Don't Get Caught in a Mortgage Scam
Buying a home is a long and complicated process, and scammers want to complicate things even more to capitalize on the confusion. Mortgage scams are growing increasingly prevalent and can be difficult to detect. Here’s what you need to know about these scams and how to prevent yourself from becoming a victim.
What’s a mortgage scam?
Mortgage scams are designed to deceive individuals who are involved in the mortgage process, including homebuyers, lenders and existing homeowners as they seek refinancing. These scams exploit the complexity of mortgage transactions, possible inexperience and the emotional investment people tend to have in their homes.
Types of mortgage scams and how they play out
There are several variations of mortgage scams:
- Foreclosure rescue scams. In this variation, scammers target homeowners who are facing foreclosure with the promise of saving their homes by offering assistance with mortgage payments. They may ask for upfront fees or to transfer the property title to their name, leaving the homeowner at risk of losing their home and any equity they may have.
- Loan modification scams. Here, fraudsters pose as mortgage modification experts to charge fees for services they never provide. They may promise to negotiate lower interest rates or better loan terms, exploiting homeowners’ desires to reduce their monthly mortgage payments.
- Bogus mortgage scams. In this scam, fraudsters target new homebuyers, posing as mortgage lenders and offering a loan at a favorable rate. If the target has already chosen a lender, they may spoof the authentic lender’s logo and phone number and collect the victim’s down payment along with other fees. Unfortunately, if the target makes these payments, they’ll be out the money they’ve saved up for the actual purchase of their new home.
- Equity stripping. In this scheme, scammers target homeowners with substantial home equity and encourage them to take out a high-interest loan against their property. Then, they disappear with the borrowed funds, leaving the homeowner burdened with additional debt and at risk of losing their home.
- Identity theft. In mortgage-related identity theft, scammers use phishing and other means to obtain personal and financial information from targets and use these to secure a mortgage in their name. This compromises the victim’s credit while putting them at risk of legal consequences due to the fraudulent activity.
Avoid mortgage scams
Follow these tips to avoid falling victim to a mortgage scam:
- Research lenders thoroughly. Never sign a contract with a mortgage lender, or related service provider, before you’ve researched carefully. Check their credentials, licenses and online reviews and ratings. You can also verify their legitimacy by contacting relevant authorities or industry associations.
- Be wary of upfront fees. Legitimate lenders typically do not ask for upfront fees before providing a service. Beware of anyone requesting payment before delivering the promised assistance.
- Read and understand all documents before signing. Carefully review all mortgage-related documents, contracts and disclosures. If anything is unclear, or seems suspicious, seek legal advice before proceeding.
- Be wary of unsolicited offers. When presented with unsolicited offers or aggressive sales tactics, proceed with caution. Legitimate lenders and professionals typically do not cold-call or pressure individuals into making hasty decisions.
- Never use unlicensed or unverified professionals in the mortgage process. Only work with licensed mortgage brokers, real estate agents and attorneys. Verify their credentials and check for any complaints or disciplinary actions against them.
- Never share your personal and financial information with an unverified contact. Be cautious about sharing sensitive details unless you trust the recipient and have verified their legitimacy.
- Seek independent advice. Consult with trusted professionals, such as real estate attorneys or financial advisors, who can provide you with objective guidance throughout the mortgage process. They can refer other professionals to you and help you identify potential scams.
- Stay informed. Keep yourself updated on the latest mortgage scams so you know how to recognize a potential risk.
Mortgage scams are a significant threat to those seeking to buy or refinance a home, or to lower their mortgage payments. Follow the tips outlined here to stay safe.