Protect Yourself From Mortgage Loan Scams
Purchasing a home can be a stressful process, but once all of the paperwork is complete, your home is arguably your largest asset. This is why most people choose to buy rather than rent; every payment you make on your mortgage is essentially more money in the bank.
Unfortunately, however, homeowners are also at risk. If you agree to take out a monetary loan based on the equity in your house, you could very well be putting your largest asset at great risk. There are lenders in the market who will exploit this asset to their advantage, leaving you with nothing in the end.
Those at the greatest risk for this type of scam are low-income families, the elderly, minority groups and young couples. Many abusive lenders specifically target these types of families; if you aren’t educated about the dangers of mortgage loan scams, you could be at risk.
Everyone falls on hard times every once in a while. Perhaps the primary bread winner in your home has recently been laid off from his or her job. Or maybe medical expenses are draining your bank account. Whatever the case, when money starts to get tight, people often run to the next available alternative: a loan.
With your home being your largest asset, it is the easiest to borrow against. The more equity you’ve put into your home – that is, the more payments you’ve made – the more valuable it is. If you decide to borrow against your equity, however, watch out for these scams that could end in foreclosure.
You should never take out a loan that you do not have the income to support. Carefully look at the payments – with interest – and plan your budget around it. If the money you bring in each month won’t be able to support the payments, then you shouldn’t take out the loan.
Some lenders will tell you to “pad” your income on the loan application, thereby increasing your chances of securing the loan. If this issue comes up, run the other direction. The loan officer who suggests this will be waiting for the day when you can’t make a payment. At that point, you run the risk of losing your house, as well as the equity you’ve already put into it.
This is similar to the payment at the end of the lease. While you’re making payments on the loan, you’ll only be paying off the interest. At the end of the loan term, however, you will be responsible for the principle, which will most likely be a rather large sum. If you aren’t able to make the balloon payment, or if you can’t refinance again, you’ll most likely lose your home.
Refinancing your home can be a tempting offer because it gives you extra money right now, even though your payments may be larger in the end. Loan officers take advantage of this temptation by trying to get you to refinance over and over again. They’ll suggest you put in a new pool, and refinance your home for the funds. Then they might suggest a family vacation, and you can refinance again to generate immediate cash.
Loan officers are doing this because they can charge you higher interest rates each time you refinance. You continue to accrue more fees for financing and, even though the payments might be spread out over a longer period of time, they might be higher as well.
Carefully read the loan terms before agreeing to refinance, and never do it several times in a period of just a few months or years.
Unfortunately, loan officers don’t always work alone. Sometimes they recruit professional contractors, such as painters or landscapers, to help convince home owners to refinance.
A popular scam is for a contractor to contact you about, say, putting in a new pool. You think, “Wow, that’d be really nice,” but you tell the contractor you can’t afford it. Seemingly as a favor, the contractor tells you he can secure financing through a lender friend of his. He brings over several pieces of paperwork, and rushes you to sign them.
If you don’t read that paperwork carefully, you might find out that you’ve signed a home equity loan, which might have exorbitant interest rates and high monthly fees. The contractor might not even finish the job because he’s been paid a commission by the lender, and you’ll be completely out of luck.
If you fail to read the fine print on loan paperwork, you might find that you’ve agreed to much more than you bargained for. Loan applications are often packed with “extra benefits,” such as credit insurance. These extra benefits will add more money to your payments, and the lender might not discuss them with you at the time of signing. He will hope that you don’t notice the box checked “Credit Insurance,” and he’ll count on you not mentioning it because you really need the loan.
Be very careful of this, and never be afraid of losing a loan. Always questing anything on an application that you don’t understand, and get it clarified to your satisfaction.
Mortgage Servicing Abuse
It is extremely important that you keep track of every payment you make on a loan, the date the payment was sent and the transaction number, if applicable. Some abusive lenders will rack up charges on your behalf that you don’t actually owe. For example, you might receive a letter in the mail that says your last payment was late, and therefore you are being charged a $30.00 late payment fee. The next month, you’ll get another letter that says you are not paying all proper taxes, and you’ll be fined again.
Keep abreast of the payments you make and the terms of the mortgage. If you find that you are being overcharged, insist on speaking with your lender.
Let’s say that you’ve refinanced your home, and you begin to fall behind on payments. Perhaps you’ve lost your job or stumbled across unexpected expenses. Your lender threatens to foreclose on your home.
A week later, another loan officer calls to offer to refinance your home again. He says he can get lower interest rates and a much lower payment. You think you’ve been saved. The second loan officer instructs you to sign your deed over to him as a preventative measure against foreclosure until the second refinancing comes through. Desperate and scared, you sign it over. He insists that it’s temporary.
Later, you find out that the refinancing didn’t come through. Now the lender has the deed to your home, and effectively owns it. He might sell it, borrow against it, or even charge you rent.
Protecting Yourself from Mortgage Loan Scams
There are ways to prevent this from happening. Follow these guidelines, and you should be safe:
- Never sign a loan agreement without reading it carefully. If you are concerned about certain sections, have a lawyer look it over.
- Never sign a loan agreement under pressure. If a lender doesn’t give you an opportunity to read it over, there is something in it he doesn’t want you to see.
- Never deed your property to anyone. It isn’t a legal or moral practice, and you could end up losing your home.
- Make sure to ask about every section of the loan, including credit insurance. Ask if it is required, and if it isn’t, don’t accept it as part of your terms.
- Keep a detailed, accurate record of all payments made to your lender. If you receive charges you don’t understand, dispute them immediately.
- Never sign a loan application with blank spaces in the document. Those blank spaces may be filled in later by the lender. Take a copy of the document you signed with you in case something needs to be disputed.
If you have been a victim of a mortgage loan scam, call the FTC (Federal Trade Commission) 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261 or visit them on the Internet at www.ftc.gov. The Consumer Sentinel, an online fraud database, contains reports of Internet, telemarketing, consumer and identity theft fraud.
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