How to Avoid Mortgage Fraud

Don’t Fall Prey to Mortgage Fraudsters

The real estate market may be recovering, but many homeowners still find themselves in vulnerable positions, leading them to seek assistance online. The only problem with this is that anyone can build a website, and some “helpful” websites are actually fronts for mortgage scams. So if you’re a fist-time homebuyer, you’ll want to be extra careful to avoid being taken advantage of by fraudsters.

Market conditions are ripe for shady schemes, but there’s no need to become another unfortunate statistic. Just follow these tips for avoiding mortgage fraud, and you’ll have a much better chance to steer clear of it.

If It Sounds Too Good to Be True…

Fraudsters will tell you exactly what you want to hear in order to get you to sign on the dotted line. If the interest rates seem impossibly low given your credit rating, or the payments don’t seem to add up, then you’ll want to be extra careful.

With interest rates at all-time lows, great refinance deals are out there for qualified borrowers, but remember: if it seems to good to be true, then it probably is.

Read Your Mortgage Documents Carefully

Some scammers pose as mortgage professionals offering great refinance rates or lawyers offering loan modifications. These fraudsters can seem totally legitimate, until you read the fine print. One of the documents you’ll be asked to sign will actually transfer your deed to the fraudsters. Always read the fine print carefully, no matter how great the deal seems.

The Lease / Buyback Con

In this dastardly scheme, swindlers approach distressed homeowners whose homes are in foreclosure, and make them a deal they can’t refuse. They convince the owners to sign their deeds over to a land trust. Once the home is signed over, the owners will temporarily “lease” the home from the land trust, which will bring the mortgage current and halt the foreclosure proceedings. The victim is promised a buyback option, once their finances are in order.

Here’s the catch: the “land trust” doesn’t actually clear up the foreclosure. They collect lease payments until the bank evicts the former homeowners, and then vanish into thin air.

Never Pay Up-front Fees for Loan Modifications

It’s against the law to charge up-front fees for loan modifications, but many unsuspecting buyers still fall for this dirty trick.

Here’s how it works: the con artist will claim to need a fee (say, $5,000) to start the loan modification process. They’ll claim it’s for preparation, and they’ll offer an ironclad, money-back guarantee. They’ll cash the check, but they won’t hold up their end of the bargain, leaving beleaguered homeowners in an even worse position than the one they were in before.

The Mortgage Sale Scam

It’s not uncommon for lenders to buy and sell mortgages from other financial institutions, and there’s nothing illegal about it. However, scammers have duped unsuspecting homeowners into sending their mortgage payments to fake companies that don’t actually own their mortgages.

If you receive a letter notifying you that your mortgage has been sold, don’t automatically assume it’s a scam. But do contact your previous mortgage holder to verify that they have indeed sold your mortgage, and to double-check the name of the new mortgage servicer, just to make sure everything matches up.

Reverse Mortgages Can Be Tricky

Reverse mortgages are designed to let elderly homeowners borrow against their home equity in monthly installments. That way, they can supplement their retirement income and remain in their homes. There’s nothing inherently shady about reverse mortgages, but they are a favorite instrument of scammers.

Unscrupulous lenders may misrepresent the fees, risks, and conditions associated with their reverse mortgage products, or use high-pressure sales on financially vulnerable seniors. The bottom line: if you’re considering a reverse mortgage, then you’d be wise to get a second opinion from a trusted financial adviser.

Never Cosign for Cash

Some fraudsters have conned credulous victims into co-signing for mortgages in exchange for cash payments. Then, they vanish with the mortgage funds, leaving the cosigner on the hook for the remaining payments.

Don’t Become a Statistic With Your Mortgage

Every year, thousands of people fall victim to mortgage fraudsters. Don’t be one of them. We hope these tips contribute to your financial security and your peace of mind, and we wish you many happy years of homeownership!

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