Top 5 Mortgage Scams to Watch Out For This Year

2013 Mortgage ScamsMortgage scams have become a large source of income for certain individuals over time. Especially during and after times of economic recession, home owners face a significant risk of being scammed by unscrupulous individuals who would go to great lengths to scam honest people out of their hard earned money. During times of economic recovery, many home owners also find themselves facing foreclosure, which makes them an even more vulnerable target for mortgage scams.

The housing market is continuing its slow recovery this year as well, so you should keep your eyes peeled for any offers that seem too good to be true, or sketchy people who are willing to give you a hand with your mortgage or a home improvement project for cheaper than usual. Mortgage scams are not only common in times of economic recession, though. They have been around for quite a while, but scammers are evolving, coming up with new ways of trying to get their hands on your money or homes (Read: Watch Out! Protect Yourself From Homeowner Scams).

How to Recognize a Scam and Avoid It

Many people make the mistake of thinking it could never happen to them, either because they think they know how to spot a scam or because they believe that mortgage scams are very uncommon. The truth is that scams often happen to people who least expect it and under the eyes of the law. Click here to read more.

Having a “too good to be true” mentality can save you a bunch of trouble when it comes to mortgages, but great and legitimate deals can be found, even in this economic climate. The only thing you can do to avoid mortgage scams is to take all the necessary precautions. Only do business with companies and organizations that have the proper accreditations, come highly recommended by people that you trust, or have been in business for a long time and have good customer feedback. Checking with your local Better Business Bureau is a good way of finding out more about a company, even though this is not the only thing that you should do when checking out a company.

So, in order to avoid mortgage scams, you should use a combination of research and common sense. Avoid doing business with companies that have complaints and negative feedback from previous customers, don’t sign any documents and contracts that you don’t fully understand, only accept recommendations from close friends and family, never sign the deed to your home to someone who says he or she can save your home from foreclosure, and never make mortgage payments to someone other than your lender.

The Top 5 Mortgage Scams

As we’ve discussed before, mortgage scams tend to evolve once people start wising up, but they are usually just improved versions of scams that have been around for years. Knowing which scams are current will help you avoid them, and save you from losing quite a lot of money, or even your home. Here are the top 5 mortgage scams that you should watch out for this year.

#1 – Bait and Switch Scam

The bait and switch scam has been around for ages and is not only used in the real estate industry (Read: Beware of the Bait and Switch Mortgage Strategy). The way it works is a lender baits the home buyer or the home owner who wishes to refinance with low interest rates and great terms on a mortgage loan. Once the customer has taken the bait, the lender informs him or her that the interest rate and terms are no longer available, but they can offer the next best thing. This is called the switch. Unfortunately, lenders have ways of protecting themselves from customers who threaten to sue. Often times, the low interest rates and attractive terms come with some strict conditions or a time frame, which are only disclosed in the fine print. The fine print is easily readable in a magazine or flyer, but easy to miss in a commercial on TV. Alternatively, the lender can just say that the commercials or advertisements are old and show deals that are not available anymore.

#2 – Foreclosure Scam

People who face foreclosure and eviction are targeted often by scammers who take advantage of their delicate situation and fragile state of mind. Homeowners who face foreclosure are approached by the scammer, who offers them the chance to take out a new loan that will cover their mortgage expenses and consolidate their loans. In order to qualify for the new loan, the owner who is in financial difficulty has to transfer ownership of the home to the scammer and pay a few costly fees. The scammer usually disappears with the money, leaving the home owner to continue making mortgage payments on a home that he or she doesn’t own anymore. Read more about current foreclosure scams here.

#3 – Rental Scam

The scammers take out a classified ad in a newspaper or online, with pictures of properties that they have no connection with. When a person who is looking for a place to rent calls them, the scammer will impersonate a landlord and give them an excuse as to why he or she cannot show the property. Then the scammer asks the person who is looking to rent to meet him in order to sign the contract, pay the deposit and receive the keys to the rental. If the scammers receive the payment, they simply disappear, while the renters only find out they have been scammed once they show up at the property and find out that the person who took their money is not a landlord.

