Guard against mortgage fraud

Realty Q&A
Heed these tips to guard against mortgage fraud
By Lew Sichelman
Last Update: 8:50 PM ET Jan 4, 2007
WASHINGTON (MarketWatch) - Question: I have enjoyed your many articles on mortgage fraud, particularly a recent one about the mob getting into the act. But I was hoping to see some pointers as to what a consumer should watch out for. Any ideas? Jim Carvin, Power Brokers, Orange, Calif.
Answer: I'm sure I've written what you request somewhere along the line. But just in case I haven't, let's rectify that oversight right here and now.
For starters, don't lend or sell your credit history to anyone. Not even your brother, or your best friend. Scam artists need good credit to convince lenders to give them money. Without decent credit, lenders won't lend. Besides, it's illegal and could get you in very serious hot water.
Second, deal with only reputable real estate and mortgage professionals. Get references and check them out. Also, check their licenses with the appropriate state, county and federal regulators. Make sure they are current, and make sure no disciplinary actions have been taken or are pending against the person or persons with whom you are dealing. See related story.
One of the things rogue brokers and agents do when they are caught is pull up stakes and go to another jurisdiction. So if your guy or gal hasn't been in town very long, find out where he or she has been and check them out there.
Don't jump at a contract offer that promises more than you are asking, certainly not in today's largely buyer's market, and certainly not when it involves a kickback of the overage to the buyer at closing. Chances are the buyer wants an inflated price on the property so he can take the additional money and run without every making the first payment. The old adage -- "If it sounds too good to be true, it probably is" -- comes to mind here.
"An outrageous promise of extraordinary profits in a short period of time signals a problem," the FBI warns in its pamphlet, "Mortgage Fraud Awareness and Prevention Tips."
Similarly, don't let anyone convince you to borrow more than you can afford to repay. Don't let anyone talk you into falsifying your income, the source of your down payment or the nature and length of your employment. You'll be told it's okay, and that "everyone does it." But that isn't true. Not everyone does, and those who do often find themselves in over their heads.
Also be certain you understand what you are signing, and if you don't, don't sign -- at least not until you obtain a satisfactory explanation from a real estate lawyer or accountant. And never, ever sign anything unless the blanks are all filled in. If the agent or broker tells you not to worry, that he'll fill them in later, worry. Worry plenty.
Beware of strangers and unsolicited offers. Ditto high-pressure sales tactics. Take your time and seek professional advice -- from another professional, one of your choosing, not theirs.
Review comparable sales in your immediate area to make sure they are not inflated. Review the tax assessments for those properties. Frequently, tax assessments are way behind values. But at the very least, they should be in line with one another. In other words, if the value of one property is three times the assessment on one property but only twice the one for your property, something's rotten -- and it isn't in Denmark. Before you purchase anything, research neighborhood prices to make sure what you are paying is in line with what others paid.
Also, review the title history of the property to determine whether it has been bought and sold multiple times in a short period. This is a sign of "flipping," a scheme in which houses are sold quickly, several times over, each time at a higher and higher price until the selling price no longer has anything to do with reality.
Another popular scheme seeks to cheat people who are in financial difficulty and cannot pay their mortgage. Here, the con man misleads the troubled owner into believing he can save his house if he signs it over to him. Forgetaboutit! While he promises to make the payments for you, and collects what he can from you, he never pays your lender. Instead, he re-mortgages the property, pockets the proceeds and skeedattles. And you lose the property. If you can't make your house payments -- or even if there's only a possibility you can't make your payments -- call your lender to see what kind of help the company can offer. It also might be wise to call a qualified credit counseling agency.
If you are in the market for financing, you might be the victim of a scam if your loan amount is greater than the value of your property. No legitimate lender would make such a loan. But a predatory lender would if his goal is to take the house away from you when you can't make the payments.
If there are any unexpected costs at settlement that were not explained to you when you applied for a mortgage, don't pay them. They are probably bogus. Also make sure that the amounts shown on the truth-in-lending statements -- which you should have received shortly after handing in your loan application -- match, or are reasonably close, to those on the final statement you receive at closing.
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