You need to learn the warning signs of a mortgage bailout scam before it’s too late. Nearly 1% of mortgage loans end up being a scam. That might not seem like a lot but ends up costing unsuspecting homebuyers a lot of money and hope.
Both the FBI and the Federal Trade Commission are cracking down on loan scams in increasing amounts. For any smart future homeowner, it’s important to know the proper warning signs of a scam.
If you want to avoid being caught in a mortgage relief scam and be a happy homeowner, read this guide to spot the most common scams out there.
How to Spot a Scammer
All scams depend on homeowner desperation and lack of information. That is, if you’re approached with an offer that targets a specific need you have, which is disproportionate to the return, it’s most likely a scam.
Another thing to look out for: scammers often try separating you from your current lender. This makes it easier for you to move your trust to a fake lender, and fall into a scam.
Lacking Loan Estimate or Closing Disclosure
Lenders must provide you with a loan estimate or a closing disclosure. These two applications let you know the specifics of your loan, including costs, fees, and due dates. These are different for every type of loan, for example, an installment loan has a very different closing disclosure than a mortgage.
These two forms replaced what used to be the GFE (Good Faith Estimate). If you notice a GFE form, suspect it’s an old form and reject the estimate.
Now the only current pre-determination process for your loan you should accept is the Loan Estimate and Closing Disclosure. In the event you sign a mortgage application and receive neither, you’ll know not to trust the “lender”.
Overlooked Bad Credit
Many false-lenders will promise you a loan despite your “bad credit”. Even if you do have low credit and you’re looking for an affordable option, scammers will offer you uneven terms for your application.
In many cases, a loan agency can’t legally award someone with bad credit full housing options. When a lender overlooks your credit, they’re usually looking at your home equity rating to make their money.
Through the Roof Loan Costs
All interest fees and penalties should appear clearly in your mortgage loan application. If none of these items seem clear, you’re probably falling into a trap. Furthermore, study the loans available to you among several lenders to see what’s fair.
Once you’ve compared loan prices across many lenders you’ll know if the current application you’re working towards is fair or a scam. If you don’t know how to look for many loan lenders, here are some tips:
- Start trying to meet lenders in person. Look for lenders with local real-world reputation before trying online loan options.
- Study the function and duties of a lender. This gives you a better understanding of the type of lender you’ll end up needing.
- Keep online search results specific to your case. The more general of a description you give, the more likely you are to run into scams.
When filtering your search options for loans, don’t include your exact financial situation, but the specific details concerning your home and the loan option you’re looking for.
Limited Home Information
Lenders should have adequate information regarding the house you’re buying. When you begin the application process with a lender, ask questions about your home both generally and concerning financial data.
If you receive vague or unrelated questions throughout your conversation, this is a sign you’re dealing with a fraudulent lender.
Questions About Finances
Any credible lender will ask you about your current financial status. Your answer to this question determines what sort of offer you’ll get. If a lender does not ask any questions about your ability to pay your loan, then it’s probably a scam.
Here are some other common warning signs:
- Bad English
- Inconsistent communication
- Uncommon application forms
- Big promises and high expectations
That said, anytime you’re approached with a mortgage relief offer, don’t trust it right away. Instead, call your current lender or your most trusted loan source.
1. The Rent-To-Buy Strategy
Rent-to-buy scams, like many title-first scams, rely on scammers offering homeowners exchanges for the title of their home. In cases like these, a scammer will present a way for a homeowner to pay off their mortgage as a trade for their home-title.
Here are red flags to look out for.
Better Credit Renters
This making home affordable scam encourages you to finance your house to an imaginary figure with better credit. Once you’ve given your title to the scammer, you’ll start the financing process only to find the rates increase at an unfair rate.
A common result: someone loses ownership over their home, and loses a substantial amount of money while trying to pay off the concealed loans.
Before you sign any form of application for a loan or a relief-process, make sure you read through the terms and conditions several times. It’s common for rent-to-own scams to provide high loan rates after the first 2 months.
Moreover, some scammers include an eviction notice if you’re late for a single payment. If you’re offered an application, always make sure to read it carefully and ask your home provider for advice.
How to Avoid Rent-To-Buy Scams
Anytime you get an offer on your home in exchange for the title, view this as an immediate red flag. To put it simply, disinformation is the number way scammers fool homeowners into spending their money.
If you’re given little information surrounding a trade, view this as a likely scam.