#4 – Reverse Mortgage Scam

Because many aren’t capable to protect themselves as well as younger people, seniors have always been considered easy targets by scammers. Scammers also go after seniors because most of them have larger savings than say, a young home buyer. Because reverse mortgages allow seniors over the age of 62 to borrow against the equity in their home, it is easy for scammers to defraud them, leaving them without their hard earned savings, or even their homes (Read: Fact or Fiction? Reverse Mortgage Myths Exposed!).

#5 – Title Fraud

Not as common as other scams, but one of the most damaging types of mortgage scams, because the person who is being scammed loses much more than just some money. The worst kind of title fraud begins with the scammer stealing a home owner’s identity, then transferring the property to his or her name, and eventually taking out a new mortgage and disappearing. The owner is left with a large debt, no home, and possibly a ruined credit score. In order to recover some of the losses, the owner will have to spend a lot of time battling lenders in court. To read how to avoid title fraud scams go here.

Knowing what to watch out for makes a huge difference when trying to avoid being scammed. Mortgage scams can be devastating to someone’s financial situation, and recovering can be very difficult. Researching the company that you consider doing business with and being patient is very important, especially in this economic climate. If you still have suspicions and want more peace of mind, hiring a real estate attorney can give you even more protection against mortgage scams. Avoiding mortgage scams is much more important than risking everything in order to get a good deal (Read: Top 10 Signs of Mortgage Scamming).

Watch Out! Protect Yourself from Homeowner Scams

Watch Out-Protect Yourself from Homeowner Scams- 150x150Whether you are a home seller, a home buyer, or a home owner, there is always a chance that someone will try to take advantage and scam you. Homeowner scams have been around for a while, but depending on the state of the housing market, new and improved scams are developed. Sometimes, even those who have taken all the necessary precautions to protect themselves can be preyed upon by scammers.

Most scams are designed to prey upon those who try to refinance existing mortgages, but there are plenty of scams designed for home buyers and sellers, as well. There are several laws, such as the Fair Housing Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Truth-in-Lending Act and many others that have been created to help home buyers, sellers and owners, but some lenders find ways to circumvent them. Organizations like the Federal Trade Commission are responsible with implementing these laws, but consumers should also be aware of the dangers that are out there and find out how to better protect themselves. Here is a list of the most common homeowner scams that you should protect yourself from.

1. Bait and switch. This scam is used in many industries, especially in retail stores, but it has also found its way into the lending industry. Lenders who use the bait and switch usually advertise a low interest rate through several means, such as newspaper advertisements or billboards, but don’t actually offer that deal to anyone. When the borrower inquires about the low rate, he or she is told that it is not available anymore, but a slightly higher rate can still be obtained.

2. Bait and remember. Mortgage loans have pretty high closing costs. These costs should be taken into consideration when applying for a mortgage loan and your lender should inform you of them. But some lenders pretend that they forgot to inform you until you are too far into the process to back out. This can be a very expensive problem for you, as some of the closing fees are as high as several thousands of dollars.

3. Loan steering. Some lenders may deny your application for an advantageous loan which features great terms, such as a low interest rate and low closing costs, even though you are perfectly qualified for that mortgage. In order to make more money, they will steer you towards a more expensive loan, giving you reasons for being denied on the better loan such as having a low credit score or problems with your income.

4. Adjustable-rate mortgages. Adjustable-rate mortgage loans are perfectly legal, but the lenders are required to inform the borrower of how much the loan interest rate can fluctuate in the future. Some lenders offer great deals on adjustable-rate mortgages initially, but with very high interest rates in the future.

5. Negative-amortization loans. This type of loan is illegal in most areas of the United States, but some lenders still get away with offering it to their customers. A negative-amortization loan requires you to pay a smaller interest than what it is owed, with the difference being added to the principal balance of the loan. This leads to a principal balance that increases over time instead of decreasing.

