We’ve looked into the most recent mortgage and loan closing scams so you know what steps to take to protect your money and even your property. These scams range from fraudulent wire transfer instructions to false mortgage relief offers.
For most people, purchasing a home represents their largest financial transaction, so it’s important to be aware of the tricks scammers might use to take from you. They are after the funds you have been accumulating for a down payment and closing charges for years. They will target your equity and possibly your home if you face foreclosure.
You can prevent making a tiny error with significant repercussions by being aware of how mortgage fraud and scams operate.
How Prevalent are Mortgage Frauds?
Each year, mortgage fraud, wire fraud, and other types of fraud cost customers millions of dollars. According to the U.S. Federal Bureau of Investigation, more than 13,000 people were victims of Internet-based real estate scams (PDF) in 2020, with more than $213 million in losses. (The report from FBI summarizes real estate and rental crimes.)
The U.S. Federal Trade Commission received nearly 11,000 reports of mortgage foreclosure scams (PDF) and other debt management scams.
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How do Mortgage Scams Work?
Mortgage scams can put homebuyers and homeowners at risk when buying, refinancing, or seeking help with mortgage payments. Scammers seek to gain advantage at every stage by interfering with an otherwise legitimate process.
In some cases, fraudsters intercept down payments and closing payments. In other cases, fraudulent companies take advantage of people facing foreclosure. Criminal mortgage industry insiders such as loan officers, appraisers, mortgage brokers, or attorneys may use their expertise to steal cash and equity from lenders and homeowners – this is defined as mortgage fraud for profit and is prioritized by the FBI.
Types of Mortgage and Closing Fraud
The good news is that you can protect yourself if you know the difference between a legitimate transaction and a mortgage fraud or scam. Below is a more detailed explanation of the different types of fraud so you know what to look for.
Transfer Phishing Scams
Closing on a mortgage for a new home can be an exciting time to buy a home. It’s also a great target for scammers, as it’s usually a large financial transaction.
In wire transfer phishing scams, fraudsters who can penetrate real estate and land registry email platforms often pose as these companies. They send seemingly legitimate emails to customers who are about to close their loan, instructing them how and where to wire money.
Victims transfer their deposit and closing amount to a fraudulent account, which is usually emptied and closed until someone notices the fraud, and the funds are never seen again.
Protect Yourself from Wire Transfer Fraud
Before You Wire Money
- Call the ownership company: Use the phone number from the company’s website or business card, not from an email. Remember that scammers can send emails that look legitimate and change the phone number. Confirm referral instructions by voice.
- Forward emails, don’t reply: forward messages and manually enter email addresses when replying. Make sure the email address you enter is correct and matches the address on the company website or a business card. Scammers often make small changes to email addresses that are easy to miss.
- Be suspicious of all emailed remittance instructions and changes to remittance instructions: Title companies rarely change remittance instructions.
- Review instructions with your financial institution: Your financial institution may find inconsistencies in names, routing numbers, and account numbers, and may cross-check routing numbers and account numbers with previous consumer fraud complaints.
- Create strong passwords: secure accounts with strong passwords and change them frequently. Don’t use the same passwords for multiple accounts; consider using a password management service to help you securely manage your accounts.
- Protect your computer: install a firewall and keep your antivirus and malware software up to date. Make sure software updates are installed automatically.
When You Transfer Money
- Use secure, encrypted email or a website portal: follow the owner company’s instructions for using their secure, encrypted email system, or use a secure website portal if possible. Mail, overnight delivery and personal delivery are also secure, but can slow down the process. In any case, remember that your financial information isn’t secure if sent via regular, unencrypted email.
- Don’t open unexpected email attachments: even if you think you know the sender, an attachment could infect your device with malware.
- Don’t use free Wi-Fi or public computers: free connections and public computers are easier for scammers to reach, and it’s easier for you to grant access to future users unknowingly.
After the Money has been Transferred
- Confirm that the money has been received: contact the property company within a few hours of transferring the money to make sure the transaction was successful.
- Report any suspected problems: Contact law enforcement and your financial institution within 24 hours to increase the chances of recovering the money if it was stolen.
Scam to Save a Foreclosure
If you’re threatened with foreclosure, you’re in a precarious position, and the scammers know it. With a quick scan of public records, scammers can approach you (PDF) and offer to lower your payments, stop the foreclosure and repair your credit score.
Here are some of the tactics they’ll try that can cost you your equity and even your home.
Loan Modification Scams
In these scams, fraudulent companies with official-sounding names send you a letter claiming they can help you stop foreclosure immediately and save you money. They demand large upfront payments for services you could easily provide yourself, or they don’t provide any services at all.
