Homeowners: Watch Out for These 5 Common Mortgage Scams

Think you're knowledgeable about the housing market and home financing process? You may consider yourself an expert on mortgages (take this real estate quiz to prove it), especially if you're currently looking to finance your first home or have been a long-time property owner. But what about the numerous threats to your home and financial security that currently exist? They may not even be on your radar.

Though lending practices are now under a lot more scrutiny thanks to the housing market crash in 2007, it means predatory lenders and scam artists have to be that much sneakier when it comes to duping borrowers. Considering the number of mortgage delinquencies and foreclosures today's homeowners are experiencing, it also means there is plenty of opportunity for them to try.

Whether you're struggling financially--or even a current homeowner, for that matter-- it pays to be aware of the most common mortgage scams so no one can profit off your inexperience or trust.

1. Bait-and-Switch

It's the oldest trick in the book, and now it's been adapted for use by unscrupulous lenders. There are many variations, but the gist is this: A potential borrower is baited with an enticing loan offer, like a competitive interest rate or low monthly payments. That person puts a serious amount of effort into preparing for financing, until shortly before it comes time to sign on the dotted line, the lender presents completely new--and much less favorable --home loan terms.

Victims of the bait-and-switch scam often go through with obtaining the more expensive mortgage because they feel they're already too invested in the loan to back out, or are fearful they won't be able to find financing for their dream home elsewhere. Meanwhile, the lender reaps a generous profit without having to do anything outright illegal.

2. Equity Stripping or "Leaseback Scheme"

You can't afford to keep your house: It's a nightmarish situation most would do just about anything to get out of. Unfortunately, scammers know this and use it to their advantage. Often presenting themselves as "mortgage rescuers," scam artists who prey on high-equity property belonging to struggling homeowners are nothing more than crooks.

Equity stripping begins with the promise to rescue a homeowner from their unaffordable mortgage. Facing foreclosure, the homeowner agrees to sign the deed over to a "rescuer" in exchange for the ability to continue living in the home as a renter, while the new homeowner pays off the delinquent mortgage. Meanwhile, these rent payments go toward buying the property back, with interest.

Of course, if you couldn't afford the mortgage payment, you probably can't afford your new exorbitantly high rent payments. Not to mention, the person you signed your home over to is simply pocketing the rent. Once you fall behind, you're evicted and the scammer keeps all the equity you worked years to build up in the home. In other instances, the new homeowner simply remortgages the home, cashes out the equity and skips town while it goes into foreclosure anyway.

3. Illegal Flipping

The practice of flipping houses has taken on a negative view within the housing industry and is often associated with mortgage scams, but house flipping has actually existed for decades and is entirely legal (some would argue unethical in some cases, however). Many have made a small fortune "flipping" homes--buying property at a low price (usually a foreclosure) and then fixing it up to sell for thousands more. Regardless of how you feel about the practice itself, it only becomes a scam when a person outright lies about the value of a home in order to profit from it.

Like any other mortgage scam, there are many ways to illegally flip a house. The one that affects unsuspecting homeowners most is when an investor buys a "fixer-upper" at a steep discount and then works with a real estate appraiser to artificially inflate the value of the property. A buyer is lured into securing a loan for this inflated amount (the closing agent is often in on the scam as well), and the home is re-sold at a large profit of which everyone involved takes a cut.

4. Loan Flipping

While some are in the business of flipping houses for a profit, some fraudulent lenders are taking the same approach to home loans. Much like leaseback schemes, loan flipping involves targeting a homeowner with substantial equity, but who is currently financially strapped, in order to drain that equity from the home.

Loan flippers will contact a homeowner with an offer to refinance at a lower rate and receive cash back. Whether the homeowner is in need of extra cash to make home improvements, fund a child's education, or pay off debt, the offer is certainly enticing. Need another $10,000? Refinance again.

Every time the mortgage holder refinances, however, there are closing costs and associated fees that must be paid. And of course, these scam artists will charge much more than a legitimate lender would. As you suck out all the equity in your home, they collect the fees and then disappear.

