The Indian judicial system is burdened with a high incidence of real estate litigation due to menace of real estate scams and frauds that leads to title disputes between the parties of a transaction or between two or more buyers saddled with defective titles to one property.
To curb the menace of real estate scams and to protect the interests of homebuyers and investors, the Real Estate (Regulation & Development) Act, 2016 was legislated. This Act was enforced on May 1. 2017 and was framed with the objective of protecting homebuyers from errant builders and developers and to ensure transparency and fairness in real estate transactions. Under this Act, rules are framed to regulate real estate transactions and a regulatory authority has been established to ensure that builders, developers and other parties involved in real estate transactions comply with the provisions of the Act.
However, even ordinary homebuyers need to exercise caution and be on guard when it comes to complex real estate transactions and the parties they deal with. This article highlights the concept of real estate scams and how buyers can avoid them.
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Types of real estate scams and how buyers can avoid them
The real estate sector is like any other sector with its fair share of scammers and fraudsters.
Fake listing scams:
- One of the ways a scamster defrauds naive homebuyers is by employing fake listing methods. By using the internet, scammers may either post fake details of a property or copy the details of real properties from other websites and post it on other sites. Then these scammers pose as homeowners or real estate agents who then “deal” with homebuyers and ask them to pay the money upfront or make online payments. They may stall or avoid making a contract until the payment is made.
- Before the buyer realizes it, the scammer withdraws the money and disappears with it. It comes to the buyer’s knowledge that the property details are fake or the “homeowner” was a fraud and thus s/he has been defrauded.
- Homebuyers need to be alert and verify the identities of the people they deal with in a property transaction. They need to avoid making payments online to unverified individuals.
- A home buyer also needs to check out legitimate property websites with verified credentials or interact with real estate who are registered with the RERA authority under the RERA provisions. Even then, the credentials of these agents need to be verified for the transaction to progress.
- Title fraud is when scammers or fraudsters forge property pacers of a real estate property and then ensnare interested homebuyers by posing as homeowners.
- The homebuyers do not check the authenticity of these property pares and fall into the trap, especially if the scammer “asks” for a low price for the property.
- This leads to the buyer making payments towards the purchase and the scammer making a show of selling the property to the buyer. Before the buyer realizes, the bubble has burst.
- Scammers use properties that are unoccupied or have owners who have settled in foreign or houses under dispute to show buyers. Buyers do not enquire around or practice the necessary due-diligence and thus fall victim to the fraudster.
- The homebuyer needs to first and foremost conduct a title search of the prospective property and get the ownership of the property confirmed. S/he should get the documents examined by a professional to verify their authenticity.
- S/he should enquire about the house’s history, condition and features and gather information on it.
- An informed buyer is a safe buyer.
Home lending scams:
- In this type of scam, the scammers target vulnerable homebuyers who do not have the funds to purchase a house.
- These scammers then persuade the buyers to avail “loans” from the former at steep interest rates and with ambiguous lending terms.
- The buyers fall into the trap and end up saddled with substantial debts from shady people. The buyers are unable to pay back the money and thus stuck in a vulnerable position.
- Homebuyers need to take steps to only deal with verified lenders who are transparent in their dealings with buyers.
- If you have a budget for purchasing a house, it is best you strictly stick to it. If you don’t have a budget then make one. You need to know your financial standing when it comes to your ability to purchase a house.
Selling the property twice to different people:
- There are instances when some developers undertake projects and sell properties to homebuyers. But then the developer unnecessarily delays the completion of the project and in the process “sell” the properties to other parties.
- This causes a dispute where homebuyers find themselves saddled with defective titles to properties that are also purchased by another on a good faith basis. It is difficult to resolve these disputes and the parties are forced to approach the court of law to resolve these disputes.
- This causes unnecessary problems for the homebuyers who neither have possession of the property nor do they have the money they paid to the builders or developers as token money.
- The solution to this binding agreement and contract. A home buyer needs to ensure the deal between the builder and homebuyer is properly stated in an agreement which has the details of the property, the price, details of the parties to the transaction, a promise of transfer of ownership and possession in explicit terms, etc.
- Recording the sale in clear, unambiguous writing is the best way to avoid future disputes.
- However, before getting into a transaction with a developer, try to gain information about the prior titles to the property, if any, just to be on the safe side.
- Exercise due diligence and if you find you have a problem on hand, approach the appropriate authorities (the RERA authority in this case) and appeal for the developer to be taken to task.
Another type of scam involves the selling of property by some developers without disclosing some material facts related to the property to homebuyers.
- Gullible homebuyers simply believe the words of these developers and purchase property without conducting due diligence. Due-diligence is a very important step that is required to be taken by homebuyers which is completely overlooked by some buyers in this instance and this misstep is exploited by some developers.
- As a result, homebuyers suffer due to misrepresentation or non-disclosure of material facts and suffer financial losses or receive property that lacks proper facilities.
- A buyer needs to be careful and seek information, all of it related to the prospective property like the history, features, condition, area-wise knowledge, the price of the property, any material defects in its title or construction, etc.
- Without taking due care and exercising due diligence, a buyer puts himself or herself in a vulnerable position.
- RERA provisions also lay down that a developer needs to update project details and disclose material facts and changes on the RERA website that buyers can access to keep themselves updated.
The other forms of scams include the wrong usage and carrying out construction works or changes in the property without approvals. The construction works in the property needs to be in accordance with the sanctioned and approved plan by the local authorities. In case the property was an agricultural property, then the property needs to be converted into a non-agricultural property, and a certificate for the same needs to be obtained. In the absence of the same, legal complications may arise.
The buyer should also check if there are any form of tax arrears as they can be costly. The tax arrears can be asked to be settled by the buyer after the sales if it is not paid off by the previous owner. Thus it is recommended that you cross-check the various documents and also the tax receipts to ensure that there are no wrongful commitments, arrears, or illegal activities carried on your property.
Real estate scams were once rife in an unregulated real estate sector. However with the promulgation of the Real Estate (Regulation & Development) Act, 2016, the menace of these scams are bound to reduce. However, for the effective application of these provisions, homebuyers also need to be on their guard, ensuring they exercise due diligence and take the minimum measures of protection against scammers and fraudsters who are always on the lookout to make a quick buck.