In today’s world, you can never be too careful. Professional con artists know getting a second mortgage is something you probably don’t do every day, and they see it as an opportunity to rob borrowers of their money, personal information, or even, in extreme cases, their home. Be alert and watch out for these “classic” scams that return every few years.
Up-Front Cost Refinance
The Scam: You get a phone call or a letter from someone who wants to refinance your mortgage. The scammer offers to cut your monthly payment by hundreds of dollars or help you pay off your mortgage in record time. All you must do is pay a small percentage of those savings up front. The person who contacted you has no intention of refinancing your home. This is a variation on the Nigerian prince scam you’ve probably seen in your email.
How to beat it: It’s illegal to charge up-front fees for mortgage refinancing. Some scammers may try to waffle around this by calling them “document processing” fees or using some other jargon. Whatever they call it, it’s against the law and is a sure sign this “lender” is just looking for a quick payday while not delivering anything in return. While rates can fluctuate over time and from institution to institution, the fluctuation is limited. If someone is offering a rate that is several percentage points lower than anyone else in town, be highly skeptical. Check with the Better Business Bureau to see if the company exists and/or if complaints have been filed against it.
The Fine Print Deed Sign
The Scam: Scammers use a variety of up-front pitches. Some might offer to lower your rate or payment, while others offer a home equity line of credit with alarmingly good terms. They may also offer to take over the deed to your house and then use their superior credit rating to secure a lower rate while allowing you to remain in the home as a renter.
Whatever the pitch, there are many, many forms to sign. All of them are written in indecipherable legalese. Yes, even more undecipherable than the legitimate forms they’re impersonating. Somewhere amid these forms, perhaps buried in the back, is a form signing the deed for your house over to the scammer. Once they have the deed, they can rent the home to someone else or sell it outright while forcing you to vacate. Worst of all, you’re still on the hook for the balance of the mortgage, since the loan is tied to you personally and not to the home.
How To Beat It: Scrutinize every document you sign relating to your mortgage or home. Have your lawyer look at them. After all, that’s why you pay professionals. Spending 20 minutes with a real estate lawyer is expensive, but not as expensive as losing your home. On the other hand, if you’re working with a lender you know and trust, such as your credit union, you can rest assured something like this will never happen. Unless you’re selling your home, there’s no legitimate reason to sign the deed of your house over to someone else. While rent-to-buy schemes aren’t illegal, be sure it’s what you want by checking with a professional before you sign anything.
Home Improvement Scams
The Scam: If you’re looking into a second mortgage to renovate your home, be sure to avoid scammers who stop by and offer to do work around the house. At its heart, it’s one of the oldest scams out there, because it comes down to someone taking money for work, they never intended to perform.
The offer might come from someone who claims to have leftover materials or who says they noticed some missing shingles on your roof when working on your neighbor’s house, and now they have a great deal to offer you. By the time you realize you’re not missing any shingles, the scammers will have cashed the check you gave them. Many of those who have been robbed by home improvement scammers reported it was difficult or impossible to get in touch with the scammer after the initial visit. In many cases, the scammers told homeowners a sad story to explain their lack of cellphone or business card, taking advantage of homeowners’ sympathy to explain why they can’t provide contact information.
How To Beat It: Scammers might claim they need to charge you for materials upfront or they need a hefty deposit to get started, but that’s a red flag. Professional contractors have enough credit to buy materials and usually have accounts at local hardware stores to make billing easier. If the person you’re talking to doesn’t have good enough credit to buy materials, they’re probably not good enough at home repair to be worth your money.
If You Think You’ve Been Scammed
None of this should scare you away from a home equity loan, because most lenders are legitimately looking out for your best interest. However, in today’s world, the reality is there are some things you’ll want to watch out for, and we’ve included a pretty comprehensive list. If you think you might have been the victim of a home improvement scam, let the FTC and your financial institution know immediately. If they find out quickly enough, they may be able to stop the check before the scammers can cash it and keep others from falling for the same scam.