2023 Mortgage Scams: How To Avoid Them (2024)

1. Mortgage Wire Fraud

Mortgage wire fraud is carried out by scammers who impersonate escrow officers, real estate agents or the lender. In this scheme, they attempt to get the prospective homeowner to wire funds into an illegitimate account for financial gain during the closing process.

These sophisticated mortgage scams often include crime organizations and untraceable offshore accounts, making the funds nearly impossible to recoup.

Mortgage wire transfer scammers may attempt to hack legitimate email addresses or send the buyer phishing emails posing as someone involved in the transaction. They’ll monitor pending sales and, as the closing date nears, they will send fraudulent instructions to wire the closing funds.

Expert Advice

Wiring instructions should be voice verified. Before sending any type of payment, authenticate the receiving account with your bank. Always double-check that incoming emails have legitimate addresses and watch out for grammatical errors and excessive urgency.

2. Foreclosure Scams

Homeowners in financial distress are a common target for mortgage scammers. Predatory lending schemes use a variety of methods, like equity skimming, loan modification, and rescue and relief schemes to take advantage of vulnerable homeowners.

In short, these tactics offer to pay the mortgage or save the home of a homeowner in financial distress. Let’s explore a few common types of foreclosure scams.

Equity Stripping

Equity skimming, or equity stripping, takes place when a homeowner defaults on their loan, and a predatory investor offers to purchase their property to avoid foreclosure. The investor then gains the deed of the home and leases the property to a third party or the existing owner. The perpetrator then pockets the rental income (which is typically inflated), refinances the mortgage to strip the equity and flips the home while the abandoned homeowner is still indebted to mortgage obligations.

Loan Modification And Foreclosure Relief Scams

With a loan modification scheme, scammers misrepresent themselves as government officials or attorneys and offer to negotiate the terms of a mortgage to avoid foreclosure. In exchange for the agreed service, they charge high fees that are due upfront. Generally, they either negotiate unfavorable terms that result in eventual foreclosure or fail to negotiate new terms at all.

Expert Advice

Prior to working with a third party, you should seek help directly with your lender or service provider. Always verify the credentials of mortgage relief service providers with the U.S. Department of Housing and Urban Development (HUD) prior to opting into their services.

3. Reverse Mortgage Scams

Reverse mortgage fraud is a scheme that takes advantage of home equity conversion mortgages (HECM), which are insured by the Federal Housing Administration.

A HECM is intended for senior homeowners, ages 62 and older, who own their primary residence. The program offers seniors their home equity in a single payment. Scammers take advantage of the program by recruiting seniors and applying for the loan on their behalf based on an inflated appraisal. While the homeowner continues to pay property taxes and insurance, they’re offered a portion of the payment while the scammer skims the remainder.

Because the HECM program doesn’t require repayment until the homeowner no longer lives in the property, the original lender often doesn’t recognize the scam until the homeowner passes away or sells their home, at which time the entire loan plus interest accrued is due.

Expert Advice

Be wary of programs that imply reverse mortgages are a government benefit instead of a loan with a repayment structure.

4. Bait-And-Switch Scams

The bait-and-switch tactic entices buyers with impressive terms and mortgage rates. Once the buyer signs on, those terms are then flipped or they’re told they no longer qualify for the lower rate. This leaves home buyers stuck with fees, high rates or unattractive loan terms.

Because rate changes happen often in legitimate settings and it’s possible for additional fees from Fannie Mae and Freddie Mac to be added to your loan after the estimate, these scams can be difficult to prove.

Specific types of mortgages, like negative amortization home loans and balloon loans, may have the same classification, as buyers are lured into these loans with impressive or nonexistent interest rates that become unaffordable after the set introductory period.

Expert Advice

Ask your mortgage lender to lock in your rate with a breakdown of fees. With your rate lock confirmation, you’ll also get a loan estimate to compare rates across other lenders.

5. Loan Flipping

Loan flipping, also known as loan churning, is the process of continually refinancing a borrower’s mortgage in attempts to collect fees for financial gain. This tactic has virtually no benefits to the borrower, as they can add transaction fees and closing costs that result in a longer term and additional debt.

Loan flipping is different from illegal property flipping where a borrower purchases a home at a higher appraised value than it’s worth and sells it quickly after purchase.

Expert Advice

Look at the overall cost of your refinanced loan, including the interest rate, closing costs and fees across the new loan term, which may be extended.

6. Fake Real Estate Agent

Real estate broker fraud typically occurs when an agent misrepresents themselves or misinforms a buyer. In some cases, a fake real estate agent may falsify credentials with a fake license, background or work history. Alternatively, a real estate agent may not follow full disclosure requirements about a property’s age, defects or foreclosure. These fraudulent agents may also try to rent out a home that’s being foreclosed on or for sale.

Expert Advice

Check with your state’s department of real estate or the real estate commission to verify your agent’s license number before conducting business with them.