6. Cash-out refinancing. Cash-out refinancing is legitimate and is a viable option in certain situations, but some lenders use it in order to get borrowers to use it for paying off smaller debt. This seems like a good choice for borrowers because their monthly payments for credit card and other debt decreases, but the overall cost will be much greater than their initial debt.

7. Equity stripping. An owner who is struggling financially is convinced to transfer the title to his or her home in order to qualify for a different loan, after which the owner loses ownership of the home. Also, when this happens there is a big chance that the owner will still owe money on the home that he or she lost.

When it comes to homeowner scams, prevention is the most important. Sometimes, home owners find out they have been fooled a little too late, and it may be too late to turn back. While some scams are a hundred percent illegal, and there’s little you can do about them if you have been targeted, some can be avoided by simply documenting yourself and reading the fine print.

Beware of the Bait and Switch Mortgage Strategy

Beware of the Bait and Switch Mortgage Strategy-150x150The real estate market has its share of crooks and scammers just like any other industry. Unfortunately, the ones getting scammed are usually hard working Americans who just want, like most people, to become home owners. Becoming a home owner is difficult and expensive enough without getting tricked by lenders and mortgage brokers, so you will have to pay a lot of attention when buying a home, especially if it is your first time doing it. If you are not careful, you can end up with a mortgage that is much more expensive than what you can afford, and you will have to struggle to make your mortgage payment each month, or eventually have to abandon your home.

What is the Bait and Switch Mortgage Strategy?

When buying a home, you can encounter dangers at every corner: from thieves posing as lenders or lawyers, who usually prey on the elderly, to the old bait and switch. Bait and switch happens when a customer is offered something for an attractive price, also known as the bait, which will no longer be available when the customer decides to go ahead and make the purchase. After the customer realizes that the initial offer is no longer available, he or she will be presented with a new offer, with less attractive terms, also known as the switch.

Lenders usually do the bait and switch by advertising low interest rates in order to get many potential home buyers interested. These interest rates are promoted in newspapers, on TV, on the radio, on billboards and posters, but, when the customer shows up and applies for a mortgage, he or she is told that those were last week’s rates or that they are reserved only for those with very high credit scores and a very good financial situation. Of course, because bait and switch is illegal, lenders disclose all this in the small print, which is usually too small to read in a newspaper, moves too fast to be read on TV, or is simply disregarded by most people who are looking for a mortgage.

The truth is that interest rates change too often for the advertisements to be truthful. Commercials on TV and the radio are very rarely modified to display the correct interest rate, so they may run for a couple of months advertising an interest rate that was offered a long time ago, and the rate can be much higher at the present time than it was before. Even live interviews advertise rates that are at least a few days old. When home buyers call the lender to inquire about the low interest rate, they find out that the rate is no longer available, but are offered a new rate. This new rate won’t be as great as the one that is advertised, but is usually not that much higher. However, a small increase in interest can mean thousands over time, so make sure that you understand how much more you will be paying before taking the lender’s offer. Ads in newspapers are also at least one day old because it takes at least one day for the newspaper or magazine to get published.

In a perfect world, interest rates would not be advertised unless they were actually available for everyone. While some lenders are truthful when advertising interest rates, most take advantage of things like fine print and are just happy to get customers interested, even though they are unable to offer what they promised. Unfortunately, many home buyers fall for the bait and switch due to the fact that many lenders are doing it. When searching for a mortgage you should give yourself time to shop around and find what’s best for you, and not let lenders use the bait and switch mortgage strategy on you. If you are not satisfied with a lender’s offer, always be ready to turn around and walk away.

Watch Out for Fraud in Mortgage Loan Modification!

Watch Out for Fraud in Mortgage Loan Modification- 150x150There may come a time in a borrower’s life when he is unable to make mortgage payments anymore. If the person who is facing foreclosure doesn’t do anything to remedy the situation, he or she will have to give up their home. Having financial difficulties and not affording to pay for your home anymore is very stressful, and there are a lot of people out there who would take advantage of your situation.

