My friends and I were discussing the rise in mortgage scams and frauds across the country. Is the poor economy creating opportunities for more con artists or are people just more desperate for a deal? Whatever the cause, there are certainly more cases of mortgage fraud on the books this year than there have been in the past.
The Federal Bureau of Investigation reports that 462 cases of mortgage fraud were opened in FY2007, compared with 295 in FY2003. The states with significant mortgage fraud problems in 2008 are Florida, Nevada, Michigan, California, Utah, Georgia, Virginia, Illinois, New York, and Minnesota, according to the Mortgage Asset Research Institute. And in many cases, homeowners will end up on the street.
In New Jersey, unscrupulous brokers and lenders provided misleading and inflated appraisals of homes to buyers. In Detroit, MI, a loan originator was indicted in a scheme to defraud mortgage companies, recruiting buyers to purchase a house at an inflated rate and submitting false loan applications.
A former loan broker from Mississippi was indicted in connection with a mortgage loan fraud scheme for preparing false and fictitious documents to ensure lenders would make mortgage loans to prospective borrowers, garnering him a fee. He is alleged to have attained fraudulent mortgage loans of more than $1 million.
According to Bankrate.com, first mortgages have the greatest risk of scams. Some scams rely on “flipping.” A seller buys a low-value property, does a few cosmetic repairs, and then tries to convince a buyer to pay much more than its actual worth.
Other schemes involve sellers who try to trick buyers into deals like “lease with an option to buy” and “contract for a deed” plans. At one time these were predominately legal deals to help people afford to buy a home, but today most of them are scams. In the lease-to-buy scam, the buyer makes a small down payment with the agreement that every month’s “lease” payment will go toward the required upfront charge. The agreement says that the seller only has to give the buyer an option to purchase at the end of the first year, and then if the buyer can’t come up with the entire amount the seller keeps the down payment as well.
So what can you do to protect yourself and your home from con artists? I’ve put together a list of tips in my next blog that will help you do just that.