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Be Wary of Real Estate Con Artists The Types of Common Real Estate Scams

By the Mortgage Guy /

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Real Estate and Mortgage fraud have been popular with scammers for generations. In the last few years as the economy gets worse, when people are making less or losing their jobs, the practice has become even more prevalent as homeowners are being slapped with the threat of foreclosure and being preyed upon in their hour of need. Many have succumbed out of the fear of losing their homes and some are entering into fraudulent or bad mortgages because loan approvals are so hard to get now.

Authorities nationwide estimate that mortgage fraud cases result in between four to six billion dollars in loses every year. It not only affects the individuals who are being targeted but entire communities because this class of fraud leads to an increase in foreclosures, leading to a drastic drop in home values, and lenders in turn raise their future rates to compensate for the radical losses that they have suffered. These scams are often intricate, have a cast of many players and are staged over multiple transactions.

Although common sense should warn many consumers that their dire situation and desire to find a way out have blinded them, what may have normally been the warning signs along the way are not being recognized or heeded. These scams are almost as numerous as the fraudsters themselves so we have compiled a list of some of the most prevalent ones being perpetrated across America.

A. The Foreclosure Rescue Scheme

Anyone who is facing the possibility of foreclosure can tell you it’s a frightening experience. The thought of losing what is most likely their largest investment, and their home, puts them in the vulnerable position of being blinded to fraudsters offering a solution to their dilemma. These unscrupulous people promise these down and out home owners a rescue plan that can help them continue to pay down their mortgages and save them their home in the process.

These plans most always require fees being paid in advance. Two such schemes have the perpetrators securing a new loan on behalf of the title-holder or by having them sign over the home’s deed with the intention of them then renting the home until they can repurchase it back. The future outcome is that the owner’s home is then stolen from them through foreclosure or becomes an asset of the perpetrators.

One way to know this is happening to you is that you will be asked to sign over your title without contacting your lender or to make your payments directly to the people who claim to be helping you stay on track and not lose your property. Never eliminate the lender before consulting with them.

B. Reverse Mortgage Scheme

One of the most popular and devastating schemes of the last decade has been the reverse mortgage scheme. One reason it is considered to be so bad is that it targets older people whose home is their single greatest asset which they are looking to depended upon throughout their retirement.
Although a reverse mortgage is a legitimate way for seniors to use the equity in their home without then having to make monthly payments, a con artists will convince the unsuspecting retiree that they can stay in their home for free, they then secure a mortgage under the owner’s name and abscond with the equity, leaving them duped and repaying a new mortgage.

C. Appraisal Fraud or Inflated Appraisal

Appraisal fraud has always been a popular choice of the real estate scammers and is extremely common. By claiming a particular property has more value than it actually does can be used in many ways to forward a scam and defraud people out of their hard earned dollars. Manipulating or overstating comparables, market values, or property characteristics in order to obtain a higher appraisal is how they start off. An over-valued appraisal created by falsifying an appraisal document or using an unscrupulous appraiser creates false equity which is then used to obtain a higher value.

When reviewing an appraisal always check the date on the document and make certain it is not dated prior to the sales contract. Also look out for the comparable sales listed that are not similar to the property of interest or are not within the same locality. The new Dodd Frank Act which came into force on April 1, 2010 stipulates that a third party appraiser must be used in the transaction and they cannot be hired by or associated to the loan originator.

D. Bogus "Government" Modification Programs

Some con-artists may hoodwink desperate home-owners into paying advanced fees under the assumption that they are affiliated with, or approved by, the government. The fees are suppose to give the home owner access to government loans and mortgage modification programs that will help alleviate their problems or threats of foreclosure. If approached to participate in such a scheme it is advised that you contact your loan originator and ask them if you qualify for any such bailouts. If you do qualify, there will never be a fee associated with the helping hand of the government.

E. Forensic Loan Audit

When the dust had started to clear after the recent financial meltdown in America it was discovered that many of the major lending institutions and banks across America had been so focused on selling mortgages that they had not properly serviced them or filed the documentation and contracts properly. Out of this confusion arose the forensic or mortgage loan “auditor” scam.

These con-men offer to review your loan’s documentation and filings and then supposedly arm the homeowner with an “audit report” that shows that the lender used either unfair lending practices or improperly filed the loan. The home owner, who under the misconception that they can avoid foreclosure, looks to accelerate the loan modification process, reduce their loan principal, or even cancel their loan, but they have already been bilked out of their money thinking they have found a valid solution to their problem.

F. Bait-and-Switch

If you are asked to sign documents that purport to offer you a "new loan modification" that will make your existing mortgage current you have been scammed. What you have actually done is signed over the title of your deed to the fraudsters in exchange for what they have called a "rescue" loan. When being approached to sign anything that seems too good to be true, or will relieve the financial stress you may currently be in, consult your lawyer or lender to be certain that what you have before you is actually a solution to your current dilemma.

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