Mortgage fraud is becoming more common. To protect your home and your home equity it is important to understand and recognize the signs of mortgage fraud. It's also important to know how to report fraud to state and federal authorities so they can stop scam artists from preying on innocent borrowers.
Scam artists will often target homeowners already struggling to meet their mortgage commitments or anxious to sell their homes. There is help available when facing financial problems or foreclosure, but make sure you are dealing with a reputable organization before getting involved. Fraud schemes may sound good, but ultimately the goal is to take your home – not help you keep it.
Here are several common frauds being reported today:
Foreclosure Rescue Scheme
If you have fallen behind on your mortgage payments, this may seem like an attractive solution – but beware. A foreclosure rescue scheme often begins with a scam artist offering a promise to pay off your delinquent mortgage, allowing you to stay in the home as a renter with the option to purchase the home back when your financial situation improves.
But what really happens is a series of steps designed to cash out the equity in the home and disappear:
- As part of the "rescue," the homeowner will be required to deed the property to a new borrower who is often "investing" in a rental property, but who is really part of the scam.
- The proceeds of the sale pay off the delinquent loan and the new borrower removes all the equity in the house, never to be seen again.
- The distressed homeowner is now merely a renter in a home they no longer own, unaware that the new borrower is not making payments.
- When the new borrower defaults on the loan, the homeowner is evicted from the home – they have lost the house and all the equity in it.
Scam artists are very crafty and will often vary the scheme depending on the homeowner they are talking to, so be cautious. Some warning signs that a scam artist may be trying to set you up as a victim of a foreclosure rescue scheme include:
- Being approached by a stranger with an unsolicited "rescue" offer.
- Receiving an unsolicited call, mail or flyer about "foreclosure rescue" or saving your home.
- Participating in a complicated deal that you don't fully understand.
- Signing documents that have blanks or false statements. Regardless of what you are told, this is never okay.
The best solution when you face financial difficulties that may endanger your home is always to talk to your lender or a reputable counselor.
Flipping is a legitimate practice where an investor purchases a property in need of repairs or upgrades, makes the necessary changes to the property in a very short amount of time and sells the home for a profit.
We've all seen the TV shows about flipping and they're fun to watch. But there are scam artists who use flipping to make money illegally.
Often times, the scam artist will offer much more than the asking price of a home with a stipulation that the "surplus" amount over the asking price is given back to the borrower at closing.
At closing, the inflated value of the home will be attributed to home improvements that were never made. The scam artist will pocket that surplus money and default on the loan.
As a homeowner, especially one whose house has been on the market a long time, this may seem like an attractive deal but remember – falsifying documents is fraud.
Reporting Mortgage Fraud
If you suspect that you have been a victim of mortgage fraud or are aware of a possible scam, you can report it by calling the Mortgage Fraud Hotline 1-800-4FRAUD8 (1-800-437-2838). You can also contact your state's attorney general office. Locate your state's attorney general through the Consumer Fraud Reporting website.
A note about mortgage documents:
Some scams involve falsified documents. You may be told a blank space will be filled in later – or that "stretching" the truth is okay and "done all the time."
It's not true – it's fraud and it's illegal.
Not only could you put yourself in a bad position by committing fraud, but if your documents falsified your income, you could be risking your home if you've purchased more than you can really afford.
Some hints to make sure your documents are all in order include:
- The appointment to sign loan or closing documents should be made when there is ample time to review each document, and not be rushed.
- Never lie on the documents.
- If you are encouraged to falsify any documents by your lender, find a new lender.
- Look at all the spaces in the documents to make sure all information is accurate.
- Pay special attention to your income, assets, and declared debt as shown on your loan application. Stop the closing if the information presented is incorrect.
- Never sign anything with blanks.
- If you have questions, don't sign until your questions have been fully answered.
- Have a trusted friend or family member review the documents with you.
- If you are concerned, talk to a mortgage/housing counselor.