Borrowers who have started to miss payments on their mortgage have the chance to get back on their feet and continue to make regular payments through a mortgage loan modification. Unfortunately, fraud in mortgage loan modification is very widespread, and it is easy for people to become the victims of this practice.

Understanding Mortgage Loan Modification Fraud

Mortgage loan modification companies buy borrower payment history info from credit bureaus, and use this information to find potential customers. Loan modification companies will then contact borrowers who are facing foreclosure by phone, mail, or even by showing up at their door. All mailings and solicitations from mortgage loan modification companies will look and sound official. The company’s name may even sound like it is affiliated with the government or like it belongs to a law firm, but usually these are only tactics of getting you to call the company and, more importantly, see them as trustworthy.

Someone from the loan modification company will tell you that he or she will negotiate with your lender to modify your mortgage loan, and give you all kinds of verbal guarantees. They will, often times, say anything in order to get you to do business with them. You will probably hear about the thousands of home owners that they have helped, that their company is attorney-backed, or that they will give you your money back if your lender doesn’t agree to a loan modification. They can go as far as recommend you to stop talking to your lender and let them handle negotiations, or even advise you to pay their fee instead of using that money to make a mortgage payment.

Another way in which people who are dealing with financial difficulties are preyed upon by scammers is through a new loan scam. The borrower is offered temporary financing that will get them through the hard times, until a more permanent form of financing is arranged. This is done with the condition that the home owner signs over the ownership to his home to the scammer.

Usually, all these scammers do is get as much money as they can from you upfront, while keeping you in the dark about what is happening, after which they simply disappear, leaving you in a much worse situation than you were before.

How to Avoid Fraud in Mortgage Loan Modification

Avoiding getting scammed by people who try to take advantage of you when you are most vulnerable financially is fairly easy if you just keep your calm and use a bit of common sense. Here’s how you can protect yourself and your home form fraud in mortgage loan modification:

  • Don’t trust any exaggerated claims and guarantees. Mortgage loan modification companies that claim that they have a near 100 percent success rate, or that they guarantee to get your lender to agree to a loan modification, are most likely telling you what you want to hear in order to get you to hire them. Checking your local Better Business Bureau or other such organization won’t guarantee that you are hiring a good loan modification company, but it will, at least, ensure that you won’t be getting scammed.
  • Don’t pay fees upfront. In many states, there are laws that prohibit mortgage loan modification companies from charging you upfront. Even if your state doesn’t have such a law, beware of companies who charge you large fees upfront, especially if the company is fairly unknown.
  • Pay your mortgage instead of the loan modification company. Some companies may advise you to pay them instead of your lender. This is something that you should avoid because you will probably end up in an even worse financial situation than before.
  • Contact the lender yourself. Don’t allow mortgage loan modification companies to sever the ties between you and your lender. Negotiating a mortgage loan modification is a relatively easy process, which can easily be done by yourself. Also, don’t ignore your lender’s calls and letters, because this may be the difference between getting approved for a loan modification and going into foreclosure.

Fraud in mortgage loan modification is very common, especially in times when more and more people are having trouble paying mortgages. If you don’t have the time to handle this yourself, or think that you don’t have the necessary knowledge, then hiring someone to help you with your loan modification is a logical step. But before you seek the help of a mortgage loan modification company, make sure that they are legitimate, and won’t cause you to end up in an even worse situation than you were in initially.

Top 10 Signs of Mortgage Scamming

Mortgage Fraud-150x150Over the past 5 years, mortgage scams have risen by more than 75 percent. Many Americans have been rushing to banks and other financial institutions to take out a first mortgage, second mortgage or to refinance their mortgage. This gold rush has led to a significant increase of mortgage fraud. Some mortgage scams are purely operating websites only (virtual offices) as they obtain people’s credit information and disappear with millions of dollars from innocent citizens. Other scams come in different forms, so it’s important to educate yourself on what to look out for.