5. Phantom Help

There are a number government-sponsored loan modification programs designed to reverse the current housing market situation--so many, in fact, that it's nearly impossible to keep track of what they are. Mortgage scam artists will rely on this fact when they create fictional loan mod programs and dupe struggling homeowners into "refinancing" with them.

You're way behind on mortgage payments and foreclosure is becoming a looming possibility. Like an angel, a representative for a mortgage relief program contacts you with offers of help. All you have to do is provide an up-front fee to cover administrative expenses, like filing forms and making phone calls, while this person works out new loan terms on your behalf. When foreclosure notices come to you in the mail, the representative advises you to ignore them, as they're handling the situation.

Little do you know that when you originally fell behind on your mortgage payments, your lender filed a Notice of Default, making your mortgage troubles (and property address) public record--and you, easy prey. The scammer doesn't actually do anything to help your situation while collecting thousands of dollars from you, and once your home is lost to the bank, your phantom helper is gone.

How to Protect Yourself

Though mortgage scams are rampant, you can protect yourself if you're aware of the red flags and remain suspicious of any deal that seems too good to be true.

First, one of the telltale signs of a loan modification or mortgage scam is the request for an upfront fee. No legitimate program requires that you pay a fee prior to undergoing a loan modification and receiving assistance. Additionally, those who solicit mortgage relief door-to-door, via flyers or on telephone poles, are likely to be involved in fraudulent services. And if you're ever offered help that requires you to make payments to anyone other than your lender, or relinquish ownership of your property, beware.

The best thing to do when experiencing financial hardship is to contact your lender directly and ask for help; sometimes they'd rather take a smaller loss on a home by reducing your mortgage than a big one as a result of short sale or foreclosure. And remember, if you can't work out a deal with your lender, selling your home for a fraction of its original value is still a better option than losing it-- and then some--to a scam artist.

Casey Bond is editor-in-chief of www.GoBankingRates.com, which provides readers informative personal finance and investing content, as well as the best interest rates on financial services nationwide.

More From US News & World Report


Get stories like this on the Yahoo app and discover more every day.
Download it now.
  • Deutsche Boerse, LSE submit merger to EU regulators for approval
    Deutsche Boerse, LSE submit merger to EU regulators for approval Reuters - 8 minutes ago

    Deutsche Boerse and the London Stock Exchange Group have submitted their $29 billion merger deal to European Union competition regulators ahead of a Sept. 28 deadline for a preliminary review. The European Commission's antitrust department, whose … More »

  • European equities slide in choppy trade
    European equities slide in choppy trade AFP News - 13 minutes ago

    European stocks slid Thursday in choppy trade as investors eyed poor German data and recent oil price falls, on the eve of a speech by Federal Reserve boss Janet Yellen. In late morning deals, Frankfurt sank 1.0 percent, London lost 0.3 percent and … More »

  • Michaels meets 2Q profit forecasts Associated Press - 13 minutes ago

    On a per-share basis, the Irving, Texas-based company said it had net income of 17 cents. The results met Wall Street expectations. The average estimate of seven analysts surveyed by Zacks Investment Research ... … More »

  • Turkey sends more tanks to Syria, warns Kurdish militia
    Turkey sends more tanks to Syria, warns Kurdish militia AFP News - 24 minutes ago

    Turkey on Tuesday sent more tanks into Syria and sternly warned a Kurdish militia to withdraw from frontline positions, a day after pro-Ankara Syrian opposition fighters captured a key border town from jihadists. The tanks joined those which … More »

  • Brexit hits German business morale, Ifo index plunges
    Brexit hits German business morale, Ifo index plunges Reuters - 25 minutes ago

    The Munich-based Ifo economic institute said its business climate index, based on a monthly survey of some 7,000 firms, fell to 106.2 in August from 108.3 in July. "Business confidence in Germany has clearly worsened," Ifo head Clemens Fuest said … More »

  • Global stocks wilt ahead of Fed gathering, dollar wobbles Reuters - 31 minutes ago

