Watch for Red Flags
Red Flags Point to Real Estate Scams
A sharp eye can help you uncover a scam before it does
damage. Here are some red flags:
1. A contract offer where the home’s price has been inflated beyond the asking price should be a hint that fraud may be taking place. Often the appraiser, mortgage broker and sales associate are working together to commit fraud.
2. If money is going back to the buyer, in particular with concessions that aren’t showing up on the settlement sheet, the true picture of the transaction is not being relayed to the lender. Anything a lender does not know about constitutes fraud.
3. If you’re asked to do something outside the closing that will not be reported on the settlement statement, it could be a sign of fraud.
4. Unscrupulous lenders sometimes steal the deed to a home by including documents that transfer the deed to a third party in stack of papers being signed to refinance a home, particularly if the refinance is taking place to avoid foreclosure. Be sure clients read every page they sign and suggest to them that they have an attorney present to walk them through the closing.
5. The Federal Trade Commission (FTC) warns consumers of home equity scams, including loan flipping, which occurs when a lender encourages frequent refinancing, addition of fees, interest points and increased debt. Warn clients about this danger.
6. The FTC also warns that some lenders are doing “equity stripping,” approving a loan based on the equity in the home, not the ability of the homeowner to repay it. This can result in foreclosure.
7. Business owners and sales professionals should be warned about a scam in which an invoice is sent for a “business directory listing” that was never ordered. The scam sellers can then threaten legal action or collection action if the bill goes unpaid, or offer a “discount” for the listing. In many cases, these directories are never distributed.
8. Home improvement scams involve contractors who offer homeowners a lender who will help them finance a project they cannot afford. The consumers sign papers for what is often a high interest home equity loan, which can be difficult to pay off.