How to Recognize Signs of Mortgage Fraud

    How to Recognize Signs of Mortgage Fraud

    Nov 17, 2021

    Mortgage fraud is considered to be any misrepresentation of information on a home loan application. This can be difficult to spot, which is why it’s important to know how to recognize signs of mortgage fraud. It’s typically committed for profit or housing. 


    For-profit fraud is usually at the hands of lenders, brokers, and other entities attempting to gain profit or equity from homeowners and other lenders. For-housing fraud, on the other hand, is usually carried out by borrowers for ownership of a property or an adjusted home value. 

    Who is Most Targeted?


    First-time home buyers (especially those with credit issues) are at risk for mortgage scams. However, scammers also target homeowners who are:


    • Facing foreclosure
    • Dealing with job loss
    • Facing overdue bills
    • Qualify for reverse mortgages

    Common Mortgage Scams


    1. Mortgage Wire Fraud: involves coaxing home buyers to wire closing cost payments into an illegitimate bank account.
    2. Foreclosure Scams: involves exploiting financially insecure homeowners by taking ownership of their home or its equity.
    3. Reverse Mortgage Fraud: involves the Home Equity Conversion Mortgage (HECM) program that provides seniors with a lump sum for their home equity. The scammers take some - or all - of this amount.
    4. Bait And Switch Scam: involves offering low mortgage rate offers or other enticing terms at first, then high mortgage rates and worse terms later.
    5. Loan Flipping: involves continuous refinancing of a borrower’s mortgage in order to collect fees for their extended terms.
    6. Fake Real Estate Agent: involves an individual providing misinformation about properties, their license, and/or work history. 


    Cheat Sheet for Spotting Mortgage Fraud


    Mortgage fraud can be convincing and elaborate. Take the time to review this list for quick ways to weed out potential fraud:


    • Do you see information that looks false, inflated, or too good to be true?
    • Are there signs of forgery (such as mismatched signatures)?
    • Do they have a verified company and contact number for inquiries?
    • Is there missing information that is promised later?
    • Are they requesting wire transfers to unconfirmed accounts?
    • Are they exclusively using a single appraiser?
    • Are there higher than normal fees?
    • Are there bonuses paid for fee-based services?
    • Is there an unnecessary sense of urgency?


    Warning Signs of Mortgage FraudUnexpected Payment Changes


    The first warning sign of mortgage fraud includes any unexpected changes regarding payments. If you’re sent any unverified links providing wiring instructions for closing costs, that’s a red flag. Never click on links or provide personal information without proper verification first. 


    For current homeowners behind on mortgage payments, scammers may claim to have reached a negotiation regarding your mortgage payment amount. They will state that to make these reduced payments, the homeowner must pay upfront. Once the homeowner covers these fees, the company or individual pockets the money. This may go on for several months; meanwhile, the legitimate lender still has not received payment and will take action against the homeowner. 

    Property Title Transfer Requests


    If a company requests for you to transfer your property title, it’s most likely a scam. Similar to the reduced mortgage payment scam, companies will claim to have the ability to negotiate better mortgage rates if you provide them with your property title. They will also request that all future mortgage payments be directed to them and entice you with the chance to buy back your home after a specified amount of time. This is an easy way for them to gain control of your home and its equity. 


    Yes, It’s Too Good to Be True


    Anything that appears “too good to be true,” usually is. Be wary of companies claiming to provide unusually low interest rates. Any companies stating that your credit score doesn’t matter are usually fraudulent. Your credit score will always make an impact on your mortgage rate, and any offers claiming otherwise are usually predatory.


    Do you still have questions about how to recognize signs of mortgage fraud? You can learn more from the National Association of REALTOR®S, and your REALTOR® at Coldwell Banker Pryor Realty can also help.  Contact us today when you’re ready to buy a new home! We have offices in Chattanooga, Dayton, and Spring City.