Common Mortgage Refinance Scams and How to Avoid Them

Refinancing an existing mortgage offers an array of benefits to many U.S. homeowners, from lowering the existing interest rate, to paying off debt, or even funding a special want/need like a renovation or child’s college.  While refinancing a prudent and beneficial decision, it is important to be extremely careful and diligent. Over the years, scammers have tried every trick in the book to dupe homeowners into “refinancing” their mortgage, but instead stealing the equity right out of their home.  From posing as government officials eager to help, to flipping the documents at the last moment, these con artists stop at nothing. When it comes to steering clear of refinancing scams, keeping your guard up is the best defence. To help, we discuss some common refinance scams and preventive measures. Take a look.

Common Mortgage Refinance Scams

Equity Stripping

Equity stripping, as the name suggests involves draining the property’s equity. Scamsters mainly target homeowners facing foreclosure, talk them into selling their property at discounted rates and agree to let them live as tenants until the refinance is finalized. Once the unscrupulous buyer gets possession of the agreement, they borrow against the property, draining its value. Alternatively, some con artists pose as lenders and offer to lend more money to the borrower than they can afford, and later foreclosing on the property when the borrower cannot pay.

Phantom Help

Ever received a piece of mail from a government representative about a special program with unrealistic low rates?  Remember the old adage, if it seems too good to be true, it probably is? Scammers, often pose as government authorities and ask homeowners to share their personal info such as their date of birth, name, address and social security number over mail or phone, which can give rise to identity theft concerns. Some may even ask the borrower to wire a fee to share some info, or begin processing their file. In some cases, the scammer may even ask the borrower to transfer the home’s title to an organization or an individual in return for help.

Loan Flipping

If you think you need to watch out just for bogus offers and scammers when refinancing a mortgage, think again. Over the years, some nefarious lenders, too, have jumped on the bandwagon and have come out with ways to dupe borrowers.  These unscrupulous lenders often target homeowners who look to get more money on their refinance. The lender, after receiving a few payments approaches the borrower with a promise to help them earn more money back. The interest rate, however, is substantially higher and these lenders often slyly roll the settlement costs into the loan, which makes the monthly mortgage payments go through the roof.  Additionally, they may forego the traditional 15 year or 30 year mortgage and sneak in a 2-5 year balloon payment.  When the balloon payment comes due to the unsuspecting borrower, and they cannot afford to pay it, the lender is more than happy to refinance the borrower another time, once again pocketing thousands of dollars in fees.

Bait and Switch

Unscrupulous lenders often attract homeowners with unrealistically good refinancing offers. Once the borrower takes the bait, the lender flips the loan papers and changes the conditions, often on the closing day. In many cases, the borrower is too invested to walk away from the deal and reluctantly agrees to bear the extra cost.

How to Stay Out of Troubled Waters

Never pay Upfront Fees

Stay clear of schemes that ask you to deposit any upfront fees. The only upfront fee a reputable lender would ask for is the cost to get a copy of your credit report, and/or payment for the appraisal (which goes to the appraiser, not the mortgage company).

Stay Clear of Suspicious Email  

Never click on a link from an unknown source. Look for spelling mistakes in the URL and take a note of grammatical mistakes. Review the signature and do not open the mail if you cannot find the  company’s contact details. Most importantly never share personal info over email.


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