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Earnest Money Scam: BEWARE!!!

Posted by 15789465 on

I wanted to warn you about a scam going around, in case you have not already heard about it. The scam, and its variations, work like this: Overseas buyer contacts real estate agent and wishes to sign a contract on a high-end home. The buyer does not need to see the house before-hand, because the online information is excellent for that property and it is just what they are looking for.  Everyone is really excited about this contract!! The buyer signs a purchase contract that includes a large earnest money deposit. A check arrives to the real estate agent, drawn on a legitimate account in a real bank—often it is the trust account for a large law firm.  If you call the law firm’s bank, you will be told the account and the account holder are both legitimate.  The check is larger than the earnest money deposit amount. The instructions that come along with the check say that a portion is to be used for the earnest money, and the balance should be sent to another account that the buyer will use to buy furnishings for the house. You wait ten days to make sure you have good funds. Nothing bad happens. You write a check, or you wire transfer the money, for the “home furnishings” account, and retain the balance as the earnest money. If you contact the CFO or managing partner of the law firm that supposedly wrote the check, they will tell you the check  is a first class forgery.  Usually, people don’t take this extra step. They just wait ten days to see if there are any problems with the check and then assume everything is okay and nothing bad can happen. Wrong!!! The beauty of forged checks drawn on large law firm trust accounts is that the law firm often does not balance its bank account until the end of 30 or 60 days. A large law firm almost always has enough cash in its accounts to cover real checks AND forged checks.  So, there are no warning bells caused by a bounced check, because it's never NSF. In time, someone at the law firm will balance the account. They will find out that a forged check was drawn on the law firm’s account and money wrongfully taken out of the account. The law firm will notify their bank. That bank will put the money back in the law firm’s account immediately, because it was illegal for the bank to pay out over a “forged drawer’s signature.” That bank will then back-charge the money to YOUR bank, because your bank was paid on a forged signature. Your bank will take the money out of YOUR ACCOUNT.  You were the first person in the whole chain who took a check with a forged signature, and you were the first one who could have checked with the law firm to see it if was legitimate or not, but you didn’t do it!  As a result, the “loss” rests on you, ultimately. All this charging back and taking money out of accounts happens pretty quickly once the law firm reports the check was a forgery.   If the check you received was $30,000, and $20,000 was supposed to be earnest money and $10,000 sent to the home furnishings account, then you will still have the $20,000 in your trust account. The bank will take that money—no harm to you. BUT, the $10,000 you sent to the home furnishings account will be long gone. The bank will take $10,000 of other trust funds out of your trust account, causing you all sorts of problems. If you don’t have enough money in your account, your bank will sue you for it.  You will have absolutely no defenses to any of this. Yes, you can sue the people who committed the fraud, but how are you going to find them? Always, always, always…use or some independent source to obtain the phone number for a company or law firm that supposedly issues a check.  Contact them, and see if the check is legitimate.  You'll save yourself a lot of grief with that simple step. The reason you don’t just call the phone number on the check is because that number might also be bogus.  You might reach one of the con artists, who will pretend to be the CFO of the company that issued the check.

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  • Why do people still fall for these scams?
    If it seems too good to be true it must be a duck.
    That’s what I always say.
    oh and my ‘favorite’ word is complacent.

    Lauri Pine on
  • Read Justin South’s comment—he’s already had two such contracts come through his door within the last month or so!!!

    deniselevans on
  • I could see how this could get a company in a bad position. Probably the best thing to do is not take an earnest money check for larger than the actual amount of the earnest money binder. I don’t think that a real estate company should be responsible for a buyer’s “other funds” no matter what they are supposed to be used for- especially not for something like household furnishings.

    Shannon Schwab on
  • Scary that this is already common!

    deniselevans on
  • Denise
    Thanks so much for posting this. This like many of your other postings are very imformative and helpful to us.

    Neil Victor on

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