Be a Smart Home Buyer
Just when you think you know all the ways to spot a scam, scammers come up with another one – or two or three! There has been a dramatic increase in real estate scams over the last couple of years, and some of them are hard to spot.
Simply put, a real estate scam is when scammers use phony real estate transactions, such as rentals or home purchases, to steal your money. This month, we are going to talk about mortgage scams, as they are the most common. Next month, we’ll look at other real estate scams, such as apartment rental scams and vacation rental scams. (We’ll also look at how a person can buy a city lot and build a house on it without the legitimate owner never knowing about it!)
Losing money in a mortgage scam puts you at great risk, since you are dealing with hundreds of thousands of dollars. Predatory lenders are always developing new tactics to entrap home buyers. If you are facing financial challenges, you are especially at risk of becoming a victim of an unscrupulous lender or broker. But it’s even more important at those times to rely on family and friends to look at what you have been offered. Sometimes a little distance and a new perspective can help you make a wiser choice.
Below are some of the ways scammers use your mortgage to scam you:
Wire Fraud Scam: Scammers pretend to be escrow officers, real estate agents, or lenders. They will ask you to wire funds into an account (not a legitimate account) for their own financial gain, often by sending a “phishing email,” posing as someone involved in the transaction. They will monitor pending sales, and as the closing date nears, they will send instructions to the homebuyer to wire money before the closing date. If they succeed, you have lost that money.
Foreclosure Relief Scam: Also called mortgage modification scams, this type of scam targets homeowners in financial distress who may be behind in their mortgage payments. With a loan modification scheme, scammers will call and represent themselves as a government official, your lender, or an attorney. They will be very concerned and offer to renegotiate the terms of your mortgage, promising they will save your house and lower your costs. Do not believe them. They are only in it for themselves and if you work with them, you will either end up with unfavorable terms or eventual foreclosure. They will also charge very high fees upfront. Never say yes right away. Do some homework; the government will never make that offer or call you. Google the names of the companies or lenders. Look at the return email address, or postal mail address.
Bait-And-Switch Scams: The bait-and-switch tactic involves phony lenders tempting buyers with impressive terms and lower-than-market-rate interest rates. Once the buyer signs, they are informed that those terms have changed, and interest rates have substantially increased. The home buyer is then stuck with unfavorable terms. In today’s real estate market with historically high interest rates, this scam is increasing.
If you are considering buying a home, also be aware that specific types of home loans are not technically scams but may be unwise to take on in the long run. A home purchase is a long-term investment, which slowly builds equity over time. Be aware of offers that seem to save you money in the short term, or offer you a quick return. Buyers are often lured into negative amortization home loans and balloon loans, which offer a much lower monthly payment but after the introductory period, become unaffordable.
Whether you are buying your first house or refinancing your current home, be smart. Ask questions and follow these tips to ensure that you will be safe from scammers and make the best decisions.
Always ask questions if you don’t completely understand something.
Read through documents and ask someone you trust to do the same. Get clarification on terms that aren’t familiar. Don’t let anyone assume you know. These are complicated legal agreements that you are responsible for – don’t sign a document until you understand everything in it.
Make sure that you speak to licensed professionals: Verify the licenses or registrations of all the people you work with, including lenders, lawyers, and mortgage loan assistance companies, through the database of HUD-approved state agencies.
Don’t respond to unsolicited offers that may be mailed, texted, phoned, or emailed. It is unlikely that a real institution will blindly solicit you. Scammers are always hunting for their next victim – don’t fall prey to an offer that sounds too good to be true. Because it won’ t be!
Avoid upfront fees: don’t pay upfront fees for lending products or services.
Be suspicious of guarantees: It’s illegal to guarantee loan modifications – legitimate companies will disclose they can’t guarantee a change to the agreement.
Be wary of programs that imply reverse mortgages are a government benefit instead of a loan with a repayment structure.
If you are purchasing a home, lock in your rate with a detailed breakdown of fees. With your rate confirmed, you’ll also get a loan estimate to compare rates with other lenders.
In general, it always pays off to be an informed and smart consumer. Remember to talk to trusted people and pass it on!
This article was written by Catherine Blinder, chief education and outreach officer of the Department of Consumer Protection of the State of Connecticut. To learn more about how the Department of Consumer Protection can help, visit us online at www.ct.gov/dcp.