5 Real Estate Scams You Need to Know About
Don't be duped by mortgage fraud. Here are a few common scams
and the red flags you should look for in a transaction.
Mortgage fraud is pervasive: An estimated $4 billion to $6 billion in annual
losses result from mortgage fraud, according to FBI reports. “An entire
community can be damaged by mortgage fraud,” says Rachel Dollar, a lawyer from
Santa Rosa, Calif., and editor of the Mortgage Fraud Blog. Mortgage fraud
can lead to a spike in foreclosures, home values plummeting, and lenders raising
their rates and fees to recover losses.
The crimes are often complex, involving several parties and occurring over
multiple transactions. To protect you and your clients, educate yourself about
mortgage fraud and be on guard for any warning signs in a transaction. You can
start by reviewing these five scams, and then test your knowledge by taking our
Mortgage
Fraud Quiz.
1. The Foreclosure Rescue Scheme
The Scam: “Rescuers” promise cash-strapped home owners that
they can save their home from foreclosure. The rescue, which involves paying
upfront fees, can take multiple forms, such as the perpetrator obtaining a new
loan on behalf of the owner or by having the owner sign over the home’s deed and
then rent the home until they can repurchase it. Eventually, the home owner
loses the home, either to foreclosure or the fictitious rescue company.
Red Flags: With foreclosure rescue programs, borrowers are
often advised to sign over the title of their house to a third party, become
renters of their home, not contact their lender, or send mortgage payments to a
third party, according to Fannie Mae, which provides fact sheets on mortgage
fraud.
2. Loan Documentation Fraud
The Scam: This fraud involves numerous schemes in which a
borrower provides inaccurate financial information — such as about their income,
assets, and liabilities — or employment status in order to qualify for a loan
with lower rates and more favorable terms. Occupancy fraud is one growing area:
Borrowers say they plan to live in the property when they actually intend to
rent it.
Red Flags: Documentation may raise suspicion if the
employer’s address is shown as a post office box, accumulation of assets
compared to the person’s income appears too high or low, the new house is too
small to accommodate occupants, the person has no credit history, or the
application is unsigned or undated, according to Fannie Mae.
3. Appraisal Fraud
The Scam: A faulty appraisal — saying a property is worth
more than what it really is — is connected to many types of mortgage fraud. It
entails manipulating or overstating comparables, market values, or property
characteristics in order to obtain a higher appraisal. The higher property
appraisal, which generates false equity, is done by falsifying an appraisal
document or using an appraiser accomplice to obtain the higher value.
Red Flags: Be skeptical of appraisals that are dated prior
to the sales contract, list comparable sales that do not contain similarities to
the property or are outside the neighborhood, the owner is not the seller listed
on the contract or the title, or a third party participating in the transaction
orders the appraisal, Freddie Mac warns.
4. Illegal Property Flipping
The Scam: This entails purchasing properties and reselling
them at inflated prices. These scams usually involve faulty appraisals and
inaccurate loan documents. The property is then refinanced or resold immediately
after purchase for an inflated value. The home is purchased at a higher price,
often by straw buyers working with the “flipper,” and eventually falls into
foreclosure.
Red Flags: Some key things to look for are rapid refinancing
of a property; the seller recently having acquired the title or acquiring the
title concurrent with the transaction; an appraisal that comes in too high; a
property that was recently in foreclosure being purchased at a much lower price
than its sales price; or the owner listed on the appraisal and title not
matching the seller on the sales contract, according to Fannie Mae.
5. Short Sales Schemes
The Scam: Borrowers owe more than the current value of their
home so they fake financial hardship and no longer make their mortgage payments.
An accomplice of the borrower then submits a low offer to purchase the property
in a short sale agreement. The lender agrees to the short sale, unaware that it
was premeditated. The property, after being purchased at the reduced price, is
then often resold at the home’s actual value for profit.
Red Flags: The borrower suddenly defaults on the mortgage
with no workout discussions with the lender, an immediate offer is made to a
lender at a short sale price, the short sale offer is less than current market
value, or a cash back is offered at closing to the delinquent borrower
(disguised as “repairs” or other payouts, for example) and is not disclosed to
the lender, according to Fannie Mae.
You can report instances of suspected mortgage fraud to Stopfraud.gov.
Learn More: Take the
Mortgage Fraud Quiz >
Some unscrupulous people are preying upon the uniformed by soliciting payment for Grand Deeds that are available gratis. Riverside County has been one of the main targets for this fraudulent campaign. Be warned and please contact us (http://www.palmspringsgreathomes.com or email love@palmspringsgreathomes.com) for help or information about how to obtain your Grant Deed for free.
