Greater Home Loans relays that the statistics are in and mortgage fraud is on the rise again in the United States. In fact, Californians find themselves more vulnerable than others. A report conducted by LexisNexis found that in 2013, California was ranked 10th in the nation for loans investigated for fraud. Not only that, but San Diego specifically was rated 23rd on CoreLogic’s list of top 25 metropolitan areas with the highest fraud risk. With these concerning statistics it is important that San Diegans inform themselves on the dangers and signs of mortgage scams.
Where should I look out for scammers? Unfortunately, mortgage scammers can be found nearly everywhere. You might see them online, hear them on the radio, receive an email from them, or see them on your doorstep. Because scammers can be found almost anywhere it is important to know and look out for the signs that they are trying to swindle you. While it may be easy to classify the scammer as the shifty yet charismatic guy who tries to sell you a refinance scheme on your doorstep, we live in a world where scammers sit behind the desks of major companies. Just two years ago the CFPB ordered the corporation Amerisave to pay $19.3 million for their bait-and-switch mortgage scheme and in 2010, the company Taylor, Bean & Whitaker Mortgage Corp. was charged by the SEC for $1.5 billion securities fraud and a related TARP Scheme.
It’s important that you, as a borrower, know what to look out for so you don’t get scammed as well.
5 common types of mortgage scams:
- Foreclosure Rescue Scheme
This scammer will target individuals who have fallen behind on their mortgage payments and are facing foreclosure. Once a borrower falls behind on payments, the lender will file a notice of default, which then becomes public record. Scammers can then access this record and use it against you. They will tell the homeowner they can pay off their delinquent mortgage payments so that they can stay in the home. The scammer might even ask you to sign over the title of your home as “collateral”. After signing over the title they might tell you that you can be a renter. They can then jack up the price of rent which will force you to move out and they can then re-sell the property to someone else.
How to avoid this scam:
- Never sign over the title of your home to someone else.
- Never listen to someone who tells you that they can make your foreclosure go away (no matter your financial situation).
- Illegal Property Flipping
A property is “flipped” when an investor purchases a property and then resells it at a higher price in a short period of time. For example, an investors can look for properties that are in foreclosure, purchase it, and then do some repairs to the house and sell it for a much higher price. Property flipping in itself is not illegal. It becomes illegal when the property’s value is misrepresented. The scamming investor might buy a “fixer-upper” at a big discount and then work with a real estate appraiser to artificially inflate the value of the property.
How to avoid this scam:
- Hire an independent appraiser to give you value the home.
- Step away if the seller won’t put the repairs they are supposed to make in writing.
- Check out the values of the properties within the neighbors, if the property you are looking at is considerably higher than the property values in the neighborhood, do someone reconsidering.
- The Upfront Fee Scheme:
These scammers will target people who are having difficulty making their mortgage payments. They may promise you that, for an upfront fee, they can “renegotiate” your mortgage rate with your lender. In actuality, they will just take your money and flee. Don’t fall for this trick, according to the FTC’s Mortgage Assistance Relief Services (MARS) Rule, it is illegal for companies to collect any fees until a homeowner has actually received an offer or relief from his or her lender and accepted it.
How to avoid this scam:
- An outside party won’t be able to come in and just make your loan disappear, don’t listen to someone who tells you that they can.
- Don’t listen to a third party that tells you that they can work with your mortgage lender and there is no need for you to talk to them.
- Don’t work with someone that tries to convince you not to communicate with your lender.
- Don’t pay upfront fees.
- Bait-and-Switch Scheme:
These scammers will act as lenders and try to draw you in with an unbelievable deal. They will get you to sign papers and then the terms of the loan will change. They might try to change the promised loan terms at the last minute. Sometimes borrowers are too invested in the deal and just sign it anyways, which costs them big bucks. Scammers also might pretend to give you mortgage relief and then sneak in hidden documents to surrender your home’s title.
How to avoid this scam:
- Read all documents that you are signing and ask questions if you do not understand something.
