We’ve all heard the advertisements on television and radio and seen the ads in papers, magazines and online, “…Good credit, bad credit, no credit, everyone qualifies for a loan with us,” “…Own a $200K home for only $800 a month with no money down.” These claims are outrageous, and it would only seem that folks would be skeptical.
Unfortunately, many people were taken in by such claims. Mortgage fraud was rampant for decades, and now the aftermath is destroying people’s families and lives.
How does anyone avoid being ripped off by a mortgage company or fraudulent buyer?
This information is given to help avoid a bad mortgage company or lenders, but also help those selling their home avoid being ripped off by a fraudulent buyer. Fraudulent buyers abound; newspaper ads and flyers saying, “We’ll buy your house.” Not all are legitimate.
Here are ten tips to help avoid mortgage fraud.
1. Ask questions. When I bought my home in 1988, the mortgage company agent made the “flexible interest” plan sound sooo good. Something didn’t sit right with me, though. I have a habit of asking too many questions. In this case, it worked. “When the interest is low, like it is now, your payment could be less than $500,” the agent said. “What happens when the interest goes up?” I asked. “Well, that doesn’t happen too often, but your payment would increase,” was the reply. I stuck with the fixed rate mortgage, even though the agent pointed out it was 3% higher than the “flexible” rate. A week after buying my home, the interest rate shot up 5%. My payments were still $558. Yup.
2. “Fraud for Property” or “Fraud for Housing.” Here a buyer lies on the loan application to qualify for a mortgage loan. It’s a felony to commit mortgage or lending fraud. If selling your own home, take the time to hire a lawyer to help you. A legitimate buyer won’t mind the lawyer checking the financial information given. If a buyer balks at this, pass the deal by.
3. Misrepresenting the property value to get a better sale or deal is known as “fraud for profit.” A person or group of persons works in league with a crooked property appraiser to raise or lower the property value to defraud a mortgage company or seller. They then turn around and sell the property for more than it’s worth. The effect is being seen across the country, as some homeowners owe more than their property is actually worth. To avoid this, hire your own appraiser to look at the property. If the seller seems reluctant or says no, there are other homes for sale. Do your own research on the property values in the area. If the $100k home you’ve set your sights on is listed as only $60k in the tax registry, then ask the seller why the asking price is vastly different, and don’t accept “market value” as an answer. Check the values of the surrounding homes as well. If other one-story, four bedroom homes are selling for $60K, why is this house so much more?
4. Balloon payments. Let’s look at the “buy a 200K home for only $800 a month” advertisement that was so popular. I was curious, so I went to one of the websites and began to dig. The more I looked, the more irritated I became. I wrote down questions but couldn’t seem to find any answers. I’m not known for giving up, though. I kept digging. Nearly a half hour later I found what I was looking for- the answer to why the payments were so low. The low payments were only for a three-year period, something not mentioned in the television or home page ads. After the time was up, the rest of the money, known as a “balloon payment,” was due. There would be a balloon payment of over $175K due on that mortgage. No wonder so many foreclosures were taking place. Nothing on this site allowed anyone access to ask questions.
5. Before signing anything with any company or seller, ask questions. Write them down. If the person you’re speaking to won’t give you a clear answer, leave. Buy a different house. Don’t be intimidated by hearing “You won’t qualify for anything else.” That’s nonsense.
6. Get full disclosure on the property. That’s federal law. You have the right to know about all work done on the property, and to check on the permits and inspections. Again, if you’re buying from a “sale by owner,” hire a real estate lawyer to help you. Work done without permits is often not covered by insurance companies, and in some cases, insurance companies can cancel the house’s policy.
7. Get your credit rating in the best shape you possibly can. Divorce, credit cards, company closures, lay offs, medical bills and more can trash your rating. That doesn’t have to stop you from owning a home. Take the time to build your rating while you learn about buying a home. Research the real estate laws, lending laws and different mortgage companies. This is the time to arm yourself with information while you’re building your credit.
8. This next tip sounds unusual, but it does help. While you’re looking for a home, watch home improvement shows. As the expert contractors inspect properties to repair, learn to see through their eyes. That stain on the ceiling isn’t normal- it’s water leaking through a roof. Did the real estate agent just say that a new roof was put on five years ago but the ceiling wasn’t even painted? Did the real estate agent not answer the question about the state of the roof at all? Hmmm. Cracks in the walls aren’t “from the building settling in.” Knowledge is power.
9. Never let any seller or mortgage lender even remotely hint that you should sign a contract containing blanks. Run from any seller or company that hints you should lie on a mortgage application. They are frauds, and they’re suggesting you commit a felony. When they’re caught, they’ll throw you under the bus. You could lose your home, credit rating and your freedom. You’d also be a convicted felon, which would hurt your employment chances and more. It’s just not worth it.
10. Read the mortgage contract in full before signing it. If “legalize” is confusing, and it usually is to most of us, hire a lawyer to read it. If anything is in the contract that is different that what you discussed with the seller, don’t sign it. Make certain of what you are signing in detail before you put your name on it. After all, this is usually the largest purchase of your financial life.
There is a lot of information to deal with in buying or selling a home. Taking the time to know who is buying or selling will help avoid being ripped off by mortgage fraud.