Protecting Yourself from Mortgage Fraud
As the country continues to suffer under the weight of the current financial crisis, the number of those who attempt to profit from others' misfortunes continues to rise. This is particularly evident in the escalating number of mortgage fraud schemes targeting homeowners who are desperately fighting to keep their homes out of foreclosure.
What is Mortgage Fraud?
The federal government defines mortgage fraud as a "material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan." The FBI reported a 37 percent increase in the number of reported mortgage fraud claims from 2007 to 2008. Of those cases reported, more than 60 percent involved a loss of $1 million or more.
There are generally two types of mortgage fraud: "fraud for property" and "fraud for profit." Fraud for property cases often occur when applicants provide false personal or financial information in a home loan application, sometimes even using a stolen identity. In other instances, the applicant will conceal his or her debt or provide misleading information about his or her assets in order to secure a loan approval.
Other mortgage fraud schemes involve networks of people — including home builders, real estate agents, land developers, lenders, loan officers, appraisers and credit rating agencies — who act together to run complex and highly profitable scams against homeowners and other victims. More traditional organized crime groups have also become involved in running mortgage fraud scams. Some of the more prevalent "fraud for profit" schemes identified by the FBI include:
Reverse mortgage fraud;
Illegal property flipping;
Builder bail-out fraud;
Foreclosure rescue scams; and
Mortgage refinance fraud.
Mortgage Fraud Targeting Homeowners in New Jersey
The New Jersey Attorney General's office has recently issued consumer warnings regarding several types of mortgage fraud schemes that have been detected in the state.
Foreclosure scams can take several different forms. These scams typically begin when a con artist offers to purchase the property of a homeowner facing foreclosure, offering to keep it out of foreclosure and promising to re-sell it to the homeowner once certain conditions are met. In one version of the scam, the con artist does nothing to prevent the foreclosure, instead allowing the home to be sold at a sheriff's sale. If the home is sold for more than is owed at the sale, the person holding the deed is entitled to the surplus. Since the perpetrator now holds the deed to the home, he or she can collect the surplus funds, thus depriving the homeowner of thousands of dollars.
In another version of the scam, the con artist allows the homeowner to remain on the property as a renter after preventing foreclosure. Despite promises to the contrary, the con artist has no intention to sell the property back to the homeowner and may even sell it to someone else. Thus the homeowner is then left without a place to live and without any of the money acquired from the sale of the home.
Loan Modification Scams
Most loan modification scams begin with an offer to help the homeowner avoid foreclosure by seeking a modification of the terms of his or her mortgage. A con artist may claim to be able to lower monthly payments, decrease interest payments, or even eliminate some of the balance owed on the loan. Perpetrators of this fraud typically charge the homeowner a substantial fee and then perform none of the promised services.
New Jersey law requires companies to be licensed debt adjusters by the Department of Banking and Insurance before they can offer homeowners help in modifying the terms of their loans. The Department offers a list of licensed debt adjusters on its web site.
Surplus scams target homeowners whose homes have been sold at a sheriff's sale. Con artists will contact one of these homeowners and offer to help them recover any surplus funds that may be available after the sale and, in some cases, they may charge as much as 75% of the surplus amount for their services in recovering the money. Once they receive the hefty fee from the homeowner, they then disappear. In some cases, there may have never been a surplus amount to recover.
In New Jersey, homeowners can contact the sheriff's office to find out if there was a surplus from the sheriff's sale of their home. If there was, they then can contact the Superior Court Trust Fund Unit for assistance in recovering the surplus funds.
How to Recognize Mortgage Fraud
There are some clues that can tip off homeowners that they are being targeting for mortgage fraud. Those involved in mortgage fraud often:
- Directly solicit homeowners to offer their services, either over the phone, by email or in person Charge large, up-front fees for their services Ask for some interest in the homeowner's property in exchange for their services;
- Ask the homeowner to sign documents that have blanks or other missing information;
- Refer to themselves as "homeowner consultants" or "financial counselors"; and
- Advise homeowners to stop making payments to their lenders and begin making the payments to them or a company they represent.
In general, homeowners should be wary of any deal that sounds too good to be true. The best way to refinance a mortgage or prevent a home from going into foreclosure is to work directly with the lender and/or a trusted attorney.
Contact an Experienced Attorney Today
If you are having difficulty paying your mortgage or are at risk of losing your family's home to foreclosure, there may be options available to you. The federal government has signed several bills into law aimed at providing homeowners relief from foreclosure. New Jersey also has several state programs available. A knowledgeable attorney can explain your legal options and help you decide which path is the best one for you to take.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.