Between March and June 2008, 406 people have been charged with mortgage fraud through 'Operation Malicious Mortgage'. The foreclosure crisis has caused some kinds of fraud to skyrocket and the Justice Department has taken notice. There are three main scams that OMM is targeting: lending fraud, foreclosure rescue scams and mortgage bankruptcy scams.
Lending fraud:
There are several types of lending fraud, but we're going to look at one that is responsible for a lot of foreclosures. This is perpetrated on low-income and vulnerable demographics, such as seniors and families trying to get ahead. The person buying the home is offered an exceptionally good rate on interest, but is then hit with exorbitantly high fees and bogus taxes. What started out as a great deal becomes crushing debt. One nasty note on this kind of fraud is that about half of the people fleeced by these people could have gotten a regular loan through a reputable lending institution. They just didn't check to see what their options were.
Foreclosure rescue scams:
Say you're in a foreclosure situation, but someone steps in and says, "Hey, we can help you! Just sell your house to us for a nominal sum, we'll keep it for you and you can rent-to-own it back until you get on your feet!" You say, "Where do I sign?" The problem is, the 'kindly stranger' ends up selling your house out from under you, at a huge profit. After all, you legally transferred ownership. Too bad that your family has nowhere to live and that you're out thousands of dollars. This scam is often perpetrated against the elderly, leaving seniors without their homes or money to live.
Mortgage bankruptcy scams:
"Hey, I see you're in trouble. Let me help you with that. Just pay what you're paying to me and I'll see you straightened out!" Instead of "straightening you out", the scamster instead goes and pockets all of your payments. Sometimes a bankruptcy will be filed in your name without your knowledge. It stops foreclosure proceedings, but not for long. What a surprise you'll get when you realize that your home has been foreclosed after all! By the time many home owners realize what has happened, they are months behind on the mortgage, the scammer is gone, along with thousands of the home owner's dollars, and the bank is knocking on the door.
The key to avoiding all of these scams is to read anything you sign carefully and get a real estate lawyer to check that what you're signing doesn't make you a target for unscrupulous fees or added interest. If you already have a mortgage and are in trouble (or heading there), bypass "foreclosure services" and go directly to your lender or mortgage broker. Do not pass GO and do not collect $200 (you'll probably need it for the insurance).
