Mortgage Scams – Spot Them and Avoid Them

Foreclosures are on the increase, and with rising interest rates and the popularity of adjustable rate mortgage features, this trend is likely to continue, leaving families vulnerable to a host of mortgage scams. Here are some of the most popular and how to avoid them.

Fraudsters pray on the vulnerable. What is making people more vulnerable right now? A combination of rising interest rates and popularity for adjustable rate mortgages has led to a hefty increase in the number of foreclosures in 2006. A recent MSN.com article discussed some of the more popular mortgage scams that are being seen across the country.

Scam 1: Signing Your Home Away
Seems impossible, but the simple trick of having you sign your home over to someone else does actually work. Con artists will either have a document intermingled in a bunch of confusing paperwork, which you sign because you’ve really got the action down. They can have blank sections that you sign and are later filled in by the fraudster. Or the transfer of your home’s title can be included as part of a complicated legal document that is virtually impossible to understand.

The key to avoiding this scam is caution and awareness. Don’t sign anything with blank spaces or too-good-to-be-true promises. Avoid signing a contract when you are under pressure. And don’t make any verbal agreements. Make sure everything is in writing. Ideally, work everything through with a lawyer you can trust!

Scam 2: Equity Stripping
This is a fairly complicated scam, and is a scam because if it works legitimately it can be an effective way out of a temporarily difficult situation. Essentially, if you are close to foreclosure due to a temporarily bad situation, you can sell you house to a third party for less than the value of the home, the third party will get out a loan for the amount you sell the house to them for, and often give you a little cash back. You then have a new two-year mortgage to the third party, who, in theory is paying your old mortgage the whole time. Assuming you can make the new, agreed-upon payments, after two years, you get your home back, the company makes some interest-profit, and everybody wins. Scam artists, however, are not about to give you your home back. They end up charging you monthly payments that are too high, you default, they sell the house for its real worth, pocketing the difference between the loan they took out and the new sale price.

Whatever you do, don’t sign away ownership of your home without the advice of a lawyer you trust. Be very cautious of any home sale contract where you aren’t formally released from liability for your mortgage. And finally, don’t fall for promises that sound too-good-to-be-true, such as the ability to save your credit.

Scam 3: Fake Help
This is another fairly simplistic scam. When a lender schedules a home for public auction, the matter becomes public record. Fraudsters use this information to target their victims. They then swoop in with promises of help, charging you thousands for various administrative tasks, none of which they actually perform. When you realize foreclosure is still inevitable, it’s too late - you’ve spent thousands and got nothing to show for it.

The first thing is to communicate with your mortgage company or lender; they don’t want to have your foreclose either. Always be extremely cautious when you are approached by people offering to help you out, and don’t call for assistance from one of those ever-present signs on telephone polls or phone booths that advertise assistance.

The thought of foreclosure is extremely scary, but the thought of being scammed when you are at your most vulnerable is worse! Keep alert and enlist the help of those you trust to weed out the real offers of help from the fake ones.

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