Top 3 mortgage scams and how to protect yourself

August 21, 2008

This article from MSN real estate is a good place to start finding out about the different mortgage scams going on. Here are some key points I took away from it:

The top 3 mortgage scams

1. Equity stripping/bailout– In this situation, the scammer buys someone’s house from them before it is foreclosed upon. They offer to rent the house to the person until they can afford to buy it back, which leads to the homeowner signing the deed over to the scammer, who has no intention of selling the house back–instead they make it impossible for the homeowner to keep up with rent, evict them, sell it off and pocket the profits.

What you can do:

 Be suspicious of anyone promising to “save your credit” or buy your home “as is”. If it sounds too good to be true, it likely is.

-Don’t modify or sign away the deed to your home without consulting a lawyer you trust.

-If selling your home, be sure that you are released from all liability for your mortgage. Know your rights specific to your state.

2. Phantom Help-A homeowner falls behind on their mortgage and is facing foreclosure. A person or company offers to help save the home, and the homeowner pays them up front for their “services”, which are little more than making phone calls and filling out forms the person really could have handled themselves. Homeowners pay a lot up front for “big results”, but before they know it (especially in Missouri), they’re out thousands of dollars and the home is lost.

What you can do:

-Call your lender immediately and discuss the situation with the loss mitigation department.

-Find a FREE housing counselor from one of the many resources listed on KETC’s site. You should NEVER pay someone for foreclosure help.

-Be suspicious of door-to-door advertising, flyers and of terms like “foreclosure service” or “mortgage consultant”. These services usually come with a price tag and a big loss.

3. Bait and switch-In this type of scam, the homeowner is tricked into signing over the deed to their house without even realizing it. Scammers pretend to be housing counselors or real estate brokers. They act the part and have very official looking documents for the homeowner to sign and initial to save their home. However, those official documents, written in a language that might confuse even the savviest homeowner, actually turn the house over to a 3rd party. Even if a person doesn’t sign the document giving the home away, scammers are known to successfully forge the person’s signature.

What you can do:

-Read everything carefully with a trusted lawyer present.

-Don’t sign anything with blank spaces. The scammer could add information in later.

-Get everything in writing. Don’t make verbal agreements.

-Do not get pressured into signing anything.

-Again, if it seems too good to be true, it likely is.

An important thing to remember is that anyone can be victimized. We’ve all been scammed at some point in our lives and it’s embarrassing because, in hindsight, you should have known better. For me, it was the time I gave $40 to a stranger because he had me convinced he lived across the street from me and needed money for a locksmith. He even knew which apartment I lived in (scary) and said he’d slip the money back through my mail slot. Of course you know how that story ends. Am I that stupid? No. Am I that trusting? When someone is that convincing (down to knowing the names of my neighbors), yes. 

These mortgage scam victims aren’t getting into trouble because they don’t know any better. Con-artists make a living by getting people to trust them, and in a desparate situation it’s easy to trust someone who looks like they have a clue.

Whatever the circumstances, if you’ve been scammed it’s important that you talk to someone about it. Call your bank, your lender, or a HUD-certified housing counselor. Not only could you help your own situation, you could educate someone else before it’s too late for them.

You can find even more information on this page of tips to avoid becoming a victim of mortgage fraud, recently published by the FBI.

Watch KETC’s videos about mortgage scams:

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