Watch Out for Mortgage Fraud

By Richard Barrington
NFNS Columnist

With more and more mortgage holders have trouble meeting their monthly payments, mortgage companies are actively working with borrowers on solutions such as refinancing or restructuring loans. Not surprisingly though, there are some less legitimate people who are seeking to take advantage of a difficult situation. Here are some things you should know to avoid being taken.

The Sell-to-Rent Scam

You can't make your mortgage payments, but you want to stay in your home. You've spent money decorating it, and your kids are established in the neighborhood and in the local schools. Plus, moving would just cost you more money.

Then a white knight appears out of the blue. This person will pay off your mortgage in exchange for the deed to your house, and then rent the house back to you at a reasonable rate.

Here's what's really going on: the "white knight" has borrowed money to buy your house. He pays off your mortgage balance, and pockets the difference between his purchase loan and that balance -- essentially, taking the equity out of your home. He then disappears with no intention of making payments on the new loan. The house defaults to a new owner who has no obligation to honor your sweetheart lease deal.

The Inflated Price Scam

In this scenario, you want to sell your house but prices in your market are in a nosedive, and buyers are few and far between. You know you are going to have to give any buyer a deep discount from your asking price.

Then a buyer emerges with a proposal: he will pay your full asking price, if you will refund some of that price to him after the purchase. This allows him to take out a mortgage in the full price amount, but immediately get some cash back from you. This cash is what he is interested in, as he then disappears and defaults on the mortgage.

While you are not on the hook for the new mortgage in this situation, you may have unwittingly participated in a fraud -- effectively falsifying the sales price of your home to defraud the mortgage company. You can be charged with a crime even if you didn't directly profit from it.

Legitimate Solutions

Solutions that seem too good to be true probably are, and meanwhile there are legitimate solutions to mortgage problems, such as refinancing and restructuring. Keep in mind that lower interest rates have made refinancing options more attractive, and mortgage companies can help you look at other ways of lowering your monthly payments.

Research multiple mortgage companies from third-party sources -- after all, legitimate companies don't operate under the cover of darkness. Also, talking to different mortgage companies will put you in touch with experienced professionals who can quickly clue you in to the reality behind any shaky proposal that may have been made to you.  

Freddie Mac

About the Author:
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.

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