The sagging economy and sluggish housing market create the perfect environment for mortgage scams, with desperate homeowners as easy prey for scammers.
The crooks say what you want to hear. They make the deal sound attractive and legit. You are suspicious at first, but somewhere along the way, you give them money or sign documents you were not supposed to sign. Soon, you realize you've been scammed.
Thousands of homeowners are duped in mortgage scams each year, and con artists don't have to look far for victims, says Yolanda McGill, senior counsel for the Fair Housing & Fair Lending Project, an initiative by the Lawyers' Committee for Civil Rights Under Law in Washington, D.C.
Most of the victims reach out to the scammers themselves through Internet searches, she says. She bases her conclusion on more than 16,000 complaints her organization has received from mortgage scam victims since last year.
You should be aware of the following common mortgage scams.
Lured by promises of a better interest rates and lower mortgage payments, some borrowers end up signing away their houses.
Thieves pose as mortgage professionals or attorneys who pledge to modify or refinance the homeowner's mortgage. The borrower is asked to sign the supposed modification papers. One page in the stack of documents is a deed that, once signed, transfers ownership of the property to the perpetrators or a company related to them.
While many homeowners would be able to spot such an ingenious trick, others don't bother to read or simply don't understand the documents they sign, says Brian Sullivan, a U.S. Department of Housing and Urban Development spokesman.
Often, borrowers are so focused on the numbers -- including the new, low interest rate and the monthly mortgage payment -- that they forget to read the rest of the documents and the fine print. They rely on what the con artist explains to them, Sullivan says.
Do not pay upfront fees for a loan modification.
Despite numerous education campaigns, there are widespread stories about borrowers who paid $1,000 to $5,000 for a loan mod but received nothing in exchange.
"People are starting to pick up on the fact that an upfront fee is illegal," McGill says. "But the scammer will say 'we are not charging you for the services but for doc preparation,' or they'll offer you a 30-day money-back guarantee."
Many borrowers fall for the promises, especially when dealing with what sounds like a government program.
Mortgage scams will use abbreviations and program names like HAMP, HARP, Hope Now and EHLP.
Banks often buy and sell residential mortgages, and con artists take advantage of that. They create fake companies, pretend they are the new owners of your loan and take your payments until you figure out it's a scam. Most borrowers don't learn about the mortgage scam until their actual lender notifies them that their mortgage is in default.
Receiving a letter notifying you that your mortgage was sold from lender A to lender B doesn't always mean a scam. Often, when a mortgage is sold, lender A continues to service the loan and nothing changes for the borrower. But in some instances, the loan buyer becomes the new servicer and borrowers are required to send their payments to lender B instead.
Under federal rules, whenever the servicer on a loan changes, the borrower should be notified with a "Goodbye" letter from the current servicer and a "Hello" letter from the new servicer, Sullivan says.
If you ever get a letter stating your loan was sold, verify it before mailing a payment.
Elderly homeowners, more likely to have equity in their homes, are easy targets for scammers. Fraudsters engineer several scams involving reverse mortgages, which allow homeowners who are 62 or older to borrow against the equity in their homes without having to make monthly mortgage payments.
Normally, the scammer wants to steal the equity in the home or use the senior citizens as straw buyers and borrowers. In some cases, the victim may get a lump-sum payment but is then evicted by the scammer after signing documents.
Often, scammers start their con after learning when a home is in foreclosure. Once they identify distressed borrowers, they persuade them to sign a quitclaim deed, which transfers the property ownership into a land trust.
In lease/buy-back mortgage scams, the perpetrator promises the deed transfer is temporary and you'll be able to rent the home from the new owners and eventually repurchase the home after you get back on your feet.
Depending on how much you owe on the home, the scammer may simply collect the rent and let the bank lock you out and sell the house themselves.
"If people are coming to you asking you sign away your home so they can make payments for you,
run for the hills," Sullivan says.
(Distributed by Scripps Howard News Service, www.scrippsnews.com.)