Mortgage Fraud: How to Protect Yourself!

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Don’t become the victim of mortgage fraud. Learn about common mortgage scams and steps you can take to protect yourself.

Mortgage fraud is on the rise. In 2009, the FBI investigated 67,190 mortgage fraud cases, and in just the first two months of 2010 had 29,780 cases on the books. Estimated annual losses attributed to mortgage fraud range from $4 to $6 billion. Mortgage fraud not only affects financial institutions—it can affect home owners, buyers, and sellers as well as entire neighborhoods. But there are ways to protect yourself.

Common mortgage scams

First, you need to know what to watch for. Here are some of the more common mortgage scams, as well as a few that are on the rise:

  • Equity skimming: An investor obtains a mortgage by falsifying income documents and credit reports of a straw buyer (someone who falsely represents themselves). After closing, the straw buyer signs the property over to the investor in a quit claim deed. The investor does not make any mortgage payments and rents the property until foreclosure takes place.
  • Property flipping: Property flipping in itself is legal. Where the mortgage fraud comes into play is through falsely appraising the property for a high value and then quickly selling it, often multiple times. This scheme usually involves fraudulent appraisals, doctored loan documentation, and kickbacks to buyers or others involved.
  • Predatory lending: This typically affects senior citizens, lower-income individuals, and credit-challenged borrowers. Predatory lenders charge borrowers exorbitant fees or higher interest rates, which often result in the borrower defaulting on the mortgage payment and ending up in foreclosure.
  • Foreclosure rescue: Criminals target homeowners who are facing or are already in foreclosure and then offer “foreclosure prevention services.” In these mortgage scams, perpetrators promise to prevent foreclosure in exchange for up-front fees or a transfer of the property’s deed, usually in the form of a quit-claim deed. Then, they either take no action at all or use manipulated or forged deeds to either sell the home or secure a second loan on the home without the homeowner’s knowledge.
  • House stealing: A criminal assumes your identity through fake identification, purchases forms from an office supply store that transfer property, forge your signature to these forms and then files them with the proper authorities. They then sell your house without your knowledge.

Protect yourself from mortgage fraud scams

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There are ways to protect yourself from mortgage fraud. In general, always be vigilant, check your credit and mortgage reports often, be wary of any unsolicited contacts, and realize that anything that sounds too good to be true likely is. In addition:

  • Get referrals for real estate and mortgage professionals and check their licenses
  • Review information of recent comparable home sales in your area by researching your county’s assessor’s office or real estate websites such as Zillow
  • Review tax assessments to verify the value of the property
  • Never sign any blank forms
  • Make sure the name on your application matches the name on your identification
  • Review the title history of the home you are looking to purchase to determine if the property has been sold multiple times in a short period. (It could mean that this property has been flipped and the value falsely inflated.)
  • Avoid advertisements that promise the elimination of mortgage loans and other debts in exchange for up-front fees
  • Avoid offers that promise to “save” homeowners who are at risk of defaulting on loans. These often result in the homeowner losing their home as well as any paid fees
  • Shop for lenders and compare costs
  • Do not let anyone persuade you into making a false statement
  • Read and carefully review all loan documents for accuracy, completeness and omissions
  • Do not sign anything you do not understand; seek a qualified credit counselor or attorney to assist you
  • Be aware of costs or loan terms at closing that are not what you agreed to

Related Articles:

Source: FBI.com, Realtor.com, FreddieMac.com
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