How to avoid mortgage scams

Mortgage scams are nothing new, but they are becoming more sophisticated. Lenders and borrowers alike must remain vigilant throughout the mortgage process to avoid these scams. Once a fraudster successfully pulls off mortgage fraud, it can be incredibly difficult to recoup your cash.  

According to the FBI, there are two main categories of mortgage fraud: fraud for profit and fraud for housing. Fraud for housing happens when a buyer lies to help them buy a home. In this article, though, we will be focusing primarily on fraud for profit, which happens when someone manipulates the mortgage process, usually for personal profit.

Who’s at Risk for Mortgage Scams?

Everyone involved in the mortgage process should be highly attuned at each step to what’s happening, as anyone can fall victim to a crafty scammer. However, these scams typically target vulnerable groups, such as: 

• Elderly people 
• First-time homebuyers 
• Those facing financial difficulties (job loss, foreclosure, credit issues etc.) 

Although those groups are more likely to be targeted, we cannot stress enough that everybody should be aware of these scams.

Warning Signs for Mortgage Fraud

Mortgage scammers can be very convincing and sophisticated, but there are a handful of tells you can look out for. As an overarching piece of advice, any time you don’t feel sure about what you’re being asked to do, hop on the phone with your lender or contact someone you trust for a second opinion.  

Otherwise, these are four tells to watch for in communications about your mortgage:  

1. Official communications with a lot of typos or poor grammar. While anyone, including your lender, can make a few mistakes in an email, a professional will general keep that to a minimum.  
2. Scammers often use an aggressive, pushy, or unprofessional tone in their communications to increase your urgency. 
3. Scammers will make unusual requests, like giving you different payment instructions for closing. If this happens, be sure you speak directly with your lender before submitting any kind of payment.  
4. They tell you to break off contact with your lender. 
5. They demand payment upfront for mortgage relief services 

Other indicators that you may be dealing with a fraudster could be: 

• They tell you your credit score doesn’t matter. Your credit score always affects your mortgage rate. Some loan products may be available to borrowers with lower credit scores, but your score will still impact your loan.  
• Interest rates that seem unreasonably lower than market rates. This is often a tactic used for a bait-and-switch (more on that later). If it seems too good to be true, there’s a strong chance it is.  
• They won’t put promises in writing.  
• They tell you to stop making payments. 

Common Types of Mortgage Fraud

Mortgage scams take on many shapes, but there are some more common types to watch for.  

Mortgage Wire Fraud

Mortgage wire fraud, also known as mortgage closing fraud, is becoming more and more common. This is a very convincing scam in which the scammer may have hacked accounts at companies with access to payment information, and they use that to target buyers.  

Often, the scammer will pose as someone the buyer knows or would be reasonably assumed to be involved in the mortgage process, using seemingly legitimate email credentials or phone numbers. Here, they’ll also include personal information about the buyer that makes the communication seem more legitimate. This may happen over the phone or via email.  

The scammer will invent some circumstance that requires the buyer to reroute their payment from the originally intended account to an account set up by the scammer. Because everything to that point didn’t arouse any suspicion, the buyer usually won’t realize they’re being scammed until it’s too late, at which point it can be incredibly difficult to get their money back.  

Avoiding Mortgage Wire Fraud

It’s easy to assume that you wouldn’t fall for something like, but some of these scammers are as smart as they are malicious. As such, you should take steps to protect yourself from this kind of scam.  

First, review your emails thoroughly and with suspicion, especially if that email is asking you to transfer money. If there are links or attachments in emails, even if they seem to be from your lender, do not click or download them until you have confirmed they are safe via phone call or in-person meeting with your lender. Do not send financial information over email.  

Then, well before your closing, talk to your lender and real estate agent in person or on the phone to lay out payment procedures. By doing this, you’ll know what to expect and will be able to call out sudden differences in process. Confirm this process again with your trusted team when it comes time to close. 

Using Secure Digital Environments

At The Federal Savings Bank, we offer secure e-closing through SNAP E-CLOSE. This is a secure digital environment in which you can safely close your loan. This system is well-equipped to protect sensitive information and reduce the risk of mortgage fraud. It enables mortgage transactions to be verified, ensuring that documents originate from trusted sources and signers’ identities are authenticated. 

Foreclosure and Loan Modification Scams

The following schemes have some similar traits and typically target vulnerable people, particularly those facing financial difficulties. 

Lease-Back or Repurchase

In a lease-back or repurchase scam, a promise is made to the homeowner that by temporarily signing over their deed to an investor, their various debts will be paid off, and they will eventually be able to repurchase the home. Unfortunately, once you sign over your home, you may never get it back, no matter the promises made.  

The “investor” who received your deed is under no obligation to let you buy back the home, nor are they obligated to let you stay as a renter. Often, the victims of these scams will be evicted from their homes with little-to-no recourse. 

“Rescue” Loans

The outcome here is more or less the same as the previous scam, but the tactic is slightly different. A scammer will promise to help you refinance your loan into a much more favorable one (the “rescue” loan) to help you avoid foreclosure. They will give you paperwork then pressure you to sign it before reading it carefully or asking questions.  

However, in that stack of paper is a particular document that signs over the deed to your home to the scammer. Now, they can sell your home or evict you, and you will still be stuck paying off your mortgage.  

It is important to note here that there are plenty of perfectly legitimate refinancing options available to borrowers. But if someone offers you rates that are too good to be true and/or pressures you into signing anything before you’ve been able to understand what you’re signing, that person is likely not trustworthy.

What to Do If You’ve Been Scammed

If you or someone you know has fallen victim to a mortgage scam, there are a few steps you can take. However, as painful as this situation is, there are no guarantees you will be able to recover your money. Once you believe you’ve been scammed, be sure to notify your lender and file a report with your local authorities. 

Then, it may be worth attempting some of the following.  

Report to the Federal Trade Commission (FTC)

Report deceptive mortgage practices or mortgage relief scams to the FTC. You can do so here. We’ve discussed some of the scams here, but deceptive practices could include deceptive statements, omission of facts, or misleading actions. You can also report deceptive practices to your state consumer protection office. 

Contact the Company You Sent Funds Through

The FTC also recommends contacting the company you used to send money. For example, if you sent funds through your credit card, call your credit card provider, tell them the transaction was fraudulent, and ask them to reverse the transaction. That process is similar if you wired money.  

If you sent cash in the mail, you can ask the U.S. Postal Inspection Service or whichever shipping company you used to intercept it. If you used cryptocurrency, you are unlikely to get your money back.  

For more information, review the FTC’s guidance for what to do if you paid a scammer.

Stay Vigilant

Mortgage scams are a terrible, cruel thing, but they are out there. Everyone must stay vigilant throughout their homebuying process or when facing financial distress. Scammers take advantage of those of us who are under pressure and more likely to overlook warning signs.  

Their tactics are constantly evolving, so we must remain alert. If you ever have doubts during your homebuying process or while attempting to refinance your home, listen to your gut and investigate further. 

Finally, be proactive with your lender to ensure you are on the same page about where, when, and how your money will be moved.