Refinancing the home is quite confusing & stressful process even for the financially savvy borrowers. You may be an expert on real estate & mortgage market, but you never know when you could be a victim of a housing or refinance scam. Amongst the reputed lending companies there are few sophisticated scammers who can take the advantage of your need & ruin your financial stability. So, let's get an idea about the refinancing scams & the possible ways to detect & avoiding them.
How the scam works :
In case of refinancing, the scam company or a person sends you lucrative financing offers through mails or direct calls. Mostly, they targeted the homeowners who are having complications to pay their mortgage because of the high interest rates. Borrowers having balloon mortgage payments are also a significant prey for the scammers because of their increased payments over a short timeframe. They were posing as non-profit organizations, federal agencies or simply a real estate attorney to hook up with your mortgage problems.
Signs of refinance scams
There are some scenarios that may point out as a refinance scam -
Scenario 1 : Fishy government programs - Con artists replicates the idea of the free government program HARP (Home Affordable Refinance Program) & will contact you through phone, direct mail or via e-mail. The scammers will assure you that they are associated /approved by government & can solve the loan financing problem. In order to avail the service they'll ask you to pay an up-front fee as administration charges. After you've made the payment, the person will insist you to avoid responding to any notice sent by the lender. You may also be suggested to carry on with your monthly payments to the fake company which they'll promise to pay directly to the lender.
Scenario 2 : Land-trust-scheme/Equity stripping or Leaseback scheme– The scam company or person will suggest you to refinance your loan by putting your property in a trust in order to communicate with the lender on your behalf. On the other hand, they might ask you to transfer the title by removing your name from the deed. They'll assure you that the property will be transferred into your name at the end. Facing the foreclosure, you might agree to sign over the deed to them & living in the property as a renter.Finally you will find out that the scammers have sold the property or borrowed against it without your concern. Eventually the rent you would have paid will got into their pockets & you'll get evicted just by falling behind the mortgage. In other instances, the scam company remortgages the house, cashes out all the equity you have build for so many years & simply disappeared without notice. Consequently, your house will face inevitable foreclosure.
Scenario 3 : Bait-and-switch tactics – The old familiar trick which scammers uses against struggling homeowners. You'll be offered with an enticing loan program in order to reduce your monthly interest or low payments. you can accept the terms & put your total effort & funds to avail the program.
Shortly before signing the deed the lender provides a new & more rigid home loan terms in front of you. It will be too late for you to back out as you have already invested all your efforts towards the process. Meanwhile, the lender grabs a handsome revenue without any direct illegal means.
Scenario 4 : Illegal flipping of the property – House “flipping” means purchasing a low value house (basically foreclosed properties) & then modifying it up for selling at a high price. Flipping will be considered as scam if the re-seller deliberately lies about the value to gain a huge margin from the sell.
Investors owns the house at a steep discounted price and appoints a real estate appraiser to manipulate the value. You'll be lured by them through the offers, a lower rate of interest along with a high price. If you are getting engaged with the deal, the property will be re-sold to you at a high revenue. Unfortunately, you will be paying much more than the house is worth.
Scenario 5 : Fraudulent cash-out refinancing or 'loan flipping' – You will be offered a lower interest rate on refinance with cash back facility. If you are in need of urgent cash, you can not decline the offer. Every time you refinance, the associated fees & closing cost must be paid. So, the scammers charges a huge amount as fee & closing cost unlike the legitimate lenders would. When all your home equity gets squeezed out, the scam people disappears after grabbing the fees from you.
Apart from the above scenarios, short-term hard money loan offers can also hamper a homeowners financial stability. These loans are appropriate for house flippers or contractors but they are not typically designed for common home owners.
In the present housing market, the scammers are taking advantages of the financially unstable homeowners by manipulating different lending schemes & government aided programs. Though they are getting more aggressive & sophisticated day by day, have a look on the below given tips which might protect you & help you to differentiate between fake & genuine.
1) First of all, before making any move you must do some homework & researches about the loan program you are offered by the lenders. You must ask questions about the lender to the people he had worked with. Online video testimonial & reviews might get handy to check the trustworthiness.
2) Be aware from the term “upfront fee”. Most scammers intend to snatch out a good amount at the very beginning of the deal & often demands these fee. Generally a good loan program does not require advance payments. It is likely to be seen that over promoted mortgage relief programs are normally fake or fraudulent in nature. Don't let the loan officer pressurize you to choose a wrong loan program.
3) Do not fell for extra offers & services which you don't require. These services often bundled with extra payments & terms.
4) If you want to get the benefit of HARP program , contact your lender directly. The lender can offer you free advice on how to qualify for it. If the third party asking for money to provide you the HARP, it should be a alarm that you are engaging in a scam.
5) Avoid signing the deed which will transfer the title or signing a quite claim deed without proper information. Check out whether the company is authorized to work in your state or not.
6) Before purchasing any new home, you must verify the exact appraised value of the property. If you are getting very low rates on a high-priced property, make sure to check the papers/certificates and authenticate it with the local estate registration office. Avoid getting lured by cash-back refinance offers, most of them are not genuine as they seem. Avoid short-term hard money loans too for secure your house from being foreclosed.
If you are opting for a refinance, follow your mind & make sure your resources are verified. If you have relatives or friends who has recently refinanced, get their reviews and seek referrals. Choose a nationally renowned bank or lender which can ensure your financial security as well as provide you with the most lucrative offer in the town.