    European stocks saw their biggest fall in three weeks on Thursday and currency markets were noticeably subdued as investors took to sidelines ahead of one of the big global central banker gatherings of the year. Japanese and Chinese stocks had … More »

  • 'Bogan', 'ranga', 'rurosexual' added to Australian dictionary
    'Bogan', 'ranga', 'rurosexual' added to Australian dictionary AFP News - 34 minutes ago

    Heading Down Under where locals are "dry as a dead dingo's donger" and beachgoers don "budgie smugglers", but unsure what this means? The second edition of the Australian National Dictionary -- a heavy two-tome hardback containing the definitions … More »

  • Gold holds above four-week low, awaits clues on Fed rate hike
    Gold holds above four-week low, awaits clues on Fed rate hike Reuters - 38 minutes ago

    Yellen is scheduled to address a meeting of central bankers in Jackson Hole, Wyoming, on Friday, and recent comments from Fed policymakers have raised investors' expectations that she might adopt a less cautious tone on rates. "Investors are … More »

  • Medtronic tops 1Q profit forecasts Associated Press - 39 minutes ago

    The Dublin-based company said it had profit of 66 cents per share. Earnings, adjusted for one-time gains and costs, came to $1.03 per share. The results beat Wall Street expectations. The average estimate ... … More »

  • Oil prices fall as hopes of production freeze fade
    Oil prices fall as hopes of production freeze fade Reuters - 39 minutes ago

    Oil prices slipped on Thursday as the market focused on oversupply and fading hopes of a production freeze. U.S. light crude oil was down 5 cents at $46.72 a barrel, after dropping 2.8 percent on Wednesday. Oil prices rose more than 20 percent in … More »

  • South Korea offers Tokyo-funded money to 'comfort women'
    South Korea offers Tokyo-funded money to 'comfort women' AFP News - 41 minutes ago

    South Korea said Thursday it will offer each surviving victim of Japan's wartime sexual enslavement 100 million won (US$89,581) using funds provided by Tokyo, an offer quickly rejected by some of the women. The plight of the so-called "comfort … More »

  • This Philippines bitcoin firm has acquired a defunct Silicon Valley company
    This Philippines bitcoin firm has acquired a defunct Silicon Valley company e27 - 46 minutes ago

     The makers of Rebit.ph, Bitbit.cash, and PrepaidBitcoin.ph now have a partner in the world’s biggest tech ecoystem What kind of company would be magnanimous — or foolhardy — enough to pull another company out from the grave? Philippines-based … More »

  • Chinese telecom firm ZTE books 9.3 percent rise in first half profit on 4G growth
    Chinese telecom firm ZTE books 9.3 percent rise in first half profit on 4G growth Reuters - 52 minutes ago

    Chinese telecom equipment maker ZTE Corp on Thursday booked a 9.3 percent rise in first-half net profit as China's adoption of fourth-generation (4G) mobile technology offset the impact of restrictions on its U.S. operations. Profit reached 1.8 … More »

  • Malaysia's AirAsia values leasing unit at $1 bln -analyst presentation Reuters - 58 minutes ago

    AirAsia Bhd, Asia's biggest low-cost airline, values its wholly owned leasing arm at 4.1 billion ringgit ($1 billion), and aims to attract an equity investor to the unit by end-2016, it said in a presentation to analysts. The Malaysian airline aims … More »

  • Europe Stocks Snap Three-Day Winning Streak as All Await Yellen Bloomberg - 1 hour 1 minute ago

    The Stoxx Europe 600 Index slid 0.8 percent to 342.24 at 11:27 a.m. in London, with almost all industry groups falling. Germany’s equity benchmark DAX Index fell 0.9 percent, for the biggest decline among major western-European markets, as a report … More »

  • Chinese telecom firm ZTE books 9.3 percent rise in H1 profit on 4G growth
    Chinese telecom firm ZTE books 9.3 percent rise in H1 profit on 4G growth Reuters - 1 hour 7 minutes ago

