How can I tell if I am becoming involved in mortgage scam?
I just received a handwritten letter from someone I do not know and a return address in my town. The person says they love my house, want to buy it, and say in a rather cryptic manner that they know of a way for me to get cash out of it without me leaving it immediately and moving elsewhere. The whole thing seems a little unusual. I have a nice house and it is special to me, but it is hardly unique or in an exclusive neighborhood. I am a 72-year-old widow. How can I tell if I am becoming involved in mortgage scam?
- Land speculation scam
- Straw buyer scam
- Inflated appraisal scam
- Signs of a mortgage scam
Be very wary of offers such as the one described here. This has all of the earmarks of something I will not call an outright scam, but is a deal not advantageous to the homeowner. There are many forms of a mortgage scam in the world of consumer finance, and you should be aware of the most prominent scams.
The buyers in these types of deals will offer to buy a home at or near the market value with a closing date six months or more into the future. The buyers will use the time as a hedge that housing prices will increase in the future. If housing prices in the area increase, they will resell the house -- commonly called flipping -- at a profit. This type of deal is not illegal. However, if housing prices go down or stay the same, then the homeowners are left with the property and whatever expenses went into preparing it for sale. They will also need to bear the cost of suing the buyer for a breech of contract.
As I mentioned, what I described is not a scam per se, there are other real estate deals that homeowners and potential homeowners should avoid.
Straw Buyer Scam
Some scam artists will promise a person with good a quick, high-yield investment opportunity. The straw buyer will be offered several thousand dollars for the use of their name and credit rating for a phony mortgage application. The straw buyer will be told a sob story of how an honest person with a bad credit rating but a good job wants to buy a home, and will assume the mortgage after the sale is complete. In a complex transaction, the scam artists will buy the property at an inflated price or with a line of equity. After pocketing the cash draining the line of equity, the scam artists will skip town leaving the straw buyer holding the bag.
Inflated Appraisal Scam
Some homeowner/scam artists will team up with a crooked appraiser to inflate the price of a property, then sell it to another person involved in the scheme. That person will then sell the property to an unsuspecting buyer who is buying the property at a price above the market price.
Fortunately, this scam is becoming much more difficult to accomplish because lenders must hire independent appraisers. Also, buyers are required to provide two forms of government-issued identification, which should make identifying members of the scam easier. Regardless, buyers should do their own homework and have a realistic idea of the prices of comparable properties in the neighborhood.
Beware promises of a home sale that requires no down payment. The old adage, "There is no such thing as a free lunch," applies here. Oftentimes, a no-down home purchase is really a purchase with two mortgages. In theory, there is nothing wrong with two mortgages as long as the buyer is fully aware that is what he or she is buying.
However, if you are offered a no-down offer of sale that you do not understand, stop and consult with an attorney in your state. Ask him or her to review the sale documents so that you can understand all of their terms and conditions.
Signs of a Mortgage Scam
* You are encouraged to use false information on a mortgage application.
* The loan amount on the mortgage is greater than the value of the property.
* The seller or your adviser discourages you from from visiting or inspecting the property you are offering to purchase.
* You are asked to leave signature lines open or other parts of the mortgage application blank.
* You are offered a fee to use your name or credit information to get a mortgage.
A mortgage is a contract for a loan to purchase a property. The details of a mortgage can be complex, but at their heart mortgages are basic contracts with four parties -- seller, buyer, the buyer's mortgage company, and the title company -- with easy-to-understand terms. If someone is selling a property that involves more than these four parties or if you are buying a property with terms you do not understand, stop and consult with an attorney of your choosing. Ask the attorney to review all of the documents relating to the transaction and mortgage. If someone discourages you from consulting with an attorney for whatever reason then you would be wise to walk away from the deal.
I hope this information helps you Find. Learn & Save.