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3 Common Mortgage Scams (And How to Protect Yourself)

3 Common Mortgage Scams (And How to Protect Yourself)

The slow-moving economy and slowly recovering housing market have created the perfect environment for mortgage scams, with desperate homeowners as easy prey for scammers. These crooks say everything you want to hear. They make deals sound legit and attractive. You’re suspicious at first, but somewhere along the way, you sign documents you weren’t supposed to sign or give them more money than necessary. Soon, you realize you’ve been a victim of a mortgage scam.

Common Mortgage Scams To Watch Out For

To avoid falling prey to these unscrupulous crooks, it pays to be aware of the most common mortgage scams. That way, no one can profit off of your inexperience or trust.

Listed below are 3 common mortgage scams that you should watch out for.

1: Bait-and-Switch

There are many variations of the bait-and-switch scam, but here’s the gist: A potential borrower is baited with an attractive loan offer (i.e. low monthly payments). The borrower puts a serious amount of time and effort into preparing for financing; however, when the time comes to sign on the dotted line, the lender suddenly presents new and much less favorable home loan terms.

Victims of bait-and-switch mortgage scams often go through with the new terms because they feel like they’ve already invested too much time and effort into the loan to back out. Or, they’re often afraid that they won’t be able to find financing for their dream home somewhere else. Meanwhile, the lender earns a generous profit without doing anything outright illegal.

To avoid a bait-and-switch scam, be vigilant and check the reputation of the mortgage broker or lender you’re working with. Read online reviews, and ask for referrals for information on a mortgage professional before you being a loan application.

Fraudulent Modification

When you’re looking for a loan agreement modification, chances are your finances have been compromised, or you may even be facing foreclosure. Scammers take advantage of your situation and will make false promises to ‘guarantee loan modification’ or ‘stop foreclosure now’ before even assessing your financial situation. They may ask for your personal information upfront, ask for money while offering to broker a loan modification or pretend to represent reputable financial or government institutions.

To avoid a fraudulent modification scam, keep in mind that no financial or government institution will make guarantees upfront before looking at your finances. Also, be aware if they’re asking for your personal information or payment upfront. These scams are all too common, so be careful.

Leaseback Scheme

You can no longer afford to keep your house: It’s a devastating situation most homeowners would do just about anything to get out of. Sadly, scammers know this and use it to their advantage. Presenting themselves as ‘mortgage rescuers’, scammers promise to rescue a homeowner from their situation. Facing foreclosure, the homeowner agrees to sign the deed over to a ‘mortgage rescuer’ in exchange for the ability to continue living in the home as a renter – rent payments supposedly go toward buying the property back. Meanwhile, the new homeowner pays off the mortgage.

Sadly, the person you signed your home over to is just pocketing the rent. Once you can no longer pay, you’ll be evicted and the scammer will keep all the equity you’ve worked years to build up. In some cases, the scammer sill simply remortgages the home, cash out the equity, and skip town while your home goes into foreclosure anyway.

Proceed with care if a person or company: a) contacts you claiming to be a mortgage or foreclosure consultant – legit services don’t seek out homeowners; b) attempts to collect a fee before providing any services; c) encourages you to lease your home so you can buy it back over time; d) offers to buy your house; or e) pressures you to sign paperwork you don’t understand or haven’t read thoroughly.

The Bottom Line

If you feel that you’re a victim of a mortgage scam, contact your lender directly and find out what damage has already been done. Then, figure out your options with the lender. Outside of the mortgage, you may be able to sue the scammer for the property or money they’ve stolen.

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