2. Auditing Scams
Scammers often disguise themselves under “auditor” titles. If you follow the call further, they suggest your house is close to “foreclosure” and their advice can prevent that from happening. They offer loan modifications and mortgage relief in exchange for personal information and money.
Another way to spot an auditing scam is if they claim they need your lender’s information to prove its lawfulness. If you’re unsure of the truth, you should hang up and contact your lender immediately.
No matter what, it’s important that you do research on auditing and what an auditor does. This allows you to understand the difference between the lies of auditing scams and the truth of safe lending service.
3. Impersonation Scams
It’s common for impersonators to claim they’re your bank manager, lender, or mortgage company. In these situations, scammers will give you false information, almost exclusively over the phone, as your closest authority.
In situations like these, it’s important to check the number and find its source. If you don’t recognize the number, or research shows you the number is fraudulent, block the contact.
Other times, you may receive a letter in the mail or an email that claims you’re past due on your mortgage payment. These contracts tend to follow with relief plans to settle the costs.
Once you recognize the sender, check in with your current loan-agency or the person you bought your home from to see if the contract is valid.
Another way to see through an impersonation scam is to track the caller’s identity. In other words, any broker or lender should feel obliged to give you their contact information, along with their name and callback number.
If they refuse to give you their contact information or personal identification, you should recognize the interaction as a probable scam.
4. Lending Scams
Predatory lenders search for people with high home equities and finance problems. Understanding what types of people lending scammers target will give you a better idea of what to look out for.
For instance, if you have a low income but a high home equity a predatory lender might attempt giving you a loan based on the equity of your house. In turn, if you forget to pay the loan they gave you, your home could be foreclosed.
This process is known as equity stripping and is one of the many types of lending scams you need to know about. Here are some others to know.
Bait and Switch
In this case, the lender will offer you one type of loan only to switch it out for another higher-interest loan. You won’t know this is happening until the interest-rates kick in a month or two later.
To avoid bait and switch loans, be sure to ask clear questions about the state of your loan. Beyond this, you can make sure your lender has the credentials to give you a loan. Try backtracking their ID to know you’re lending from the right source.
The Loan Flip
Loan flipping is the process of refinancing an already existing loan. When this happens, the lender extends your loan, making you pay more. This is another form of bait and switch that you won’t notice unless you read the terms and conditions of your loan carefully.
This usually means the lender will add on additional costs to your loan payment. In some cases, this includes false credit insurance which doesn’t need an attachment to your contract.
You can resolve loan packing, like every other lending scam, if you ask the lender to clearly outline the terms of your contract. Furthermore, always look at the terms yourself before moving forward.
Loan packing can also apply to “packing on” false promises to a loan application. For example, you might receive low-interest rates on an application in exchange for more personal information.
5. Joinder Scams
Joinder scams act as large class-action lawsuits. They promise borrowers they’ve been wronged by their lender or broker, and by paying an allotted amount of cash, they can resist home foreclosure.
This mortgage bullying begins with a statement claiming your house is up for foreclosure. Usually, you’ll receive the scam via direct mail. If you go down the rabbit hole, a firm will tell you that with a starting fee and incremental payments, you can pay for loan modifications and save your home.
These firms also claim they have an attorney present with all the lawsuit information. If you want to quickly break through this scam, simply ask for the attorney and their personal information.
How to Report a Scam
Once you recognize you’ve fallen into a mortgage relief scam, follow these steps to report the problem.
What Type of Scam?
It’s first important to decide what type of mortgage relief scam you’re dealing with. For instance, if you know your lender has tricked you into a bait-and-switch scam, you now know who to report and why.
In order to properly report a scammer, you need as much information to back up your claim as possible. If you have text messages, mail, or phone calls, you can use all of these as evidence.
Choose the Reporting Source
Both the FTC (Federal Trade Commission) and the FBI will accept reported mortgage relief scams. To contact either of these sources, search for reporting forms on the FBI’s website, and the FTC website.
Protect Yourself from a Mortgage Bailout Scam
After reading this guide you now understand how to spot a mortgage bailout scam. It’s important that you don’t let these tips scare you, instead, use them to get the safest loan options you can afford.
If you don’t know where to start, begin by casting a wide net to find as many loan options you can find. Once you’ve done your research, try limiting your searches to a loan provider you can trust.
Don’t wait a day longer. Use this opportunity to find a mortgage loan option that saves you time and gets you into the place of your dreams!
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