- The Fake Transfer of Residential Mortgage
It’s not unusual, or illegal, for a mortgage company to sell your mortgage to another company. They don’t even need to ask for your consent. Here is where the mortgage scammer will come in. Scammers will pose as a fake company and send you a later stating that your mortgage has been sold to their company. They’ll then ask you to start sending your payments to this new (and fake) company, all the meanwhile you default on your actual mortgage payments. This leaves the scammer is in free and clear (and off with your cash) and you’re potentially stuck in foreclosure. There are ways to determine whether your mortgage transfer is real and legal. Brian Sullivan, a U.S. Department of Housing and Urban Development spokesman, stated that, “Under federal rules, whenever the servicer on a loan changes, the borrower should be notified with a ‘Goodbye’ letter from the current servicer and a ‘Hello’ letter from the new servicer.” The new owner of your loan is required to inform you within 30 days of the effective date of transfer.
How to avoid this scam:
- Before you send any new payments to the “new” owner of your loan, double check with your previous company that your loan was indeed sold. Do not rely on the contact information provided on the letter of the “new company”. This might just lead you right back to the scammer.
- Don’t listen to companies that encourage you not to talk to your lender, lawyer, or credit counselor.
Here are some red flags to look out for; re-evaluate your deal if they….
- charge upfront fees (as stated above, it is illegal).
- push you to use their attorney.
- don’t offer you points. Mortgage points give different options to change your mortgage rate for different benefits.
- try to convince you to stop paying your mortgage payments and start paying someone else
- charge you exorbitant closing costs. Closing costs should typically cost you anywhere between 2-5% of the sale price of your home. If your closing closing costs are far beyond 5% then ask why.
- tell you not to contact your lender, lawyer, or credit counselor.
- tell you that despite your financial circumstances, no matter how grave, you can stop the foreclosure process.
- accept payment only by cashier’s check or wire transfer.
- tell you to transfer your deed or title to them.
- tell you to make mortgage payments to them, rather than you lender.
- ignore your credit score. If a lender either does not check your credit score before offering you a loan or they tell you that your low credit doesn’t matter. While there are programs that allow you to purchase a mortgage with a subprime mortgage rate, it will be at a higher rate than if you had a prime mortgage. If a lender offers you an extremely slow rate, despite your terrible credit, this is a bad sign.
- aren’t concerned about your ability to pay back a really large loan. Your mortgage payment should be no more than 28% of your gross monthly income. If they are too cavalier about your ability to pay back the loan that should set off an alarm. Remember, they make money when you repay their loan so if they aren’t questioning your ability to pay back a large loan than something fishy is happening.
- don’t provide you with a Good Faith Estimate (GFE). Lenders must provide you with a GFE (within 3 business days of receiving a mortgage application). While there are some charges that can change during settlement, others cannot. It is important that you know which is which.
- tell you that they will negotiate the deal with your lender to reduce your mortgage payments or avoid foreclosure and tell you that there is no need to contact them yourself.
It helps to be knowledgeable of your rights:
- They must notify you that if they tell you to stop paying your mortgage they must also tell you the consequences (you might lose your home or damage your credit)
- Lenders must tell you that they’re not associate with the government, and their services have not been approved by the government or your lender
Where you can report fraud and resources:
If you believe that you have been a target of a mortgage scam you can contact the Federal Trade Commission (here is their website in Spanish), the state Attorney General’s office, or the Better Business Bureau. For those of you living in San Diego, you can contact the San Diego County District Attorney’s Office. Their website provides useful links as well as important contact information.
The Better Business Bureau has developed a scam tracker which allows you to report a scam as well as view other scams in your area. You can narrow your search by typing in the caller, phone number, website or keywords to see if there are others who have been scammed.
Ultimately, you’ll just need to just trust your gut. Double check something that doesn’t make sense and do your homework. Read the documents you are signing and if you do not understand something then ask questions. Always remember: if it sounds too good to be true, it just might be