Reasons for the Rise of Mortgage Fraud

  • The rising demand. The demand for mortgages over the past decade has tripled compared to the last 40 years in the United States. This gold rush for loans from citizens has led to a massive increase in the levels of mortgage fraud.
  • Increased use of online services. Mortgage scams and fraudsters are at their best when working online. They create websites with attractive products, fast responses and immediate approval—features which obviously attract vulnerable borrowers. In most cases, they don’t have physical offices.
  • Ignorance of the law. A rise in mortgage fraud is also prevalent because many borrowers don’t know the law. Those with any banking or law knowledge, and some knowledge about the rules of Freddie Mac and Fannie Mae can therefore easily take advantage of borrowers.
  • Mortgages being viewed as a source of cash. Second mortgages and refinanced mortgages, depending on the terms and the lender in particular, always provide extra cash to the borrower. Since many Americans are in need of cash, the fraudsters take advantage of this need and rush to con the applicants.

Signs of Mortgage Scamming

  1. Upfront charges. Terming themselves as forensic loan auditors and foreclosure prevention champions, mortgage scams will ask you for upfront fees to offer you these services. They will offer to give you their report so that you can use it against foreclosure, reduce your loan, speed up the process of loan modification or totally cancel your loan. However, all of these are fantasies in the real financial world.
  2. Offer to do all the paperwork for you. They will often offer to fill out all of the necessary documents on your behalf. This is not the usual characteristic of a true mortgagor who requires you to do the paperwork yourself.
  3. Purchase loans are disguised as mortgage refinances. A purchase loan is actually an amount of money which is acquired in order to purchase cars, houses and other forms of property at variable or fixed interest rates. On the other hand, a mortgage refinance is a replacement of the existing obligation with a debt obligation under unique terms. Such a disguise will only lead to more problems than solutions.
  4. Falsified documents to support the loan documentation. They will easily accept fake credit reports because they know that all they want from you is money. They sign fake brokerage deals and lawyer’s agreements to start off the deal.
  5. Material misstatements. All the mortgage scammers are characterized by misrepresentation and omissions upon a lender or an underwriter in the process of funding, insuring or purchasing a loan. This has been released by the FBI and is one of the leading checks used to investigate mortgage fraud. These scammers also promise you that they will modify your mortgage in a bid to prevent a foreclosure regardless of all the circumstances surrounding you.
  6. Inflated and exaggerated appraisals. Normally, a mortgage company requires appraisal reports of a house from several appraisers so that they can make a comparison and pick the most reliable figure. However, scammers have an inflated appraised figure of the house which has only been prepared by a single appraiser to suit their selfish needs. This often translates to a huge down payment and high monthly repayments.
  7. High commissions and bonuses. Since they promise you “impossible” services, they will always ask you for huge fees for services offered and bonuses for the “guaranteed” results. They require high brokerage commissions because they offer to do everything on your behalf.
  8. Form of payments. Other than the usual mortgages which require you to repay in terms of bank transfer, mortgage scams have several forms of payments including cash, checks and wire transfer. These forms of payments are not only aimed at fooling you to recognize how advanced they are but also escape the rigorous audit process instituted by banks.
  9. Request you for the power of the attorney. Taking advantage of your ignorance of the law, mortgage scams ask you to confer upon them the power of the attorney so that they can use it to enforce the law.
  10. Invite you to leaseback schemes or equity strips. If you are languishing in problems because you are unable to repay your mortgage, then a mortgage scam will promise to help you come out of that situation quickly. To avoid a looming foreclosure, they will sign a deed over to a virtual rescuer in exchange for continuing to live in the home just as a renter. Meanwhile, the rent payments go towards buying your property back (in somebody’s pocket).

In case you’ve realized that you have been scammed then you should quickly report the incident to the Consumer Financial Protection Bureau (CFPB) for further investigations. If you are about to take out a mortgage loan, then be careful where you tread to avoid these huge financial scams.