The sagging economy and sluggish housing market create the perfect environment for mortgage scams, with desperate homeowners as easy prey for scammers.
The crooks say what you want to hear. They make the deal sound attractive and legit. You are suspicious at first, but somewhere along the way, you give them money or sign documents you were not supposed to sign. Soon, you realize you've been scammed.
Thousands of homeowners are duped in mortgage scams each year, and con artists don't have to look far for victims, says Yolanda McGill, senior counsel for the Fair Housing & Fair Lending Project, an initiative by the Lawyers' Committee for Civil Rights Under Law in Washington, D.C.
Most of the victims reach out to the scammers themselves through Internet searches, she says. She bases her conclusion on more than 16,000 complaints her organization has received from mortgage scam victims since last year.
"The people showing up in our databases are people who are looking for help on the Internet," she says.
Instead of finding help, they find a scam.
You should be aware of the following common mortgage scams.
A Theft In-'Deed'
Lured by promises of a better interest rates and lower mortgage payments, some borrowers end up signing away their houses.
Thieves pose as mortgage professionals or attorneys who pledge to modify or refinance the homeowner's mortgage. The borrower is asked to sign the supposed modification papers. One of the pages in the stack of documents is a deed that once signed, transfers ownership of the property to the perpetrators or a company related to them.
While many homeowners would be able to spot such an ingenious trick, others don't bother to read or simply don't understand the documents they sign, says Brian Sullivan, a U.S. Department of Housing and Urban Development spokesman.
Often, borrowers are so focused on the numbers, including the new, low interest rate and the monthly mortgage payment, that they forget to read the rest of the documents and the fine print. They rely on what the con artist explains to them, Sullivan says.
"If somebody is smiling at you and promising you the world, alarm bells should be going off," he says.
Also known as bait and switch, this mortgage scam is specially a threat for borrowers who can't read English well.
Phantom of The Loan Mod
Do not pay upfront fees for a loan modification. Homeowners have been warned about this repeatedly through numerous education campaigns. Despite the warnings, scam stories of borrowers who paid $1,000 to $5,000 for a loan mod but received nothing in exchange are widespread.
"People are starting to pick up on the fact that an upfront fee is illegal," McGill says. "But the scammer will say 'we are not charging you for the services but for doc preparation,' or they'll offer you a 30-day money-back guarantee."
Many borrowers fall for the promises, especially when they are dealing with what sounds like a government program. Mortgage scams will use abbreviations and program names like HAMP, HARP, Hope Now, EHLP -- you name it and a scammer will most likely try to use it.
Borrowers also are fooled by professional appearances, McGill says. As with all other professions, you will sometimes find there are unscrupulous lawyers and mortgage professionals.
"They think because they saw it on a TV commercial or (because) it sounds like a law firm it's legitimate, but that's not the case," she says.
Your Mortgage Has Been Sold -- NOT
Banks often buy and sell residential mortgages, and con artists take advantage of that. They create fake companies, pretend they are the new owners of your loan and take your payments until you figure out it's a scam. Most borrowers don't learn about the mortgage scam until their actual lender notifies them that their mortgage is in default.
Receiving a letter notifying you that your mortgage was sold from lender A to lender B doesn't always mean a scam. Often, when a mortgage is sold, lender A continues to service the loan and nothing changes for the borrower. But in some instances, the loan buyer becomes the new servicer and borrowers are required to send their payments to lender B instead.
Under federal rules, whenever the servicer on a loan changes, the borrower should be notified with a "Goodbye" letter from the current servicer and a "Hello" letter from the new servicer, Sullivan says.
If you ever get a letter stating your loan was sold, verify it before you mail the payment.
"Illegitimate people use legitimate channels," McGill says. "Call your servicer to check. Don't buy into the appearance of legitimacy."
And don't rely on the phone numbers listed on the letters, as it may lead back to the scammer.
Steer Clear of Reverse Mortgage Scams
Elderly homeowners are easy targets for scammers. They are more vulnerable and more likely to have equity in their homes.
Fraudsters engineer several types of reverse mortgage scams. Reverse mortgages allow homeowners who are 62 or older to borrow against the equity in their homes without having to make monthly mortgage payments. Normally, the scammer wants to steal the equity in the home or use the senior citizens as straw buyers and borrowers.
"They use sleek marketing campaigns," says Chris Moessner, president of Moessner & Associates, a research firm in Washington, D.C. "They'll say 'we'll allow you to keep your house and you'll be able to pay your bills, but this is the easiest way for you to get cash when you need it.'"
In some cases, the victim may get a lump-sum payment in the mortgage scam but is then evicted by the scammer after signing the documents. In other cases, the con artists manipulate seniors to sign a deed and become the legal owner of a particular property, normally owned by an investor involved in the scheme. Shortly after, the scammers convince the senior to take out a reverse mortgage so they can steal the loan money.
Baby Got Lease/Buy-Back Agreements
Thanks to public records, con artists in many states know when a home is in foreclosure. Once they identify distressed borrowers, they persuade them to sign a quitclaim deed, which transfers the property ownership into a land trust.
In lease/buy-back mortgage scams, the perpetrator promises the deed transfer is temporary and you'll be able to rent the home from the new owners and eventually repurchase the home after you get back on your feet.
You are told it is necessary to sign the document so the company can make the mortgage payments and stop the foreclosure process. In addition, the scammer presents a lease/buy-back agreement, which specifies how much the borrower will pay in rent and explains that the borrower has the option to buy back the property after a certain period.
Depending on how much you owe on the home, the scammer may simply collect the rent from you and let the bank throw you out on the street or lock you out and sell the house themselves.
"If people are coming to you asking you sign away your home so they can make payments for you, run for the hills," Sullivan says.