How To Stay Safe From Mortgage Scams

Every industry has both good and bad sides, and so does the financial industry. Various criminal activities in the financial sector have affected our economy for many decades. In financial crimes, scammers have exploited the mortgage sector. These mortgage scams basically include schemes and strategies used by scammers to take your money away by making false promises or giving fake information.

The two main reasons highlighted at many top finance conferences such as the Money 2.0 Conference, tell us the motive behind these mortgage scams. Let’s discuss them.

These mortgage scams are carried out for two main reasons:

  • Mortgage Scams For Profit

These mortgage scams for profit are conducted by lenders, brokers, or other industry insiders who use their specialized knowledge and authority to conduct these scams. They aim to obtain monetary compensation or equity from homeowners or other related entities, and their motive is to avail financial gain rather than house ownership. 

  • Mortgage Scams For Housing

Sometimes, the brokers do mortgage scams for housing, that is, to gain ownership of the house by interpreting the income or asset details to manipulate the property’s appraisal value.

To carry out these mortgage scams, scammers use various schemes and strategies. Let’s discuss the most common mortgage schemes and deceptions used by scammers to trick people or the law.

Mortgage Schemes & Scams Shared At Money 2.0 Conference

  • Property flipping

In property flipping, a real estate investor buys a specific property at a low cost, renovates to increase its value, and then resells it at a higher price. It is not a scam if done rightly and legally. But when does it become illegal? Often, the flipper hires a property appraiser and asks them to inflate the house’s listing price based on improvements, which didn’t happen. The seller and property appraiser knows about it, but the buyer doesn’t, and they try to sell the house at a higher value, who then unknowingly becomes a victim of this scam.

  • Occupancy Fraud

In this mortgage scam, the borrower misleads the lender about the intentions for the property. As financing is cheaper on self-owned houses, the borrowers will portray as if they will be living in the house instead of planning to rent it out. It can also be the reverse case, where the owner shows to buy a home as an investment property and shows the rents as the income, whereas in reality, they live in that particular house. Investors use occupancy fraud schemes to qualify for higher loan-to-value ratios, lower out-of-pocket purchase costs, and lower mortgage rates.

  • Straw Buyer Mortgage Scams     

In these mortgage scams, one person buys a considerable property in place of the other because the other person doesn’t fulfill the credentials needed to make a purchase. The actual buyer promises to return the payments and compensate the straw buyer’s credits. In this case, banks don’t like the use of straw buyers for buying a property in place of another person, as this arrangement keeps banks unaware of the risks of default on the loans given by them. Various global finance events underline that it’s also risky for the straw buyer, who will be responsible for the debt incurred on that property.

  • Air Loan Scams

Air loans are obtained on non-existent properties by non-existent buyers. A scammy broker or a team of scammers create a fake property and a borrower, along with incorrect phone numbers, emails, contact details, or phony bank accounts, to get the profits on the loan approvals. They make the borrower look like a genuine person who wants to buy real property, whereas it’s a scam where the lender wants to gain some profits as benefits. Many global finance events have highlighted how these air loan scams take away the bank’s loans and leave the bank with nothing as they have property as collateral, which in reality, doesn’t exist! It is a massive loss for the bank as they have no property holding or the person to contact as the details are all just a scam!

  • Appraisal Scams

It is another type of mortgage scam, where the value of a property is appraised by the homeowner, buyer, or seller using methods such as digital editing or the bribery of specific officials. It has different unlawful benefits to the people like:

  • These fake appraisals help homeowners to get a preferred refinance or home equity loan.
  • Buyers can get financing that otherwise would be much less as the appraisals add more value to the property, and banks assign loans based on them.
  • For sellers, appraisal scams prove to be a gain scam as they provide a better market price for their property which otherwise would be way less.     
  • Phishing Mortgage Scams

Another most common type of mortgage scam involves borrowers who are about to close their home loan. By phishing schemes, they try to get the buyer’s banking information and wire money into their accounts with that information. Reverse mortgages are also a type of scam in which the scammers try to steal the homeowners’ equity from unsuspecting consumers. Many global finance events highlight how the schemes or scams may vary, but the sole purpose of stealing the money remains the same for all these scammers.

Considering these various types of mortgage scams, let’s learn about the ways to spot them, as discussed at top finance conferences like Money 2.0 Conference.

Ways To Identify Mortgage Scams, Highlighted By Money 2.0 Conference

  • Discount Points

A discount point is like prepaying your mortgage interest. While buying a property, the purchase points of the borrowers should lower the interest amount they will pay. Buyers have to make sure that the lender allows them to use their discount points to pay the interest.

  • High Loan Costs

The interest rates for most big mortgages are between 2% and 5%, depending on the lender. Whatever the interest rate, the lender must disclose it to the buyer before giving away the loan. Many top finance conferences suggest that buyers should approach multiple lenders before finalizing their loans. It will give them a notion of the marketplace and the bandwidth of the interest.

  • Good Faith Estimate

Within 3 business days of the mortgage application, the lender is supposed to provide the borrower with a reasonable faith estimate. The GFE contains all the details of the loan and its associated factors. If the lender fails to deliver it within the allotted time, it’s not recommended by the real estate financers at global finance events to continue working with such lenders.

Although we have discussed a few ways to spot mortgage scammers, let’s discuss what could be done to stay safe from such scammers. Let’s learn about the strategies to prevent oneself from mortgage scams, as underlined at top finance conferences like Money 2.0 Conference.    

How To Prevent Oneself From Mortgage Scams, Suggested At Money 2.0 Conference

  • A lender shouldn’t qualify you for loans by either inflating your income or home’s value. It is not ethical, highlights global finance events, and also it becomes difficult for the borrower to pay back the loans. So if a lender is lying for you, he can also lie to you. Think it through before you agree, says financers at top finance conferences!
  • Before considering a mortgage company, consult and talk to them about your loan application. Ensure they ask enough questions about your income, budget, expenses, and everything else before filing your application.
  • Suppose a company or a broker offers you loans that don’t need good credit, stay away from them. It is just a scam deal looking to steal your money by providing you with attractive and unrealistic options. The scammers just look for low-income individuals to fool them with these schemes and scams. Many top finance conferences have shared how many people have enrolled themselves with such mortgage companies and brokers who tricked them into paying small amounts in advance. After a certain period, they stopped picking up their calls or even talking to them about the money.
  • Whenever buying or selling a flipped property, ensure that the brokers are reliable enough and are not taking advantage of your property. Research well about the brokers and the associated company. Know the background, market value, and current loan rates while considering buying or selling a property—research before relying on someone else. 
  • Many global finance events discussed how various real estate agent scammers try to convince a buyer to purchase a home using fake documents or withhold essential information about the property to make a profit. So, ensure you are not entangled by any real estate agent that doesn’t care about the legality of their commission. 

Scams have never been more prevalent or damaging than they are today. As homeownership rates drop, scammers have been seizing the opportunity to prey on consumers who are desperate to own a home. These mortgage scams come in various forms, including bait-and-switch schemes or false promises by lenders. Be sure you know what these scams are to keep yourself safe out there so that you are not defrauded!

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