Mortgage fraud is prolific and an ongoing multi-billion dollar a year challenge for U.S. Department of Justice that affects homeowners and their lenders.
San Diego County made headlines when three operators of a mortgage loan modification scam pleaded guilty to a multi-year scheme that bilked $1.6 million from 200 distressed homeowners.
Mortgage fraud takes many forms and evolves every year. Lenders (and conversely the U.S government and taxpayers that insure the mortgage loans) are often the victim of complex, multi-party frauds. Others fraudsters aim to scam homeowners seeking assistance in loan modification or short-sale of their property.
We'll use the following homeowner's experience as a primer to help friends and family spot a short-sale scam before it claims another victim.
Bob and Stacy currently live in San Marcos and, like many in San Diego County, were experiencing unexpected financial hardship.
They wanted to stay in their home (their first, purchased about 7 years ago), but were unable to refinance into a lower, manageable payment due to lower neighborhood sales.
Bob and Stacy decided that their only option was to sell the home short, as they owe more than the home is worth.
They were contacted by a man that claimed that he could help with their short-sale, but more importantly, keep them in their home at a reduced rent. For $3,000, this person's company would guarantee the short-sale and keep them in their home. To Bob and Stacy it was too good to be true. It was.
Warning Sign #1: Charging upfront fees for mortgage assistance.
Bob and Stacy did not know that it is illegal for consultants to charge up-front fees before a successful short-sale or loan modification. What really made them take notice was after several months passed and a foreclosure sale was set for their home, the company contacted them again and asked for $20,000, to delay the foreclosure.
Warning Sign #2: Suggesting you can lease back your house and then buy it back.
Bob and Stacy were told it was perfectly legitimate to short-sale your home and lease back the property. What Bob and Stacy were not told is that most lenders require the owner sign an arms-length affidavit that disallows renting or leasing back the property. The affidavit also prohibits selling the property to a relative. All in an attempt to eliminate fraud and collusion between related parties.
Warning Sign #3: Unable to find the home listed openly for-sale.
When the lender posted a foreclosure sale notice on his front door, Bob called the company to see why there were not any showings or offers on his property after several months. Blaming a slow market, the company told the owner to hold tight.
Bob wondered if the marketing or pictures may be keeping people from showing the home. After hours of searching online, Bob was unable to find any marketing for the home.
Even though the property is worth less than what Bob paid for it, his lender will want to receive full market value to approve a short-sale.
Bob's property was listed for sale, but a full month after the start of the short-sale and on a different county's multiple listing service only, not San Diego's Sandicor MLS. Also, the property did not include data reciprocity to third-party Internet sites like Realtor.com or Zillow.
This would ensure no local brokers would know about the home and thus, no competing offers could be placed on the property.
Warning sign #4: Asking for power of attorney or offering to fill paperwork out for you.
Bob was worried about the looming foreclosure and no offers, so he contacted the bank directly, against the advice of this company. (Another red flag). He was told by the bank representative that there was already an offer submitted, with his signatures, for approval. He had not signed any offer.
Warning sign #5: Suggesting a sub-market value on the home to a predetermined buyer.
He asked what the offer was at: $320,000. Bob and Stacy remembered that during their initial phone consultation the broker discussed putting in an offer to "get the process started."
Bob and Stacy know that similar homes in the neighborhood were selling in the mid $400s, but was told this was normal practice and is fine should the bank "approve" the price.
After talking with the bank and finding out this is not common practice and nor would the bank approve such a lower-than-market price. The bank's intention was to foreclose.
Bob let their lender know, reported the fraud to the appropriate parties and found a reputable short-sale professional to help them.
Lund can be contacted at [email protected].
*********
5 Tips to Avoid Being Scammed
1. Do not pay up-front fees of any kind to a foreclosure consultant. It is illegal to collect money before services are rendered.
2. Communicate with your lender. Do not ignore letters or calls from your lender or loan servicer. Responding is important in saving your house.
3. Do not transfer title or sell your house to a "foreclosure rescuer." Beware! This is a scam to convince homeowners they can stay in the home as renters and buy their home back later. It might also be part of a fraudulent bankruptcy filing. Either way, a scammer can then evict the victim and take the home.
4. Do not pay your mortgage payments to anyone other than your lender or loan servicer. Illegal operations often keep the money for themselves.
5. Never sign any documents without reading them first. Many homeowners think that they are signing documents for a loan modification or for a new loan to pay off the mortgage they are behind on. Later, they discover that they actually transferred ownership of their home to someone who is now trying to evict them.
