A glut of repossessed and abandoned houses in Detroit has contributed to a proliferation of “fake landlord” and deed fraud scams that are not only devastating the finances of many would-be renters and buyers but also creating headaches for owners who discover they’ve got tenants they didn’t choose.
Exacerbating the situation, mortgage lenders are cautious about extending credit and home prices are so low that most deals are for cash, putting Detroit residents at greater risk of buying or renting homes from scammers who don’t actually own them.
That’s according to a four-month investigation by NBC News and Outlier Media, which found that as many as 1 in 10 tenants facing eviction in the Motor City could be victims of such scams.
“Discriminatory lending practices, crumbling conditions and limited access to banks have put conventional home loans out of reach for many in Detroit — a predominantly Black and low-income city,” Outlier reported. “And prices in the city’s rental market are so low that reputable brokers and agencies stay away, leaving many renters to fend for themselves, relying on cash transactions and rent-to-own arrangements called land contracts that make them more susceptible to fraud.”
The problem has its roots in the 2007-2009 housing crash and recession, in which more than 65,000 Detroit residents lost their homes, the report said. More than one-third of all properties in the city were eventually foreclosed on by county officials seeking back taxes. As a result, for the first time since 1950, more people rent than own in Detroit.
Mortgage lenders are still hesitant to make loans in neighborhoods with low property values, and more than three-quarters of home sales in Detroit are cash deals, the report said. Cash sales don’t provide safeguards like title searches that mortgage companies insist on when they’re financing a deal, the report noted.
So some people who have lost their houses to foreclosure — along with brazen scammers who commandeer abandoned properties — are renting them out or selling them to victims who don’t realize they’re not the owner.
Critics say the Detroit Land Bank Authority, which is tasked with selling 64,000 empty lots and 13,000 homes, could do a better job monitoring homes in its inventory to make sure they’re not being used by scammers.
The Land Bank operates a Buy Back program that allows occupants of homes it owns to claim them if they can prove a legitimate past tie and make a $1,000 down payment.
The Land Bank official who runs that program told Outlier that 1 in 5 people who call about the program are residents who, as it turns out, have been paying the wrong person to buy or rent their home. An attorney who represents property owners estimates that 7-10 percent of the tenants that his clients have moved to evict were victims of such scams.
The full extent of the problem is hard to pin down — only 1 of the 8 victims interviewed by NBC and Outlier contacted authorities. In other cases, victims often don’t know the true identity of the scammer or are afraid they’ll retaliate.
In some cases where victims thought they were buying a house, scammers filed fake deeds to make the deal look legitimate. The Wayne County Prosecutor’s Office’s deed fraud unit investigated 122 complaints in 2019 and brought charges in 25 cases.
A federal moratorium on evictions introduced during the pandemic is no longer in effect, and forbearance programs that allowed distressed borrowers put their mortgage payments on hold are expiring. That could provide more victims for perpetrators of fake landlord and deed fraud schemes, the report notes.
“People are going to have to move, and you might see scammers that view this as a very fertile ground for continuing their methods,” an attorney who represents property owners told Outlier.