Common Mortgage Scams and How to Avoid Them

During the recent housing crisis, scams became quite common. Here are some typical hoaxes, and advice on how to avoid being duped. 

1. The Savior Scam
If you’ve ever been on the brink of foreclosure, you’re already well aware of the flood of letters, emails and phone calls you’ll receive offering to help save you from your situation. When homeowners fall behind on mortgage payments, the lender files a Notice of Default, making the mortgage troubles (and property address) public record. This makes the homeowner easy prey for con artists, who typically set up fake companies offering to help pay the mortgage and get the homeowner out of foreclosure. They can’t help, and will likely try and get the owner to sign the house over to them so they can sell it and reap the profits, or ask for upfront fees before they help. 

2. The Renter Rip-off
In this type of scheme, a fraudulent investor, who is not making mortgage payments, rents out a home on the brink of foreclosure and pockets the money until the lender forecloses. 

3. The Ghost Buyer
In this fraudulent scenario, the true identity of the borrower is concealed through the use of a nominee, who allows the buyer to use his or her identity and credit history in order to secure a loan.

4. The Fake Appraisal
This type of scam typically involves several parties, such as a mortgage broker, investor, and title company. All are paid off to help inflate the value of an appraisal on a house. The home might really be worth $450,000, but the house is sold for $500,000 to an unsuspecting buyer. 

5. The Bait and Switch
There are many variations on this age-old scam, but the mortgage version typically goes something like this: a potential buyer is baited with an enticing loan offer. After putting considerable time and effort into preparing for financing, the buyer is presented with a loan of much less favorable terms, particularly a high interest rate. Often, the buyer accepts these new terms since so much has gone into the loan process, and the lender reaps a profit without doing anything outright illegal. 

6. The Lease Back Scheme
This type of scam also starts with promise of rescue. The owner can no longer afford the mortgage payments and a fake company offers to take over the mortgage. Facing foreclosure, the homeowner agrees to sign the deed over in exchange for the ability to continue living in the home as a renter, while the new homeowner is supposedly paying off the delinquent mortgage. The rent payments are promised to go toward buying the property back, with interest.

However, the scammer who took over the home typically pockets the rent, then disappears when the owner is evicted. In other instances, the scammer simply remortgages the home, cashes out the equity and skips town while it goes into foreclosure anyway.

Tips for Avoiding Mortgage Scams: 

1. Beware of anyone who asks you to pay a fee in exchange for counseling or help with a loan modification.

2. Do not sign over the deed to your property to anyone or any company unless you are working with your mortgage company directly to forgive your debt.

3. Never make a mortgage payment to anyone other than your mortgage company without their approval.

4. Never sign a document that you don’t understand.

5. Never leave any part of your application blank.

6. Never give out personal information over the phone when someone first contacts you.

7. If something sounds too good to be true, it probably IS too good to be true.

What should you do if you are the victim of a Scam?
File a complaint with the Federal Trade Commission (FTC). Visit the FTC’s online Complaint Assistant at ftc.gov/complaint, or call 1-877-FTC-HELP for assistance.

Advantages of Pre-approval

The housing market is warming up in many areas, with multiple offers becoming more commonplace. Buyers who want an advantage in the bidding process will need more than a mortgage prequalification – they will need a pre approval.

Making sense of the story

• The differences between mortgage prequalification and preapproval are significant. Prequalifying for a mortgage is based solely on what a borrower discloses to the loan officer or broker about his/her earnings, credit score, and total assets, including what is available for a down payment. By contrast, a preapproval requires a borrower to provide documentation of his/her income and assets.

• The lender typically pulls the borrower’s credit report and score, while the borrower gathers together almost everything else needed for the actual mortgage underwriting: W-2 wage statements; 1099s; recent pay stubs; bank statements; and statements from Individual Retirement Accounts and 401(k)s; and other assets that could show the borrower has the resources to buy and maintain a home.

• At one of the country’s largest mortgage lenders, Wells Fargo, the first quick review provided by an underwriter constitutes an agreement to lend.  Other lenders may treat preapprovals as more of an opinion on the person’s ability to borrow, not a guarantee to lend.

• With so many homes receiving multiple offers, a preapproval is more important in today’s marketplace. 

• The preapproval letter should include the amount a borrower is qualified to borrow, as well as the loan officer’s contact information.  Some letters may have an estimated monthly payment, but details about the loan time and interest rate are not included.

• Timing also is important.  Buyers should aim for obtaining a preapproval letter from a lender within 30 to 60 days of the expected purchase date.  That is because some letters expire in 90 days.

taken from an article in the New York Times June 2012

Comet Realty works closely with several top lenders in our area. If you don't have a favorite yet, let us help you choose an excellent one. Give us a call at 805-546-9925, or email INFO@CometRealty.com.

Getting Ready to Buy a Home? Lender Do's & Don'ts

There are 4 things you should avoid doing prior to submitting a loan application, or during the loan process, according to Kevin Hauber of iMortgage. Any one of these things can greatly impact your ability to qualify for a mortgage loan, so it is critical to avoid doing any of these until AFTER your loan has closed escrow.

DO NOT PAY OFF BILLS
Your loan officer will advise you if it is necessary to pay off bills to help you qualify for a loan. They will also show you the best way to pay off bills to make sure we have the evidence we need to prove that the bills have been paid.

DO NOT CHANGE JOBS
Changing jobs before or during the loan process can create a real problem in qualifying you for a loan, particularly if the job is in a different line of work or at a lower rate of pay. During the loan process, it can also create time delays as the new job will need to be verified.

DO NOT MOVE YOUR MONEY
It is best to leave your money right where it is until your loan is closed. Moving your money toa new bank or even into a new account can wreak havoc with the verification process.

DO NOT MAKE MAJOR PURCHASES
Many borrowers make the mistake of buying a new car, some furniture, or making another major purchase without realizing the impact it can have on their ability to buy a home. A large monthly payment can affect the amount of home you qualify for and, during the loan process itself, actually make it extremely difficult to get your loan approved.

If you must do any of the things listed above (even if you've just been pre-qualified for a loan), contact your loan officer. They can help you by re-qualifying you if necessary and advise you of your options. By avoiding these four things, you can look forward to a successful loan closing.

For excellent service, contact:

Kevin Hauber
iMortgage
Direct Line 805-597-8844
Mobile 805-459-8844
Email Kevin.Hauber@imortgage.com