The Federal Housing Administration (FHA) warns homeowners to beware of predatory lending schemes and scams.
Most mortgage lenders are trustworthy and provide a valuable service by allowing families to own a home without saving enough money to buy it outright. But dishonest or “predatory” lenders do exist and engage in lending practices that increase the chances that a borrower will lose a home to foreclosure. Beware especially of those who make high risk second mortgages. Other abusive practices include:
- Making a mortgage loan to an individual who does not have the income to repay it
- Charging excessive interest, points and fees
- Repeatedly refinancing a loan without providing any real value to the borrower
Who are the Targets?
Borrowers facing unemployment and/or foreclosure are often targets of predatory lenders because they are desperate to find any “solution.”
Homeowners receive many refinance offers in the mail saying they are “pre-approved” for credit based on the equity in their homes. Borrowing against your house may seem attractive when you are struggling to pay your mortgage and other bills. But stop and think about this: if you can’t make your current payments, increasing your debt will make it harder to keep your home, even if you get some temporary cash.
Homeowners can either visit the Stop Mortgage Fraud website or call toll free (800) 348-3931 to get information on what steps to take to file a complaint. Homeowners who call will also receive a booklet containing information found on the website.
How Scam Artists Defraud Homeowners
- Equity skimming: In this type of scam a “buyer” approaches you offering to repay the mortgage or sell the property if you sign over the deed and move out – usually leaving you with the debt and no house. Signing over your deed does not necessarily relieve you of the responsibility of paying the loan.
- Phony counseling agencies: charging for counseling that is often free of charge. If you have any doubt about paying for such services, call a HUD-approved foreclosure housing counseling agency toll free at (800) 569-4287 or TDD (800) 877-8339 before you pay anyone or sign anything.
- Do not sign anything you do not understand. It is your right and duty to ask questions.
- Information is your best defense against becoming a victim of predatory lending, especially for a desperate homeowner.
These precautions can help you avoid being “taken” by a scam artist:
- Don’t sign any papers you don’t fully understand.
- Make sure you get all “promises” in writing.
- Beware of any sales contract that assumes the loan where you are not formally released from liability (responsibility) for your mortgage debt.
- Check with a lawyer or your mortgage company before entering into any deal involving your home.
How to Check for Complaints Against the Prospective Buyer
If you’re selling the house yourself to avoid foreclosure, check to see if there are any complaints against the prospective buyer. You can contact your state’s Attorney General, the State Real Estate Commission, or the local District Attorney’s Consumer Fraud Unit for this type of information.