During this time of financial crisis, an epidemic of mortgage rescue schemes is sweeping the country. They prey upon families who are facing foreclosure in exploding numbers. Fraudulent mortgage rescue scams raise false hopes and cruelly exploit people who can ill afford it.
The FBI reports that the number of mortgage fraud reports last year increased more than 36 percent to 63,173. In five years, the Bureau's caseload of mortgage fraud cases has tripled. Though no records are kept of total losses, they are measured in billions of dollars. The FBI defines mortgage fraud as "any material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan."
Rescue scams and mortgage modification schemes are only the latest in a variety of swindles designed to defraud homeowners. These include misrepresenting the terms of loans, falsifying documents, paying fees up front for services that are unnecessary or never materialize, "builder-bailout" schemes where developers unload excess inventory through financial trickery, seller-assistance scams that use false appraisals to sell homes, and identity theft that leads to home equity credit lines being opened and drained.
Here are some other common examples of mortgage fraud from the National Consumers League.
• Upfront Fee Scam. A fraudster promises, for an upfront fee, to negotiate with homeowner's bank to pay down back-payments, but he ultimately takes the money and disappears.
• Lease-back or repurchase scams. Con artists promise to pay a mortgage and lease it back to their victims if the consumer signs over the deed. The scammer then raises the rent, sells the house, steals equity, or even evicts the tenant.
• Refinance fraud. Victim signs over ownership of the house, thinking that they are signing documents for a new loan at a lower payment level.
• Bankruptcy schemes. The scammer encourages the victim to stop paying their mortgage and offers to file bankruptcy for the consumer, for a fee.
• Appraisal fraud. An appraiser – in cahoots with a lender – overvalues the home, and then secures an unnecessarily large loan at high interest rates for the homebuyer. Another scenario is that the appraiser undervalues the home in order to justify a short sale and subsequent re-sale at market value for profit.
The FBI, the Treasury Department and state attorneys general across the nation are working together to crack down on mortgage fraud. New resources are paying off as indictments and convictions increase.
The best defense, however, is education. Here are some tips and advice from the FBI's Mortgage Fraud Website that will help you identify potentially fraudulent practices and avoid becoming a victim.
• Get referrals for real estate and mortgage professionals when you want to buy or sell a home. And once you do, check out their licenses with state, county, or city regulatory agencies. If they are a Realtor, check with your local board of Realtors. Most of these people are exceedingly honest and above-board—it's just a small percentage who has given the overall profession a black eye.
• Do your own research into what other homes in the neighborhood have sold for to get an idea of what your house is worth. Also, look into recent tax assessments of neighborhood homes. Don't let anyone talk you into selling your house for less than it is worth.
• Beware of "no money down" loans. These have been used to talk people to buy a home they really can't afford.
• Don't let anyone talk you into making a false statement on your loan application, like overstating your income or lying about where your down payment is coming from.
• Never sign a blank document or a document containing blank lines. You will be bound by whatever you sign. Don't let someone tell you, "We'll fill that in later." Be sure to read and review all loan documents signed at closing. If you don't understand, don't sign. Don't be afraid to ask questions or take the unsigned document to someone you trust to help you understand it better. If you don't understand what you're signing, get an attorney who can review the documents for you.
• Understand the costs of the loan and what is covered. Your loan can include the actual amount you're borrowing, Private Mortgage Insurance, and closing costs. Make sure your loan is not "packed" with premium credit insurance add-ons that you don't understand or want.
• Financial difficulties? If you're a homeowner who's having a tough time making your mortgage payments, be wary of e-mails, TV ads or web-based ads from companies who claim they can help you eliminate your mortgage debt while all you have to do is pay an up-front fee for them to do the paperwork—it's a scam. Never pay an up-front fee for a loan modification.
• If you've been told by your lender that you are facing foreclosure, don't fall for any of the fraud schemes out there, including the one where a perpetrator convinces a homeowner to sign over the house deed "temporarily"—for a fee, of course. The homeowner not only loses the up-front fees, but the perpetrator often turns around and sells the house out from under the owner.
• Contact your lender before your situation gets too bad. Most will work with you to help you keep your home.
• If you think you've been victimized, contact your local FBI field office.
From Real Estate Economy Watch