Often, these scammers also advise homeowners to stop making mortgage payments and cut off communication with the loan servicer. They claim they’ll take care of negotiating a modification on behalf of the homeowner, while collecting fees and doing nothing to help.
If your lender stops receiving payments and communication from you, your window to seek help may close without you realizing it.
Lease-Back or Buy-Back Fraud
In a lease-back or repurchase scam, fraudulent companies promise to pay off your mortgage if you sign the deed over to an investor. They say you can stay in your home as a renter and have the option to buy it back if your financial situation improves. However, the new owner doesn’t have to sell the property back to you and can evict you. According to the FDIC, the property usually changes hands several times after the deed is signed, and the scammers can take out a new mortgage that is hundreds of thousands higher than your existing loan.
This nightmare scenario results in homeowners signing away the rights to their own property and still being responsible for their mortgage payments.
Bankruptcy and Foreclosure Scams
Similar to other scams, bankruptcy scammers promise to negotiate with your lender on your behalf and prevent foreclosure. The scammer may ask you to sign your deed while you continue to make payments to the scammer.
The scammer then pockets your money and files for bankruptcy on your behalf. This temporarily stops the foreclosure, but if you don’t know about the bankruptcy filing and don’t participate in your case, the judge will dismiss the case and the foreclosure will continue.
This is another scam that can cause you to lose your home to foreclosure and have the bankruptcy noted on your credit file.
Equity Stripping
Equity stripping is a method of reducing equity to protect it from creditors. This can be a legitimate tool for homeowners threatened with foreclosure, but it’s also used by predatory lenders to deprive people of their property.
An investor buys the property from an owner threatened with foreclosure at a discounted price and then rents it back to the owner.
Scammers may try to pressure the owner into a new, more expensive loan. If the owner doesn’t pay, the bank pursues foreclosure against him or her. The owner may also be tricked into selling the property to the scammer without knowing it. The new owner can raise the rent and evict the former owner for non-payment.
The fraudster can pay off or refinance the mortgage and appropriate equity that the owner may have built up over the years.
Loan Flipping
Loan flipping is a form of predatory lending in which property owners who are in financial distress are tricked into refinancing their homes so the lender can collect fees. The homeowner may get some money in their bank account as a result of the deal, but the bottom line is a loss due to high fees, increased interest rates and prepayment penalties.
Sometimes the scammers add a balloon payment due after just a few years of the new mortgage, forcing the homeowner to refinance again or lose their home to foreclosure. The scammer then offers to refinance the home for additional fees.
Refinance Scams
Refinance scams are another form of predatory lending, in which low mortgage rates and fees are promised and emails, phone calls, and mailers are sent to homeowners who are having difficulty making their payments.
The scammers often collect personal information they claim to need to start the process, but they use the information to steal your identity. Other scams ask homeowners to wire fees or sign over ownership of their home to the scammers.
Protect Yourself from Foreclosure Scammers
- Beware of companies calling themselves “mortgage counselors,” “foreclosure services,” “mortgage rescue services” or similar.
- Beware of companies that contact you or advertise with you when your home is listed for foreclosure.
Never pay fees in advance. It’s against federal law for mortgage relief service providers to require or receive an upfront payment before your lender has completed the mortgage modification or other agreement. - Don’t pay your mortgage payments to anyone except your lender or loan servicer.
- Don’t transfer your property deed or title to anyone unless you intend to sell it and give up ownership permanently.
- Stay in touch with your lender or loan servicer. If you want to refinance or modify your loan, contact your lender first.
- If you need help, contact a counselor approved by the U.S. Department of Housing and Urban Development.
Protect Yourself from Predatory Lending
- Don’t sign paperwork you don’t understand. If you need assistance, ask other professionals for help. Check the credentials of attorneys, real estate agents, loan officers and companies that broker mortgage loans.
- Build a network of trusted advisors with whom you can talk about the process and ask for recommendations for professional help.
- Find out about fees and interest rates. Question the lender if any of these factors seem unusually high.
Find out about your credit score and be aware that your credit score will affect whether you qualify for a loan. Beware of lenders who claim that a poor credit score isn’t a barrier to getting a loan. It’s, and your credit score, among other factors, affects the interest rate you can receive. - Don’t sign documents with blank spaces that a lender can later fill in with terms you didn’t agree to.
- Never act rashly; if you’re pressured in any way, there is a good chance you’ll be scammed. Always do your homework.
Report mortgage fraud
If you believe you have been the victim of fraud or identity theft, report it:
- Your local law enforcement agency
- The Federal Trade Commission
- Your state’s attorney general’s office
- The Better Business Bureau
Source of Articles Writing of Katie J. Skipper