Spotting Mortgage Scams

by : Paula Cherrist

With the recent real estate market downturn and condo bust affecting most states across the U.S., more and more homeowners are turning to refinancing to save their homes. First time buyers who are also experiencing the so-called credit crunch are also broadening their search for loan and mortgage companies. This new group of sometimes inexperienced and desperate customers has given fraudulent mortgage companies and scam artists plenty of fresh targets and prompted even more creative ways for them to part you from your money instead of offering financial aid. But there are certain tell-tale signs that should put you on the alert for fraud and potentially save you and your home from foreclosure and bankruptcy.

According to the Financial Crimes Enforcement Network, reports and complaints of mortgage fraud have increased dramatically over the past two years. From the 15,000 they received in the first three months of 2008, they estimate they will have more than 60,000 before the year is over.

The most common scams for homeowners desperate to save their homes from foreclosure are variations on refinancing schemes. Say a homeowner has missed a payment on their original loan or is barely able to make the monthly payment anymore. Suddenly you are approached by someone claiming to be a representative of a loan company who is willing to refinance your home and reduce your monthly payments. This sounds like a complete blessing, but in fact it's a curse of sorts. The fine print on the contract confirms that your lower payments are only covering the interest and in a few months the balance will come due in a balloon payment that you cannot possibly afford. Once that happens, your home will be facing foreclosure immediately.

Another refinancing scam is where a lender comes along and offers to either personally guarantee a new loan or negotiate with your existing mortgage company for you. All you have to do it sign over your home temporarily to them and make payments directly to them. They will handle the rest for you. But what they are actually handling is your money and either not making payments for you or selling your home outright to another party. In both cases you will eventually discover that you no longer own your home, which shouldn't be surprising since you signed the title away, and receive an eviction notice by the new owner or a notice of foreclosure by your mortgage company because they haven't received your payments.

Reconveyance is when an individual or bogus company offers to purchase your home for you and allow you to make low monthly payments as a buy-back agreement. But by signing your home over, you once again leave yourself open to eviction and foreclosure as soon as you miss a payment.

Most pre-construction and new construction condos are initially marketed with lower prices or an incentive package. When you buy a unit from a reputable developer and do a little checking on previous projects they have completed, you can be reasonably certain it's a safe investment. Most high profile luxury condos in Chicago like the ones listed here are a safe buy.

But some developers and even real estate agents will get creative to sell units in a building that they want to sell out or need a certain amount of pre-sales to secure a construction loan. In those cases they may offer what seems to be unusually large discounts, thousands of dollars in free upgrades or even tax, loan or assessment breaks. To pay for these perks they often inflate the price of the condo and you end up paying more than the unit is actually worth even though you thought you were getting a great deal on extras.

Scammers will also try to attract would-be or novice investors into a high pressure sales seminar with the plan of pooling money and purchasing short sale condos or foreclosure properties and then reselling at a profit. Often times the organizers of these investment groups pocket the money and are never seen again or buy such substandard homes that a huge sum would need to be spent in renovations before the property could be sold at all, much less at a profit.

Even if you own your home free and clear you could be targeted. You might be approached by a lender tempting you to take out a mortgage you don't need just to have extra cash to spend. Or you might have a contractor show up who was just in the neighborhood and offer to do what they describe as much needed home repairs and can arrange financing for you. If you agree to this and sign paperwork, you may find yourself in debt for a large sum of money and be held hostage by a contractor who has perhaps ripped off part of your roof and won't finish until you pay.

You should also be wary of any lender who offers immediate credit in exchange for your sensitive information such as Social Security number, bank account numbers or anything else. Also never sign any type of contract you haven't read, had an attorney read, or that has blank spaces that can be filled in later. Always demand a copy of all paperwork no matter how insignificant it may seem at the time. The best rule of thumb for any type of refinancing or mortgage offer is the same as every other offer in life; if it looks too good to be true, it probably is.