The prospect of refinancing a home provides owners with a means of achieving economic stability and freedom from lofty mortgage rates. Rewards greatly outweigh the risks for those who educate themselves on the process as a whole. Learning how to avoid and identify mortgage fraud can prevent you from becoming a victim. Homeowners that take the necessary precautions can simultaneously reduce the impending risks of mortgage fraud while generating a desired level of economic freedom that was previously unavailable.
Refinancing refers to the replacement of a debt obligation with a similar debt obligation under restructured terms. This process makes the management of said debt much easier, as homeowners are able to utilize smaller increments to pay off of their mortgage over an extended period of time. Homeowners may restructure their mortgage for the following reasons:
- To receive a better interest rate (a reduced monthly payment or a reduced term)
- As a means to consolidate current debt(s) under one loan (a potentially longer/shorter term contingent on interest rate differential and fees)
- To lower the monthly repayment amount
- As a means to mitigate or reduce risk
- To increase access to newly available funds
While new consumer regulation – part of the Dodd-Frank financial overhaul – will serve to protect borrowers in 2014, the risk of mortgage fraud remains eminent.
“Fraud never goes away,” says Ann Fulmer, vice president of industry relations for loan-review company Interthinx in Atlanta and a long-time mortgage-fraud expert. “It just changes form.”
Take the time to educate yourself on fraud schemes and their individual characteristics. Learning to recognize the red flags of mortgage fraud can protect you from becoming a victim. Education remains the most valuable tool in the fight against mortgage fraud.
Avoid Paying Advanced Fees
When enlisting help to restructure a mortgage, it is important to negotiate with your current lender, rather than outside companies. The nation’s largest banks and financial institutions are now subject to new regulations that require them to institute a single point of contact for delinquent borrowers. These regulations will serve to reduce the presence of third party organizations that are typically associated with mortgage fraud. Never pay any funds upfront to a third party because the law generally prohibits advanced fees.
“If they get a fee upfront, they are taking advantage of you right off the bat,” says Mark Lansing, a counselor with Consumer Credit Counseling of Northeast Iowa.
Never Transfer Title of Property
The term title is commonly referred to as a deed, which serves as evidence of ownership. It is a legally binding document that proves ownership of a particular home. Their importance has made them a prime target for several elaborate scams.
Fraudulent companies and/or con artists have been known to purposefully trick distressed homeowners into relinquishing their title to a trust, saying it is necessary for them to negotiate with the bank on the owner’s behalf. Following the transfer of title, scammers will assume control of the property. Essentially, placing your home in a trust removes your name from the deed and gives scammers the opportunity to seize your personal property.
To avoid becoming a victim of fraudulent title transfer, never put your property in a trust or in anyone else’s name. Retaining the property under your name is essential to reducing any potential risks of mortgage fraud.
Practice Caution to Avoid Mortgage Fraud
It is imperative that you work within the parameters of people that you already know and trust. The evolution of mortgage fraud dictates that this may not always be possible though. If confusion or doubt persists, good practice suggests that you should have your documents reviewed by a HUD-certified housing counselor. This should remove any doubt or speculation of potential mortgage fraud.
Practicing caution can help borrowers avoid falling victim to reverse mortgage scams. Reverse mortgages have long been problematic, because many consumers fail to understand what exactly they are getting into. Scammers often use them to facilitate their fraudulent intentions.
Reverse mortgage schemes involve recruiting low-income seniors, who are promised “free” houses, often when they don’t have sufficient funds to pay property taxes or maintain the homes. After the false sale or “gift” of such a property at a grossly inflated price, a cash-out refinance is done with a falsified down payment.
Some scammers pushing reverse mortgage loans are in fact trying to unload other financial products on borrowers. Be careful to avoid brokers that want you to obtain a loan in order to buy other products such as long-term care insurance, annuities, or other investments.
Never Sign Documents With Blank Fields
Never apply your signature to a document that contains blank lines, as missing content is typically a telltale sign of mortgage fraud. Take the time to evaluate any documents to make sure they are void of blank lines that scammers may fill in later with false information. Your official signature binds you to any document you sign; so don’t let someone tell you, “We’ll fill that in later.”
Be sure to read and review all loan documents signed at closing to ensure additional contractual obligations are not added. 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.
Conduct Thorough Background Checks
Carefully review and examine the names, seals, logos and representations made by mortgage rescue companies. Referrals from friends and family serve to facilitate the promotion of reputable companies.
Scammers often make a great effort to appear that they are affiliated with a government agency. The purpose of this is to trick borrowers into believing they are entitled to the benefit of a government program rather than committing to a loan that must be repaid. Knowing the characteristics of government agencies will better prepare you against mortgage fraud. It is beneficial to know that a government agency will never require advance fees, or guarantee a specific result.
Contact Your Lender
According to the Federal Bureau of Investigation (FBI), mortgage fraud has nearly tripled in the last five years. It has never been more important to educate yourself. Extra effort on your behalf may save aggravation, money and even your house.
According to Special Agent Scott Broshears, a mortgage fraud supervisor, the best thing a distressed homeowner can to do avoid fraud is to contact their lender before the situation gets too bad. “The lenders don’t want your house,” he explains, “and most will work with you to help you keep it. Plus, they’re already dealing with a large number of foreclosures on homeowners who didn’t seek their help in time—they don’t want any more.”