Just like any other industry, the mortgage-lending field is not without its bad apples. As a borrower, you have to keep an eye out for mortgage scams that can hurt everything from your credit score to your personal finances to your home ownership. Our number one priority is to help you get a home loan that benefits you the most. We want to make sure you pass through the mortgage process armed with the knowledge to keep yourself protected against potential mortgage scams.   

What does a mortgage scam look like?

            According to the FBI’s “Financial Crimes Report to the Public” released last year, mortgage fraud scams “employ some type of material misstatement, misrepresentation, or omission relating to a real estate transaction which is relied on by one or more parties to the transaction.” The schemes usually include:

• Foreclosure Rescue Schemes. In this scam, the fraud perpetrator promises to pay off a delinquent mortgage if the family transfers the title of the home to him or her as collateral. During closing, the investor takes the equity and runs, leaving the borrower with a foreclosed house and no equity. This also known as equity stripping or equity skimming.
• Loan Modification Scams. Another type of scam that takes advantage of homeowners facing foreclosure, perpetrators promise to modify the loan at high fees to make payments more manageable, but they do little to no work, taking the money and not delivering.
• Illegal Property Flipping. Property flipping is illegal when a home is bought and sold at a higher price in a short amount of time at an artificially inflated value. This usually includes a fraudulent appraisal or the renovations do not match up with the inflated price.
• Builder bailout/condo conversion. Some home and condominium developers try to sell properties by promising buyers cash at closing, helping pay mortgage bills or giving other incentives. However, when it comes time to pay, the developers do not keep their promise and the homeowners are left with bigger payments than they are financially capable of managing.
• Straw Buyers. A straw buyer is used by a home buyer who cannot obtain a mortgage, so he or she finds someone who has a strong credit score and can be approved for a loan. Straw buyers go through the mortgage process with their financial information and then once they receive the mortgage, they hand it over to the real home buyers. However, the home buyers may take the money and leave, duping the straw buyer into paying the mortgage off or the straw buyer is a knowing part of the con and receives a cut of the money. Regardless, this set-up deceives the lender into giving a loan to high-risk borrower who could hurt the mortgage company.
• Appraisal Fraud. This occurs when the appraiser values a house for more than it is worth. The appraiser is usually paid off by the house’s seller and forces the buyers to spend more money than what is necessary for the house.

How to keep an eye out for fraud

            So how do you avoid becoming a victim of a mortgage scam? Just as with trying to apply for a home loan or figuring out if you are able to refinance, you need to do your research. Here are some tips offered by the FBI on how to do research and keep your finances safe.

• Get referrals for real estate and mortgage professionals when you want to buy or sell a house and check their licenses with state, county or city regulatory agencies.
• Research what other homes in your neighborhood, or the neighborhood you want to move into, have sold for and look into recent tax assessments of those homes.
• Beware of “no money down” loans. Unless you are getting a VA loan or getting a reduced down payment through an FHA loan, most “no money down” loans are gimmicks that leave you with a house you really can’t afford.
• Don’t let anyone talk you into making an untrue statement on your loan application, such as overstating your income or providing false financial information.
• Never sign a blank document. If you are uncertain about a document you are asked to sign, always ask an attorney to review it.

When it comes to avoiding scams, the two basic principles are to do your research and always be honest. If a deal sounds too good to be true, research it. Make sure the lender has the correct credentials and have an attorney review the documents. And never provide false information during the application process. It is illegal to give incorrect credit information purposefully on your mortgage application and can lead to a lawsuit.