Common mortgage frauds – How to protect yourself
If you are planning to buy a home with a mortgage loan, be careful of mortgage/real estate frauds which are on a rise. Frauds are committed by lenders and borrowers both. Mortgage frauds can be explained as any misrepresentation or omission of the actual information or data to gain some illegal profit. Such frauds affect individuals and businesses. Examples of mortgage frauds are – inflated appraisals, property flipping, identity frauds, foreclosure schemes, etc. You should get information & proper guidance to avoid scams & frauds like these.
4 Types of real estate frauds:
Mortgage frauds can be of several types. Some of them are mentioned here.
1. Property flipping – It refers to buying a house at a low price, making some improvements, and selling it off right away at a much higher price. Though property flipping is not illegal but when wrong information is given to the buyer regarding the improvements or the value of the house, then it becomes illegal.
2. Inflated appraisals – When an appraiser makes a dishonest appraisal of a property it is termed as inflated appraisal. He estimates the value of the property at a price much higher than its actual worth. Depending on the appraisal, you take a huge loan from the lender. But when you try to pay off the loan by selling your home, you realize that the original price of your home is much less than the market value. Thus you’ll have to sell it at a price which is lower than the mortgage balance you owe. Thus repaying the loan will become difficult for you.
3. Straw buyers – Here, the identity of the true borrower is hidden and a straw buyer is used. The real buyer would not qualify for the loan, so the straw buyer’s name and credit history are used to get the loan. At times, this is done with the consent of the straw buyer and he gets a percentage of the proceeds.
4. Foreclosure schemes – This is one of the worst types of frauds. Here, a fraudster contacts a person who is suffering from lots of financial troubles and his home is on the verge of foreclosure. Fraudsters promise the homeowner to get him out of his debt and also help him save his house in return of some fees. At times they also take away the ownership rights of the house by deceiving the borrower. The fraudsters then disappear with the money and property.
6 Tips to avoid real estate fraud:
Given below are a few tips which can save you from becoming a victim of mortgage frauds.
1. Check out appraiser’s license or certification by the state.
2. Check the authenticity of the data source used by the appraiser.
3. Don’t be a victim of inflated appraisals.
4. Always cross-check the appraisal with some other appraiser.
5. Do not provide wrong information in the loan application form.
6. Gather proper knowledge about mortgage basics.
You might not understand everything while buying or selling a property. So always gather the required information and then proceed further with the process. Do not blindly trust your lender, appraiser or broker; always verify all information given by them. The best way to save yourself from mortgage fraud is to be cautious and well informed about the mortgage industry and how it works.