Article

Protecting yourself from mortgage scams

4 January 2007
By Allen Gammons

Nobody is immune from being the target of a scam. Perpetrators are constantly coming up with new ways to rip off their victims, but if you're young and inexperienced in finances, elderly, or in debt and desperate for a quick fix, you're more vulnerable to scams and fraudulent or exploitive credit practices. If you fall for one of the many cons, it could cost you a lot of money, and it could even cost you your home. The best way to avoid being a victim of such practices is to be informed and to be skeptical of anything that sounds too good to be true.

One of the schemes that many elderly people fall victim to is called equity stripping. If you don't have much income or cash but have equity built up in your home, you could be targeted by abusive lenders who will try to convince you that you can get a loan if you just pad your income. Even if you know you can't afford the payments, the scam artist is persuasive and may talk you into applying for a loan.

Then the lender sits back and waits for you to default on the payments. At the first opportunity, he forecloses on your home, stripping you of the equity you may have taken years to build up.

Don't fall for anything that sounds too good to be true, and don't agree to a loan if you know you can't afford to make the payments. If you have any question about the legitimacy of any offer, let someone you trust look it over, read the fine print, and maybe even talk to the lender directly.

Some lenders offer to save you from foreclosure when you've fallen behind on your payments by offering to refinance your mortgage for lower monthly payments. Sometimes the reason the payments are lower is because the payments are for interest only, and the total amount borrowed becomes due as a balloon payment all at one time. If you can't pay back the entire amount you borrowed, or refinance your loan, the lender forecloses on your house.

Another tactic that has been in the news in the last few years because so many elderly people have fallen victim to it and lost their homes, is called loan flipping. The lender calls you and offers to refinance your mortgage and let you take some of the equity out of your home. You could use the cash, so you agree. After you've made a few payments, the lender calls again and dangles another offer in front of you, and convinces you to refinance again and increase your loan to take out more equity for a vacation, or home renovations. Each time you agree, the lender adds in fees and charges and may even increase the interest rate. Your debt increases and after a while you're in over your head and could lose your home.

The list of scams perpetrated by unscrupulous lenders and scam artists goes on and on. You can protect yourself by following a few simple rules:

Don't agree to a home equity loan if you know you can't afford the payments. Don't ever allow yourself to be pressured into signing any document. Don't let a lender add credit insurance or any other products you don't want or need into your loan. Never give out your personal information such as your Social Security Number unless you're sure you're dealing with a reputable business. Beware of lenders who initiate contact with you. Use a healthy dose of skepticism when approached with offers that involve money in any way.

Prudential Gammons Realty is an independently owned and operated member of Prudential Real Estate Affiliates, Inc., a Prudential Financial company. Equal Housing Opportunity.