How to avoid being scammed while purchasing unimproved land online?

Question

I am currently in the process of purchasing a piece of land I found for sale online, by what looks like a small business that buys and sells land. I have had a friend in the area check out the property and made an offer. The seller's instructions were to deposit money into an escrow account setup by an attorney's office, then close on the property in roughly 3-4 weeks.

My question is how do I verify the person actually owns the property and I'm not being scammed? I have looked up the law office they referenced for the escrow account and saw it was a legitimate attorney and the phone number they gave me matches my search for the law office. My plan is to call them and verify the routing and account numbers match an escrow account that they own and that it's to be used for the property's address. I feel this would sufficiently cover my bases, but is there potentially anything more I can do to ensure I'm not being taken advantage of?

Answer 1

You are looking for Title Insurance. Basically, you pay a lawyer to perform due diligence to confirm that yes, the land is registered to the counterparty, without any outstanding debts registered against it, and if their search is incorrect, you have insurance that protects the value of your purchase.

Calling the named law office offered by the seller [preferably using the publicly available number directly listed off of the relevant state bar legal directory] would help confirm that they are using a real lawyer, but you can still protect yourself further. Their lawyer is not your lawyer - they don't work on your behalf.

Answer 2

The ownership of the land should be registered with the local government. As an initial check you should see if the listed owner matches the information you were given. But even that isn't enough to protect you.

You will need title insurance. If you will have a mortgage, and be pledging the property as collateral, the lender will insist on it. Regardless of the mortgage status you will also want to protect your investment.

The insurer will be making sure that the property records are in good standing. They will make sure that all the owners have signed off on the deal. They make sure that nobody else has a claim on the property.

You should also get a local attorney that is 100% unconnected to any party in this deal. They will make sure that all the procedures are followed and that your investment is protected.

Answer 3

In addition to what others have mentioned, consider using a title company to handle the transaction. Not only can they offer title insurance, they handle other important aspects of the transaction as well, like ensuring that all required paperwork is completed and filed with the appropriate authorities, verify the seller's property description against surveys, ensure all parties get updated copies of deeds, etc.

A title company can also impartially handle the escrow portion of the transaction. They're a third party that's not directly involved in the transaction. Your description makes it sound like the seller's attorney owns the escrow account. Those lawyers would be working in the best interest of their client (the seller, not you) so any disputes that arise could be difficult to resolve.

Answer 4

There is a gold-standard process for trading real estate.

It protects all parties and does a very good job. DON'T deviate from it. Don't "part it out" i.e. pick and choose which parts you want to bother with. Just do it. Straight up.

In the USA, real estate sales are normally done without a lawyer, but with a qualified real estate agent (one guild of these call themselves "Realtors"), who serves as your buyer's agent, and is experienced at "ticking all the boxes" and untangling entanglements. They are a fiduciary meaning they must act in your interests.

They typically charge 3% of the sale price, except it's typically paid for by the seller, as the seller's agent charges the seller a 6% commission and the two agents split it. You can make other arrangements.

That's why I can't run down chapter and verse what the entire process is; I defer that to either a qualified agent or a lawyer. Which is my point; it's too complex for an answer.

I know you're not looking for this, but a competent agent can also show you lots of alternatives to the ones you found, likely better suited for your needs and/or at a better price. Let's face it, half the allure of this property is the novelty of "buying it online". But if you actually look at your core goal - buying land - a local agent is your best "boots on the ground".

If the seller is hostile to the idea of you using a proper agent, that is a red flag -- the seller is likely trying to get you to "shortcut" the gold-standard process so they can work a scam on you.

Answer 5

When buying unimproved land, don't rely on any suggestions from the seller as to what you might be able to do with that land.

Here in the UK there are companies that will buy up farmers' fields, divide them up into plots, and then sell them off at inflated prices to investors. The marketing material will suggest that each plot could be an ideal place to build your dream home in the country.

What the sellers don't mention is that the land is recorded in the local plan as agricultural. There is no chance of getting permission to build anything. The small bit of a field is no use for anything other than grazing a pony.