Show Home Loan Scammers the Door

Don’t get cheated! Learn how to shut out home loan scammers.

Owning a home isn’t just having a place to live. It can provide a path to a better quality of life and greater financial security. Because a mortgage is usually the single biggest purchase a person will make in their life, picking the right lender is important. If you’re like many people, you need an affordable home loan from a lender you can trust. Luckily, plenty of good lenders are out there. But plenty of home loan scammers are out there too, and they’re targeting homebuyers and homeowners across the country.

In this article, we’ll look at who’s most at risk, common forms of home loan scams, red flags to watch for, and ways to protect your money and your home.

Who Is at Risk

Predatory lenders use deceitful practices to lure borrowers into loans with high fees and unfair terms. These lenders most often target:

• First-time homebuyers: People buying their first home are often inexperienced in the real estate world and are vulnerable to being taken advantage of.
• Borrowers with credit problems: A shaky credit score can make it harder to get a mortgage – which scammers look to exploit.
• Homeowners who are behind on their bills or facing foreclosure: This can be a scary situation, made worse by unscrupulous lenders who use it as an opportunity to cheat a homeowner – or steal their home.
• People who have lost their job: Predatory lenders often prey on people experiencing financial hardship.
• Homeowners planning renovations: Lenders may target people shopping for a home equity loan or a home equity line of credit to pay for upgrades.
• Homeowners who need to pay for unexpected repairs: Unexpected home repairs can be expensive, and homeowners without cash on hand may be tempted to look to a contractor who offers to “help” with financing. But more often than not, the contractor ends up causing harm.

Scamming Is Big Business In 2021, the Federal Bureau of Investigation’s Internet Crime Complaint Center reported over 11,000 victims of home rental or real estate fraud, with losses totaling more than $350 million.

3 Common Home Loan Scams

Here are three common types of home loan scams to watch out for.

1. Bait-and-Switch Scam
   In a bait-and-switch scam, an unscrupulous lender will entice you with amazingly low rates and other attractive loan terms. Once you sign on, you’re told you no longer qualify for those terms – with no legitimate explanation for why – or that you have to pay a bunch of phony fees and a sky-high interest rate. Because rate changes can sometimes happen with a loan from legitimate sources, these scams can be hard to prove.
2. Collateral Scam
   If you find yourself strapped for cash and need money to pay bills or make home repairs, a home equity loan may help. However, it’s important to consider your options carefully to guard against crooked lenders. In a collateral scam, a fraudster will try to talk you into using your home as collateral for a loan you can’t afford. Even if you can afford a loan and use your home as collateral, you could get stuck with high interest rates that can make borrowing money expensive. A scammer might misrepresent the kind of loan they’re offering, like calling a one-time loan a line of credit. Or they might pressure you into borrowing more than you need, offering a loan based on how much equity you have in your home – but not your ability to pay back the loan. If you can’t make the payments, you could lose your home.
3. Home Improvement Scam
   Making improvements to your home can be a big undertaking. Maybe you’re looking to replace the roof, get new siding, or even add a room. Because your house is your most valuable asset, it’s important to find a qualified professional who can do a good job at a fair price. Unfortunately, there are scammers who will promise to do the work but end up just doing a con job.
   In a home improvement loan scam, a crooked contractor will tell you that they can arrange financing through a “friend” or through a lender they know. The contractor starts working and then asks you to sign some papers – usually without giving you time to review them. If you’re not careful, you can end up with a high-interest home equity loan that you didn’t want. To make matters worse, because the money often goes directly to the contractor, they have little incentive to do a good job. The contractor might do shoddy work or simply skip town with your money.

Red Flags to Watch Out For

Here are some red flags to look out for:

• The company offering a loan seeks you out – rather than the other way around.
• They make big promises before they’ve even assessed your finances – like claiming that having a lower credit score won’t affect your ability to get a loan or the interest rate you’ll pay. Don’t believe it!
• They ask you to lie on a loan application or any other document. Never do this.
• If you own your home, the lender demands that you sign over the deed.
• They give you vague information about rates, fees, and terms.
• They use high-pressure tactics to urge you to borrow more than you need or can afford to repay.
• They won’t give you required loan disclosures, such as your loan estimate and closing disclosure form, or provide copies of documents you’ve signed.

Ways to Protect Yourself

Here are some ways you can stay safe from home loan scams:

• If you’re a first-time buyer, it’s wise to work with a seasoned real estate agent and a licensed mortgage lender.
• Know your credit score and understand how it will affect your home financing. Review your credit report too, and correct any errors before you apply for home financing. You can get your credit report for free online at annualcreditreport.com.
• Ask your mortgage lender to lock in your rate and provide a breakdown of fees. With this in hand, you’ll be able to compare rates from different lenders before you sign anything.
• If you’re planning some renovations, consider only contractors who are licensed and insured, and contact your financial institution about financing.
• Don’t give out personal info to a lender who contacts you out of the blue.
• Carefully review any loan contracts and don’t sign anything until you understand all the terms.
• Don’t borrow funds that you know you can’t afford to repay.
• Never transfer your deed to anyone without consulting an attorney.
• Always demand copies of all loan documents.

What to Do if You’re a Victim of a Home Loan Scam

If you believe you’ve been a victim of a home loan scam, don’t delay! Here’s what you can do:

• Call your financial institution if you’ve made a payment or given out sensitive data.
• If you’ve signed a contract, consult an attorney to determine if it can be rescinded.
• File a report with your state attorney general’s office; contact information can be found at naag.org.
• File a report with your state bank agency; contact information can be found at csbs.org.
• Report the fraud to the Federal Trade Commission at reportfraud.ftc.gov.

As with any industry, there are some bad apples in the mortgage business. If you’re looking for a home loan, proceed with caution and make sure to find a lender you can trust. Remember these tips – and shut out home loan scammers for good! If you have questions about home loans, a home equity line of credit, or managing your money, speak to someone today.

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