Mortgage Scams and How to Identify Them
The phrase “home security” is widely used and has a variety of contexts. It can mean locking doors and windows when leaving the house, setting up an alarm system, participating in a neighborhood watch, or setting up automatic lights for vacations. These are all steps homeowners take to keep the contents of their homes safe.
When it comes to the home itself, though, folks can be a lot less particular. While homeowner’s insurance can protect against natural disasters, there’s a new threat to the cornerstone of the American dream. Scam artists are targeting desperate homeowners, trying to steal their money, personal information or even their homes.
These scams come in a variety of shapes and sizes, and scammers do not discriminate when trying to commit mortgage fraud. So, before you make any changes to your mortgage, check to make sure your “once-in-a-lifetime” offer isn’t on this list.
Upfront Cost to Refinance
The scam: You get a phone call or a letter from someone who wants to refinance your mortgage. The rates they’re offering are crazy low. They can cut your monthly payment by hundreds of dollars or help you pay off your mortgage sooner. All you must do is pay a small percentage of those savings upfront in the form of a refinance charge.
Of course, the company offering the mortgage is fake. You might get bills from them for the new amount but paying them won’t affect your mortgage. Meanwhile, the institution that does hold your mortgage still expects you to make your regular payments.
How to identify it: It’s illegal to charge upfront fees for mortgage refinancing and is a red flag that someone is trying to scam you. Some may call them “document processing” fees or using some other jargon. Whatever they call it, it’s against the law and is a sure sign this “lender” is just looking for a quick payday while not delivering anything in return.
Also remember that, while rates can fluctuate over time and from institution to institution, the fluctuation is limited. If someone is offering a rate that is several percent lower than anyone else in town, be highly skeptical. Check with your Better Business Bureau to see if the company exists or if complaints have been filed against it.
The scam: This scam targets homeowners who are facing foreclosure. Whether because of job loss, medical expenses or other hardships, foreclosures affect 100,000 households each month. People in desperate situations try anything they can to not lose their home.
That’s when they get a phone call from someone representing a foreclosure service who can connect them with government assistance to stop their foreclosure. All they have to do is make three “trial payments” into a mortgage escrow account.
These fraudsters collect the money and encourages borrowers to stop paying their mortgage. They’ll actively encourage homeowners not to talk to lenders or lawyers. They’ll take care of everything.
How to identify it: Anyone who tells you not to get a lawyer or talk to your lender does not have your best interests at heart. If you miss several mortgage payments due to extenuating life circumstances, the first thing you should do is call your lender. Most institutions would rather work with you to pay something and keep you in your home than have to go through the process of foreclosure. Keeping lines of communication open is critical to getting back on the right track – even when you are embarrassed or scared.
Also, watch out for high-pressure sales tactics. Anyone who wants you to make a mortgage decision on the spot is trying to deceive you. Mortgages are long-term arrangements and they should be considered carefully. A “money-back guarantee” is also a big red flag – especially when it comes to a large purchase or refinance like a mortgage.
The Fine Print Deed Sign
The scam: Scammers use a variety of upfront pitches. Some might offer to lower your rates or lower your mortgage payments. Others might try to rescue you from foreclosure. Still others might offer a home equity line of credit with alarmingly good terms. They may also offer to take over the deed to your house and then use their superior credit rating to secure a lower rate, while allowing you to remain in the home as a renter. Whatever the pitch, there are a ton of forms to sign. All of them are written in indecipherable legalese.
Somewhere amid these forms, perhaps buried in the back, is a form signing the deed for your house over to the scammer. Once they have the deed, they can rent the home to someone else or sell it outright, while forcing you to vacate. Worst of all, you’re still on the hook for the balance of the mortgage, since the loan is tied to you and not to the home.
How to identify it: Once again, if an offer sounds too good to be true, it probably is. Scrutinize every document you sign relating to your mortgage or home. Have someone with experience in financial matters look over documents. Spending 20 minutes with a real estate lawyer is expensive, but not as expensive as losing your home. There is never a legitimate reason to sign the deed of your house over to someone else unless you’re selling the house.
When in doubt, always seek professional guidance before making a big decision with your mortgage. If you are facing foreclosure or seeking to refinance, do plenty of research before agreeing to any deals.