The Dark Side of Real Estate: Phantom Buyers and Fake Title Companies – Part 1

Scams That Should Have Been Stopped

As a seasoned commercial real estate escrow officer at Fidelity National Title, I’ve seen the best and the worst of what the industry has to offer. While most transactions proceed smoothly, occasionally, a deal is marred by fraudulent activity that should have been detected and prevented.

The Phantom Buyer

One of the most chilling scams I encountered involved a phantom buyer who managed to fool almost everyone involved in a high-stakes commercial real estate transaction. This sophisticated scam artist posed as a legitimate international investor interested in purchasing a multi-million-dollar office building. Everything seemed in order: the proof of funds, the identification documents, and even the letters of intent. However, there were subtle red flags that, in hindsight, should have prompted a deeper investigation.

The first clue was the rush to close. The buyer insisted on an unusually tight timeline, citing a looming deadline for an international business deal. While urgency is not uncommon in commercial real estate, the pressure to expedite the process should have raised alarms. Additionally, the buyer’s communication was primarily through email and international phone numbers, making it difficult to verify their identity in person.

As the escrow officer, my role was to ensure that all documents were in order and that the funds were securely transferred. However, the sophistication of the scam meant that the verification process was meticulously manipulated. It was only during the final stages of the transaction that a keen-eyed colleague noticed inconsistencies in the wire transfer details. Further investigation revealed that the supposed buyer’s funds were nonexistent, and the documents provided were expertly forged.

This scam could have been prevented with more rigorous identity verification processes, including face-to-face meetings and thorough cross-referencing of financial documents. The lesson here is clear: never compromise on due diligence, no matter how convincing the buyer may seem.

The Fake Title Company

Another alarming case involved a fraudulent title company that managed to infiltrate a commercial real estate deal. The seller was approached by a seemingly reputable title company offering significantly lower fees for their services. Enticed by the potential savings, the seller decided to switch from our established title company to this new, cheaper alternative.

From the outset, there were irregularities in the way the new title company operated. Communication was sporadic, and the documentation provided was often incomplete or incorrectly formatted. When questioned, the company representatives always had plausible excuses, ranging from “system updates” to “staff shortages.”

As the closing date approached, the seller became increasingly uneasy and reached out to us for a second opinion. A quick background check revealed that the title company was a complete fabrication. The address listed was a virtual office, and the company’s website was filled with stock photos and generic content. The seller narrowly avoided a massive financial loss thanks to their instinct to double-check with a trusted escrow officer.

These incidents highlight the importance of working with established and reputable title companies.

In commercial real estate, where transactions involve significant sums of money, it is crucial to verify the credentials and track records of all parties involved. Trusted partners like Fidelity National Title have the experience and resources to detect and prevent such scams, providing peace of mind to buyers and sellers alike.

These two scams are a clear reminder of the dangers lurking in commercial real estate. Stay vigilant, work with established professionals, and always trust your instincts. And, as always, if you have any questions about your commercial real estate transactions, contact Michele at michele@seiboldgroup.com to learn how we can help protect your investment.

Stay tuned for Part 2, where we cover more scams, like the bogus buyer representative and the disappearing down payment.