Identifying the Warning Signs of a Mortgage Scam

Scam artists are hard at work taking advantage of homeowners desperate to stay in their houses. Catalyst provides some insight into the scams these criminals are using.

By Angela Sivak, NCPC Staff

The foreclosure crisis has taken its toll on many Americans, and 321,000 households received foreclosure notices in May 2009 alone. With this misery as a backdrop, scam artists are finding an abundance of business. Homeowners are desperate to stay in their homes, and these criminals are using lies, exaggeration, misinformation, and pressure to cheat homeowners out of their money and their property. Yet if people know how to identify a scam, they can protect themselves from this danger. Crime prevention practitioners can provide an invaluable public service by passing along the information below to civic leaders, residents, seniors, and others in the communities they serve.

Often, offers from scammers originate with a knock on the door, a dinner time phone call, or a sign posted on a telephone pole. When someone makes a homeowner an offer, that homeowner always needs to check that person’s credentials, reputation, and experience with his or references, the Better Business Bureau, or a local licensing agency.

Scam artists use common methods to draw people into their financial trap. They manipulate homeowners to break off contact with their lenders, or promise a homeowner that they will manage negotiations with the lender, often for a price. A scam artist will work hard to separate homeowners from their lenders to keep them in need of what the scammer has to offer, since homeowners may solve their financial problems if they stay in touch with their bank. Moreover, scam artists may collect a “mortgage payment” and say they will pass along the payment to the lender, while actually pocketing the money for themselves.

Scam artists often promise to save people from foreclosure by offering to buy a distressed homeowner’s house, in return for letting the homeowner pay rent to stay in the house, or buy it back at an affordable sales price when the homeowner has the funds. But the document is fake, and the scammer, who now purports to own the house, sets the price of the house too high for the renter to buy it back. The scammer then evicts the renter, who, in the eyes of the law, still owns the house. The original lender, therefore, still expects the homeowner to pay the mortgage. It’s a rather nasty business.

Scam artists may also offer aid from government programs such as the Making Home Affordable program that are intended to help modify mortgages, requesting an upfront fee for their services. Homeowners should recognize this as a scam, for people do not have to pay any fees to receive aid from these programs.

Scam artists tend to ask homeowners to fill out incomplete, partly blank documents. Once they have the homeowner’s signature upon the document, they fill in the blank spaces with statements that the homeowner never agreed to. Homeowners shouldn’t sign any incomplete documents that have blank spaces. Also, every homeowner should know to read through and understand all the contents of the document that they are signing.

Scam artists often trick people by asking for money beforehand, then never following through on their promises of service. It is important for people to wait until they receive some kind of service before handing over their money.

According to Illinois Attorney General Lisa Madigan, who spoke on Fox News, people should “stay away from anyone who says they will save your home in return for money up front. [Such claims] are almost always scams.”

The Federal Trade Commission has been attempting to find and shut down fraudulent companies that perpetrate mortgage fraud schemes. The FTC website warns people of the likely tactics that a mortgage scam artist is most likely to use, so that they will not be so easily fooled into giving away their money. Once people are informed of the tricks of scam artists and the right ways to identify them, homeowners will be a little safer from these criminals.