Know about a mortgage scam: file a complaint at oag.ca.gov
Source: State of California Department of Justice
San Diego County made headlines when three operators of a mortgage loan modification scam pleaded guilty to a multi-year scheme that bilked $1.6 million from 200 distressed homeowners.
Mortgage fraud takes many forms and evolves every year. Lenders (and conversely the U.S government and taxpayers that insure the mortgage loans) are often the victim of complex, multi-party frauds. Others fraudsters aim to scam homeowners seeking assistance in loan modification or short-sale of their property.
We'll use the following homeowner's experience as a primer to help friends and family spot a short-sale scam before it claims another victim.
Bob and Stacy currently live in San Marcos and, like many in San Diego County, were experiencing unexpected financial hardship.
They wanted to stay in their home (their first, purchased about 7 years ago), but were unable to refinance into a lower, manageable payment due to lower neighborhood sales.
Bob and Stacy decided that their only option was to sell the home short, as they owe more than the home is worth.
They were contacted by a man that claimed that he could help with their short-sale, but more importantly, keep them in their home at a reduced rent. For $3,000, this person's company would guarantee the short-sale and keep them in their home. To Bob and Stacy it was too good to be true. It was.
Warning Sign #1: Charging upfront fees for mortgage assistance.
Bob and Stacy did not know that it is illegal for consultants to charge up-front fees before a successful short-sale or loan modification. What really made them take notice was after several months passed and a foreclosure sale was set for their home, the company contacted them again and asked for $20,000, to delay the foreclosure.
Warning Sign #2: Suggesting you can lease back your house and then buy it back.
Bob and Stacy were told it was perfectly legitimate to short-sale your home and lease back the property. What Bob and Stacy were not told is that most lenders require the owner sign an arms-length affidavit that disallows renting or leasing back the property. The affidavit also prohibits selling the property to a relative. All in an attempt to eliminate fraud and collusion between related parties.
Warning Sign #3: Unable to find the home listed openly for-sale.
When the lender posted a foreclosure sale notice on his front door, Bob called the company to see why there were not any showings or offers on his property after several months. Blaming a slow market, the company told the owner to hold tight.
Bob wondered if the marketing or pictures may be keeping people from showing the home. After hours of searching online, Bob was unable to find any marketing for the home.
Even though the property is worth less than what Bob paid for it, his lender will want to receive full market value to approve a short-sale.
Bob's property was listed for sale, but a full month after the start of the short-sale and on a different county's multiple listing service only, not San Diego's Sandicor MLS. Also, the property did not include data reciprocity to third-party Internet sites like Realtor.com or Zillow.
This would ensure no local brokers would know about the home and thus, no competing offers could be placed on the property.
Warning sign #4: Asking for power of attorney or offering to fill paperwork out for you.
Bob was worried about the looming foreclosure and no offers, so he contacted the bank directly, against the advice of this company. (Another red flag). He was told by the bank representative that there was already an offer submitted, with his signatures, for approval. He had not signed any offer.
Warning sign #5: Suggesting a sub-market value on the home to a predetermined buyer.
He asked what the offer was at: $320,000. Bob and Stacy remembered that during their initial phone consultation the broker discussed putting in an offer to "get the process started."
Bob and Stacy know that similar homes in the neighborhood were selling in the mid $400s, but was told this was normal practice and is fine should the bank "approve" the price.
After talking with the bank and finding out this is not common practice and nor would the bank approve such a lower-than-market price. The bank's intention was to foreclose.
Bob let their lender know, reported the fraud to the appropriate parties and found a reputable short-sale professional to help them.
Lund can be contacted at [email protected].
*********
5 Tips to Avoid Being Scammed
1. Do not pay up-front fees of any kind to a foreclosure consultant. It is illegal to collect money before services are rendered.
2. Communicate with your lender. Do not ignore letters or calls from your lender or loan servicer. Responding is important in saving your house.
3. Do not transfer title or sell your house to a "foreclosure rescuer." Beware! This is a scam to convince homeowners they can stay in the home as renters and buy their home back later. It might also be part of a fraudulent bankruptcy filing. Either way, a scammer can then evict the victim and take the home.
4. Do not pay your mortgage payments to anyone other than your lender or loan servicer. Illegal operations often keep the money for themselves.
5. Never sign any documents without reading them first. Many homeowners think that they are signing documents for a loan modification or for a new loan to pay off the mortgage they are behind on. Later, they discover that they actually transferred ownership of their home to someone who is now trying to evict them.
Know about a mortgage scam: file a complaint at oag.ca.gov
Source: State of California Department of Justice