it is important for buyers to purchase title insurance as part of the due diligence and closing process. Buyers should also make sure they are only dealing with reputable service providers as they complete their due diligence and close the transaction. For real owners, especially those that have vacant land/properties most vulnerable to seller impersonation fraud, they should consider signing up for property title monitoring services (both private companies and, in some instances governmental recording offices, offer these services) or at least check regularly whether their property is still under their name in the applicable land records. Further, keeping an eye on the property, whether through personal visits or through a trusted source, can help prevent any surprise for sale signs or new owners from popping up.

[1] https://www.ctinsider.com/columnist/article/house-built-on-fairfield-lot-18261063.php.

[2] https://www.newstimes.com/news/article/newtown-ct-home-sale-fraud-edwin-lewis-sentenced-18274343.php.

[3]https://www.americanbar.org/groups/senior_lawyers/publications/voice_of_experience/2022/october-2022/how-to-avoid-title-fraud/.

[4] https://www.nbcnews.com/news/us-news/fake-landlord-home-rental-scam-detroit-rcna4941.

[5] “A forged deed is absolutely void and wholly ineffectual to pass title, even to a subsequent innocent purchaser from the grantee under such forged deed, because the grantee has no title to convey.” 23 Am. Jur. 2d Deeds § 165. “A forged deed… cannot convey good title, and ‘[i]t is legally impossible for any one [sic] to become a bona fide purchaser of real estate, or a purchaser at all, from one who never had any title, and’… New York’s rule reflects a general well-established principle of real property.” Faison v. Lewis, 25 N.Y.3d 220, 225 (2015) (quoting Marden v. Dorthy, 160 N.Y. 39, 56 (1899)).