    Chinese telecom equipment maker ZTE Corp on Thursday booked a 9.3 percent rise in first-half net profit as China's adoption of fourth-generation (4G) mobile technology offset the impact of restrictions on its U.S. operations. Profit reached 1.8 … More »

  • SE Asia Stocks-Indonesia gains; market subdued ahead of Yellen speech Reuters - 1 hour 7 minutes ago

    Aug 25 (Reuters) - Indonesian shares gained nearly 1 percent on Thursday while other markets in the region were largely lacklustre as investors awaited cues on U.S. interest rates from Federal Reserve ... … More »

  • London mayor criticises burkini ban before Paris visit
    London mayor criticises burkini ban before Paris visit AFP News - 1 hour 14 minutes ago

    London Mayor Sadiq Khan spoke out against the banning of the Islamic burkini swimsuit in France as he headed to Paris Thursday for talks with his French counterpart. It's as simple as that," he told the London Evening Standard newspaper. Khan is … More »

  • Investor group rebukes Sports Direct, wants review of management Reuters - 1 hour 15 minutes ago

    An investor group whose members manage 850 billion pounds of UK equities has taken the unusual step of publicly rebuking the management of Sports Direct and calling for an independent review. The Investor Forum, which speaks for some 12 percent of … More »

  • Russia frees Japanese man held on disputed Kunashir island
    Russia frees Japanese man held on disputed Kunashir island AFP News - 1 hour 24 minutes ago

    Russia has released a Japanese citizen detained on a disputed island claimed by both countries, Tokyo's foreign ministry said Thursday, ahead of diplomatic talks on the long-running territorial dispute. Tokyo and Moscow are working to resolve … More »

  • Malaysian (and ASEAN) banks need to step up their digital game plan
    Malaysian (and ASEAN) banks need to step up their digital game plan e27 - 1 hour 28 minutes ago

    To fully embrace the digital scene, banks need to be more open in terms of working with key players to push local business into adapting the competitive environment Digitalisation is taking the global economy by storm, Malaysia and the rest of the … More »

  • Maybank Posts Third Straight Profit Drop on Loan Impairments (2) Bloomberg - 1 hour 37 minutes ago

    Net income fell to 1.16 billion ringgit ($288 million) in the three months through June from 1.58 billion ringgit a year earlier, the Kuala Lumpur-based company said in a stock exchange filing on Thursday. Maybank reiterated its “vigilance” over … More »

  • RTL revenues slide as FremantleMedia disappoints
    RTL revenues slide as FremantleMedia disappoints Reuters - 1 hour 38 minutes ago

    European broadcast group RTL reported a 2 percent decline in sales in the second quarter due to lower revenues at production unit FremantleMedia and competition for advertising revenue from the UEFA European soccer championship. The result missed … More »

  • Chinese envoy tells Australian PM to fight 'protectionism' together - ABC Reuters - 1 hour 39 minutes ago

    China's ambassador told Prime Minister Malcolm Turnbull that their countries should fight protectionism together during a meeting a week after two Chinese firms were blocked from buying a stake in Australia's biggest power grid, broadcaster ABC … More »

  • European Stocks Retreat as Dollar Rally Fades Before Yellen Bloomberg - 1 hour 55 minutes ago

    Equity markets retreated in Europe as an unexpected drop in German business sentiment signaled companies remained cautious after Britain’s decision to quit the European Union. Iron ore fell on the prospect of shrinking steel production in China and … More »

Recent Quotes
Symbol Price Change % Chg 
Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
You need to enable your browser cookies to view your most recent quotes.
to view quotes in your portfolios.


  • Most Actives
    Most Actives
    NamePriceChange% Chg
  • % Gainers
    % Gainers
    NamePriceChange% Chg
  • % Losers
    % Losers
    NamePriceChange% Chg

Market Data

  • Currencies
    NamePriceChange% Chg
  • Commodities
    NamePriceChange% Chg
  • Bonds
    TreasuryYield (%)Yield Change