Top 5 Mortgage Scams to Watch Out For This Year

Mortgage scams have become a large source of income for certain individuals over time. Especially during and after times of economic recession, home owners face a significant risk of being scammed by unscrupulous individuals who would go to great lengths to scam honest people out of their hard earned money. During times of economic recovery, many home owners also find themselves facing foreclosure, which makes them an even more vulnerable target for mortgage scams.

The housing market is continuing its slow recovery this year as well, so you should keep your eyes peeled for any offers that seem too good to be true, or sketchy people who are willing to give you a hand with your mortgage or a home improvement project for cheaper than usual. Mortgage scams are not only common in times of economic recession, though. They have been around for quite a while, but scammers are evolving, coming up with new ways of trying to get their hands on your money or homes.

How to Recognize a Scam and Avoid It

Many people make the mistake of thinking it could never happen to them, either because they think they know how to spot a scam or because they believe that mortgage scams are very uncommon. The truth is that scams often happen to people who least expect it and under the eyes of the law.

Having a “too good to be true” mentality can save you a bunch of trouble when it comes to mortgages, but great and legitimate deals can be found, even in this economic climate. The only thing you can do to avoid mortgage scams is to take all the necessary precautions. Only do business with companies and organizations that have the proper accreditations, come highly recommended by people that you trust, or have been in business for a long time and have good customer feedback. Checking with your local Better Business Bureau is a good way of finding out more about a company, even though this is not the only thing that you should do when checking out a company.

So, in order to avoid mortgage scams, you should use a combination of research and common sense. Avoid doing business with companies that have complaints and negative feedback from previous customers, don’t sign any documents and contracts that you don’t fully understand, only accept recommendations from close friends and family, never sign the deed to your home to someone who says he or she can save your home from foreclosure, and never make mortgage payments to someone other than your lender.

The Top 5 Mortgage Scams

As we’ve discussed before, mortgage scams tend to evolve once people start wising up, but they are usually just improved versions of scams that have been around for years. Knowing which scams are current will help you avoid them, and save you from losing quite a lot of money, or even your home. Here are the top 5 mortgage scams that you should watch out for this year.

#1 – Bait and Switch Scam

The bait and switch scam has been around for ages and is not only used in the real estate industry. The way it works is a lender baits the home buyer or the home owner who wishes to refinance with low interest rates and great terms on a mortgage loan. Once the customer has taken the bait, the lender informs him or her that the interest rate and terms are no longer available, but they can offer the next best thing. This is called the switch. Unfortunately, lenders have ways of protecting themselves from customers who threaten to sue. Often times, the low interest rates and attractive terms come with some strict conditions or a time frame, which are only disclosed in the fine print. The fine print is easily readable in a magazine or flyer, but easy to miss in a commercial on TV. Alternatively, the lender can just say that the commercials or advertisements are old and show deals that are not available anymore.

#2 – Foreclosure Scam

People who face foreclosure and eviction are targeted often by scammers who take advantage of their delicate situation and fragile state of mind. Homeowners who face foreclosure are approached by the scammer, who offers them the chance to take out a new loan that will cover their mortgage expenses and consolidate their loans. In order to qualify for the new loan, the owner who is in financial difficulty has to transfer ownership of the home to the scammer and pay a few costly fees. The scammer usually disappears with the money, leaving the home owner to continue making mortgage payments on a home that he or she doesn’t own anymore. Read more about current foreclosure scams here.

#3 – Rental Scam

The scammers take out a classified ad in a newspaper or online, with pictures of properties that they have no connection with. When a person who is looking for a place to rent calls them, the scammer will impersonate a landlord and give them an excuse as to why he or she cannot show the property. Then the scammer asks the person who is looking to rent to meet him in order to sign the contract, pay the deposit and receive the keys to the rental. If the scammers receive the payment, they simply disappear, while the renters only find out they have been scammed once they show up at the property and find out that the person who took their money is not a landlord.

#4 – Reverse Mortgage Scam

Because many aren’t capable to protect themselves as well as younger people, seniors have always been considered easy targets by scammers. Scammers also go after seniors because most of them have larger savings than say, a young home buyer. Because reverse mortgages allow seniors over the age of 62 to borrow against the equity in their home, it is easy for scammers to defraud them, leaving them without their hard earned savings, or even their homes.

#5 – Title Fraud

Not as common as other scams, but one of the most damaging types of mortgage scams, because the person who is being scammed loses much more than just some money. The worst kind of title fraud begins with the scammer stealing a home owner’s identity, then transferring the property to his or her name, and eventually taking out a new mortgage and disappearing. The owner is left with a large debt, no home, and possibly a ruined credit score. In order to recover some of the losses, the owner will have to spend a lot of time battling lenders in court.

Knowing what to watch out for makes a huge difference when trying to avoid being scammed. Mortgage scams can be devastating to someone’s financial situation, and recovering can be very difficult. Researching the company that you consider doing business with and being patient is very important, especially in this economic climate. If you still have suspicions and want more peace of mind, hiring a real estate attorney can give you even more protection against mortgage scams. Avoiding mortgage scams is much more important than risking everything in order to get a good deal.

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