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Unveiling Mortgage Scams: Safeguarding your investment.

in Buying a House, Managing Money & Credit, Protecting Your Identity
mortgage scams

Having your home or other property stolen out from under you may seem highly unlikely to most people, but mortgage-related scams and fraud have become more sophisticated recently mainly because so many real estate transactions now take place entirely online. Let’s be clear – it is possible to buy or sell a piece of property online without ever having met any of the principal parties in person. In fact, it is an increasingly common practice that can offer convenience and save costs for all parties involved. Unfortunately, this convenience can come at a cost, with advances in technology creating new ways for bad actors to engage in real estate theft and fraud.

The most vulnerable time for homeowners and prospective buyers is during the lending process, where caution and extra diligence is necessary to protect against three kinds of theft or fraud:

  • Home Title
  • Settlement
  • Identity

Each of these crimes can be perpetrated in numerous ways at different stages of a real estate transaction.

Home Title Theft

Home title theft, also known as deed fraud or property title fraud, occurs when someone fraudulently gains ownership of a property by altering or forging property documents (typically the title). The method usually involves manipulating property records, followed by transferring the title into the thief’s name without the true owner’s knowledge or consent.

Once the fraudster gains control of the property title, they may:

  • Use it as collateral for loans,
  • Transfer ownership out of your name and into theirs or someone else’s,
  • Try to sell the property, or even take out a mortgage against it.

Victims often remain completely unaware of the theft until they receive a foreclosure notice, notice of unpaid taxes and an IRS lien, unexpected changes in property records, or attempt to sell their property.

There are three ways to protect your property against title theft. The first– and most foolproof — is to obtain title insurance when you purchase a property. Title insurance is not mandatory in every state, but many lenders require it, and most real estate agents recommend it. It isn’t cheap, but it’s a one-time cost that protects you against fraud, forgery, and numerous other risks. The policy remains in effect as long as you or your heirs own the property. Title insurance is one of those things you can purchase and forget about, knowing you’re protected. The cost will be well worth it when weighed against the time, money, and headaches you’ll incur if someone tries to steal the title to your property and you didn’t purchase the insurance.

The other methods are valuable even if you do have property insurance, and essential if you don’t: monitor your property records regularly (there are services that notify you of any changes) and be cautious with sensitive personal information to prevent identity theft, which can be a precursor to title theft.

Settlement Fraud

Home settlement fraud, also known as real estate settlement fraud or closing fraud, occurs during the final stages of a real estate transaction when the property is being purchased or sold. In this type of fraud, scammers manipulate the closing process to steal funds or personal information.

Here are some common types of home settlement fraud:

  • Wire Fraud: Hackers or scammers gain access to email accounts of real estate agents, buyers, or sellers involved in the transaction. They then send fraudulent wire transfer instructions, diverting funds meant for the purchase or sale to their own accounts.
  • Forgery or Identity Theft: Fraudsters may impersonate one of the involved parties or use stolen identities to gain control over the transaction, altering documents or redirecting funds.
  • False Change of Terms: Dishonest individuals might manipulate the terms and conditions of the sale or mortgage, tricking one or more parties involved into agreeing to unfavorable or unauthorized changes.

Settlement fraud can be prevented by taking the following steps:

  • Verify wire transfer instructions by directly contacting the parties involved: use only known, trusted contact information.
  • Be suspicious of new emails outside of your chain of communication and pay attention to the tone of any new email.
  • Follow all instructions from the lender and settlement companies.
  • Be suspicious of any communication trying to rush the transfer of settlement funds.
  • Be suspicious of instructions to only communicate by email and not telephone.
  • Utilize secure communication channels and be cautious about sharing personal or financial information via email.
  • Work only with reputable professionals and utilize secure payment methods to help mitigate the risk of settlement fraud.

Identity Theft

Protecting yourself against identity theft is an absolute must to mitigate your chances of becoming a victim of theft or fraud. Fraudsters steal personal information to apply for mortgages or loans without the victim’s knowledge. They might use stolen identities to secure loans on properties they don’t own. All the protection basics apply here — using two-factor authentication, not using the same passwords repeatedly, uploading personal data only through secure channels, and never sharing it online or with anyone with whom you did not initiate contact — these are absolute musts.

An additional measure is never sharing passwords, codes, account information, or banking information with anyone who initiates contact with whom you do not know and trust. Reputable companies will never, ever ask for this information.

When in doubt, do not trust and always verify to your satisfaction that you know to whom you are talking. Verify the legitimacy of lenders, brokers, or counselors. Check their credentials, licenses, and reviews. Be wary of unsolicited offers or pressure tactics. Always protect your personal information and be cautious about sharing personal and financial information. Secure your sensitive documents and dispose of them properly.

Below are some additional real estate-related scams which you should be aware of and protect yourself against:

Foreclosure Rescue Scams: Scammers target homeowners facing foreclosure, promising to save their homes for a fee. They may ask for upfront payment or transfer the deed to their property with the promise of renting it back. Often, they vanish after receiving payment or when the homeowner realizes the scam.

Loan Modification Scams: Fraudsters pose as legitimate lenders or representatives, offering to modify a loan’s terms, reduce payments, or lower interest rates for a fee. They might ask for personal information or upfront payment but do not deliver the promised modifications.

Phantom Help: Scammers pose as counselors or advisors, offering assistance with mortgage modification or foreclosure. They charge fees for services but provide little or no help, leaving homeowners in a worse financial situation.

Equity Stripping: Individuals persuade homeowners to transfer the property title to them while allowing the homeowners to continue living there. They then take out loans against the property and pocket the proceeds, leaving the homeowner at risk of eviction.

Bait-and-Switch: Dishonest lenders may entice borrowers with attractive loan terms but change them at closing, offering different, less favorable terms. This can leave borrowers with higher interest rates or fees than initially agreed upon.

Appraisal Fraud: Some scammers manipulate property appraisals to inflate the property’s value, allowing borrowers to obtain larger loans than the property’s actual worth.

Our Advice? Get a Second Opinion. Don’t be shy to seek advice from trusted financial advisors, attorneys, or housing counselors before making significant financial decisions related to mortgages or loans.

If you suspect you’ve encountered a mortgage-related scam, report it to the appropriate authorities, such as the Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission (FTC), or your state’s attorney general’s office.

Partner With a Trusted Financial Advocate

Ensure your homebuying journey goes smoothly from start to finish by partnering with Lafayette Federal for your mortgage lending needs.

At Lafayette Federal Credit Union, we offer competitive benefits, including a 30-day close guarantee. If closing takes longer than 30 days, we offer a $250 closing cost credit (up to $2,000) for each day beyond 30 days. Additionally, Lafayette Federal offers nationwide financing, competitive rates, up to 100% financing options, loans up to $3,000,000, and money-saving rate discounts.

Not a Lafayette Federal member yet? You can become a member by completing an online membership application.

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