If you are looking for a home mortgage or own a home, especially if you are struggling financially, you could be a target for a mortgage scam. Here are the six most common scams to be aware of.
1. Illegal Flipping
Flipping a home is simply buying a home at a low rate and then fixing it up and selling it for a much higher rate. This is a legal practice as long as everyone is telling the truth about the price of the home. Some people, however, flip illegally. Here is how it works.
A scammer buys a home, usually a foreclosure, and makes a few changes to make the house look good, but without fixing a lot of the problems. Then the scammer works with a partner, either a real estate agent or an appraiser, and resells the house at a huge profit by inflating the value of the home. Those in the scam take a cut of the profit, and you are left with a loan on a home that isn’t worth what you paid for it.
How To Avoid It: Make sure that you have your own real estate agent that you trust. Look over their credentials before signing with them. If someone is trying to sell you a home and wants you to work exclusively with their agent, this is a warning sign that something is amiss. If you have doubts, hire your own inspector and appraiser to look over the home.
2. Bait And Switch
Bait and switch scams have been around for centuries. Essentially, the con man lures you in with one offer and you end up leaving with something else entirely. The same holds true for the mortgage industry. An unscrupulous lender will lure you in with a great loan offer that typically has a low interest rate or really low monthly payments.
Once you are in the door, the loan officer appears to work hard to get you the loan, taking all the necessary paperwork and going through all the motions. But when it comes time to sign, the lender presents a new loan package that is much less favorable. Many people go ahead and sign because they have already spent so much time with the loan. They feel too invested to back out, or they are afraid that they won’t be able to find a better deal somewhere else.
The lender gets a great profit without doing anything illegal. You, on the other hand, are stuck with a loan that wasn’t the best loan for you.
How To Avoid It: Never sign a loan package that is different from what was presented initially. If the loan officer tries to switch, begin the process again with another loan officer. Do your research and take the time necessary to ensure you’re getting the best deal.
3. Your Mortgage Has Been Sold
Banks can and do sell residential mortgages. Scammers take advantage of that fact. They create a fake mortgage company and send you a letter stating that they are now the new owners of your loan. They will send you forms to fill out so that you can begin sending your payments to them. You fill out the forms and begin sending the payments to the fake bank. This money is pocketed while your actual loan goes unpaid. You don’t learn about the problem until your bank sends you a notice that you mortgage is past due.
How To Avoid It: If you bank sells your mortgage, and you are to send payments to a new lender, you will get two letters. One letter is a “hello” letter from the new mortgage lender and the second is a “goodbye” letter from the original mortgage lender. If you haven’t gotten both letters, it may be a scam. Additionally, always verify your loan was sold with your original lender before mailing in a new payment or giving the new company any of your financial details.
4. Refinancing Scams
When you are strapped for cash, looking to your home for equity often comes to mind. That’s where refinancing scams come into play. Scammers look for people that have good equity in their home but are facing financial challenges such as paying for a child’s college tuition or making improvements to the home.
The scammer offers you a great refinancing deal where you get cash out of your home. The scammer makes his money by charging you high closing costs and other refinancing fees. These fees are always higher than a legitimate lender. Then, they come by time and again, offering to “help” you again as a new college year starts or new bills pile on. Before long, you’ve sucked all the equity out of your house and they have made off with your fees.
How To Avoid It: If you need an equity loan, go to a reputable bank to do so. Check several institutions for the lowest fees and interest rate.
5. Mortgage Relief Scams
If you find yourself in trouble with your mortgage loan, there are some great government sponsored programs that can help. The problem is that there are so many different programs that it is nearly impossible to keep up with them all. Scammers take advantage of this and create their own loan modification program to con you into refinancing with them. Here is how it works.
You are having trouble making your mortgage payments and someone from a mortgage relief program gives you call. To get their help, you give them the administrative fees up front, and they will help you work out new loan terms. They also tell you to ignore any foreclosure notices during this time because they are handling the problem for you.
The scammer, meanwhile, is doing nothing for you and has taken off with your money. Eventually, since you ignored the foreclosure notices, the bank will take back your home.
How To Avoid It: Never pay fees up front for any loan help. Real government programs do not ask you to pay money before getting you a new loan. If you do need help with loan modification, seek out help through a certified institution that knows about the different programs available to you.
6. Lease Back Scheme
One of the worst things that can happen if you own a home is realizing that you cannot afford to keep it. If you find yourself in this situation, you are very likely to be looking for a way out. Scammers know this and use it to make money off your pain. They claim that they can rescue your mortgage.
The scammer says they can help you, but you will need to sign over your deed. Once you’ve signed the deed, they let you stay in your home as a renter. The scammer pays off the delinquent mortgage and says your rent payments will go towards buying the property back.
The truth is that the rent payments will be higher than your original mortgage payments, making you unlikely to be able to pay the rent. At that point, they will evict you, pocketing all your rent money. In the end, they have your home with all your equity plus the money you paid to them in rent.
How To Avoid It: Never sign your deed over to anyone without your own lawyer present. If they do not want to use a lawyer, then that is a good sign that they are running a scam.
