How to Avoid Mortgage Scams

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Financial crimes targeting unscrupulous consumers are a common problem, especially those involving fraud and identity theft. One example of this is mortgage fraud. According to real estate data CoreLogic, higher risks were recorded in the second quarter of 2022, especially for certain types of fraudulent mortgages, such as fraudulent income and property values.

In order to avoid falling victim to such fraud, it is important to understand what mortgage fraud is as well as some common practices to look out for.

What is Mortgage Fraud?

The FBI defines mortgage fraud as schemes carried out by “individuals working alone or in association with borrowers, lenders or real estate professionals.” Programs often include false or missing key information on your screen mortgage application-for example, exaggerating your income to secure a higher interest rate, or lying about property value qualify for a larger loan under better terms.

The housing crisis of 2008—in addition to exposing the failings of banks—also revealed an increase in mortgage fraud. The FBI noted that the number of mortgage fraud investigations rose from 881 in 2006 to more than 2,000 in 2009.

Why mortgage fraud?

Lenders commit mortgage fraud on borrowers and secure loans they otherwise wouldn’t have—and potentially cash in on the sale of the property.

Lenders can also commit fraud when fraudulent companies misrepresent customers or employees who conspire with third parties to cheat their boss.

The FBI divides mortgage fraud into two categories: mortgage fraud and for-profit fraud.

Fraud for Homes

The FBI defines housing fraud as any illegal activity by a borrower to obtain and maintain ownership of a property under false pretenses.

This type of fraud often involves the help of a mortgage broker or loan officer to provide exaggerated or false information to the borrower. For example, a borrower can adjust their income, assets or work history to qualify for a mortgage.

Fraud for Money

Those involved in fraud for profit, on the other hand, love money. These types of scammers use techniques to increase the value of a property and get cash or equity from lenders or homeowners.

They can also help a borrower with financial problems—for example, someone who is looking to refinance their mortgage because they are having trouble making their monthly payments—get a mortgage and hopefully profit from them.

The FBI has noted that many frauds for profit depend on employees of banks or mortgage companies helping to avoid the control of the creditor. This can be appraisers, attorneys, brokers, mortgage underwriters and processors, loan originators and other mortgage professionals.

Common Fraud Schemes and Mortgage Fraud

There are many mortgage frauds, committed by mortgage professionals or borrowers, that you should be aware of.

Credit Modification or Damage Savings

This is when homeowners facing default or foreclosure are misled into thinking they can renegotiate the terms. loan to get mortgage relief or save the home in exchange for down payments.

The system often deceives the victims by pretending that they support or represent the government, using deceptive language and mail with government logos and capital letters.

Multi-Property Planning

In this type of mortgage fraud, the borrower and the lender collude because the evaluation-which lenders use to determine the size of the loan- is increased automatically. In this way, it seems that the house is worth more than it really is and the borrower can get more money from the bank.

Identity Theft

Fraudsters can steal a person’s identity and use their personal information, such as their Social Security number, date of birth or credit history, to apply for a loan.

Payable Assets

Foreclosure is when people borrow assets or money from others (before applying for a mortgage) in order to meet loan requirements and qualifications. for a home loan. In such cases, the assets are returned or the money is repaid after the mortgage is over.

Equity Skimming

Equity skimming involves a fake buyer or investor—hiding behind shell companies or stealing business information—offering to help a homeowner who is struggling to get out of financial trouble and avoid foreclosure by using mortgage payments.

However, in exchange, the homeowner must agree to sign over the title to the realtor and move out of the home or rent and pay the rent.

While this scammer is making money off the rent payment, they are not making the monthly payment to the lender. As a result, the lender forecloses on the home, causing the homeowner to lose the home in addition to all the fraudulent payments made to the fraudster. of the.

Another type of similar example involves the scammer home refinancing and take care of anything similar that is built for themselves.

Property Testing

Listing a home for more than what you paid for it, usually after doing major renovations, is a common real estate practice, but there are some legal issues.

Here is one common example: A realtor (the buyer) contacts a broker (the buyer) to apply for a mortgage on a home. owns the conman. They then pay an appraiser to provide an increased appraisal report to the creditor. The bank then makes the loan to the fake customer. After the fraudster pays the fake customer and the researcher, he keeps the rest of the money.

Notice of occupancy

Misrepresentation is when a borrower misrepresents the purpose of the property they are planning to mortgage. For example, the borrower can tell their mortgage that they intend to use the home as a second vacation home, if they actually plan to do so. used as an investment property.

Grain merchant

A bogus seller is someone who misrepresents themselves as a buyer in a real estate transaction, when they are representing someone else. The real buyer may have bad credit, be unemployed or be subject to government penalties which often disqualifies them from getting a mortgage. After the transaction, the hay seller will transfer the title of the land to the real buyer.

How to Avoid Mortgage Fraud

Homeowners who are struggling to keep their mortgages should be on the lookout for scammers who try to make their situation worse by promising to save their home and reduce their mortgage debt in exchange for a cash advance. .

Here are some helpful tips to avoid loan modification scams:

  • Only your mortgage servicer can provide a loan modification, not another party.
  • Prepaying fees for a mortgage modification is illegal in most cases.
  • Paying a third party to help with your loan application does not improve your chances of success.
  • If a person or company claims to be affiliated with a government agency, you should call and independently verify the information.
  • Do not trust individuals or companies that offer money back guarantees.
  • It’s a red flag when someone or a company advises you to stop paying your mortgage or not contact your mortgage servicer.

Additional Steps to Avoid Mortgage Fraud

Here are some of the best practices to use whenever you plan to buy a property.

  • Talk to friends and family you trust for real estate and mortgage referrals.
  • Do your own due diligence—like looking at the property tax assessment—to be sure. how much the property is worthespecially compared to other houses in the area.
  • Don’t sign documents you don’t like. If there is anything you do not understand, be sure to contact a real estate attorney.
  • Review all loan forms to make sure the information—including your name—is correct, and there are no blanks that can be filled in falsely later.
  • Check the history to see how often the property has been sold and resold. This may be a sign that the property’s value has been inflated and that it is illegal to foreclose.
  • Don’t be forced to borrow more than you can afford to pay back. The rule of thumb is that the mortgage payment should not exceed 28% of the monthly income.

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