Scams are prevalent in almost every industry and the mortgage market is no exception. And since it’s a high-stakes deal where people are naïve about their rights, it leaves ample room for fraudsters to play around with the system.
The last time you saw that ad on TV that promised you a mortgage loan for zero down payment or offered unrealistically low mortgage rates, you were right to be suspicious. It could very well be a scam.
What is a Mortgage Scam?
A mortgage scam is a fraudulent scheme to deprive homeowners of their property or equity, through false promises of lowering monthly payments, stopping foreclosures, or offering other relief with regard to their mortgage obligations.
Such scams also involve obtaining a loan by submitting false information on mortgage documents such as income and employment. Such loans are often granted at higher-than-market interest rates, which the borrowers have to pay off over time.
What are some of the most common mortgage scams?
To avoid falling prey to these scams, it is essential that you know what they are. Avoid making any hasty decisions when it comes to your mortgage and take the time to research any company or individual you plan on working with.
Here are some of the most common mortgage scams that you should be aware of:
- Loan Modification Scams
Loan modification scams prey on homeowners who are struggling to make their monthly mortgage payments. These scammers offer to help negotiate a better deal with the lender and save you from having to go into foreclosure.
Sadly, most of these loan modification schemes don’t work as they are nothing more than a way for the scammer to make some extra cash. For example, they may ask you to pay an upfront fee that seems to be quite reasonable, but it is actually much more than what is required. In many cases, the scammers will take your money and provide you with no help at all or they may say that they’re close to reaching an agreement when they have not even spoken to your lender.
- Foreclosure “Rescue” Scams
Foreclosure “rescue” scams are also known as equity theft schemes and they target homeowners who are behind on their mortgage payments and fear losing their homes. The scammers claim to provide services that can prevent a foreclosure or save your home, such as negotiating with the lender on your behalf. However, they usually end up charging exorbitant fees, especially if they ask you to transfer the title of your property to them.
Another way these scammers take advantage of homeowners is by offering a “short sale” where the seller accepts less than what is owed on the mortgage and allows them to move out without going into foreclosure. However, the scammer will pocket the difference and the homeowner will still be on the hook for any mortgage deficiency.
- Mortgage Refinance Scams
Mortgage refinance scams usually target homeowners who are struggling to make their monthly payments. The scammers claim that they can help you lower your interest rate or get a new loan with more favorable terms. However, what they don’t tell you is that you will have to pay exorbitant fees, which will actually end up making your situation worse.
- Mortgage Insurance Scams
Mortgage insurance scams usually target senior citizens or those who are not fluent in English. The scammers claim that the homeowners need to purchase mortgage insurance to protect themselves in case they default on their loans. However, this insurance is actually not necessary and it is nothing more than a way for the scammers to make some quick cash.
- Property Tax Scams
Property tax scams usually target senior citizens or those who have recently inherited a property. The scammers claim that the homeowners need to pay their property taxes in order to avoid penalties or interest charges. However, these taxes are actually not due and the scammers are just trying to get their hands on some easy money.
How to spot a mortgage scam?
If you’re in the market for a mortgage in Idaho or anywhere in the US, be on the lookout for scams. There are plenty of dishonest lenders out there who are more than happy to take advantage of unsuspecting borrowers.
Here’s what you need to know to spot a mortgage scam:
- Be wary of unsolicited offers. If you receive an unsolicited offer for a mortgage, be very careful. It’s likely that the person behind the offer is nothing more than a scam artist.
- Avoid any lender who asks for upfront fees. No legitimate lender should ever ask for any sort of upfront fee before providing you with a loan.
- Get everything in writing. Any time you’re dealing with a lender, make sure that you get everything in writing. This includes the loan terms, the interest rate, and anything else that’s important.
- Don’t sign anything that you don’t understand. If you don’t understand something in the loan documents, don’t sign it. Get clarification from the lender before putting your name on anything.
- Be careful of lenders who are too good to be true. If a lender seems like they’re too good to be true, they probably are. Be very careful of any lender who promises you an incredibly low interest rate or offers other terms that seem too good to be true.
If you spot any of these red flags, it’s a good idea to steer clear of the lender in question. There’s a good chance that they’re nothing more than a scam artist.