The Newark Star Ledger
reprinted as fair use
by Lisa Fleisher
GLOSSARY
mortgage: Loan used to buy a home.
mortgage-backed security: Financial instrument that allows investors to buy shares in a fund that combines many mortgages into one pool.
straw buyer: Person named on mortgage documents but who is not really the intended homebuyer; often used when the actual buyer does not have good enough credit or high enough income.
equity: Money built up in the house by paying into the mortgage. For example, a person who made $100,000 in mortgage payments on a $300,000 loan has $100,000 in equity in the house.
shell company: Company set up for a single purpose. In our context, fraud.
WHY I SHOULD CARE
Mortgage fraud deflates property values across the board, destabilizes banks and
can ultimately put greater stress on our social safety nets by leaving victims destitute. Fraud often results in foreclosure, which pushes down neighboring home prices, can chip away at the town's tax base and strains municipal resources.
TYPES OF MORTGAGE FRAUD
INCOME AND EMPLOYMENT FRAUD
Method: Perhaps the most prevalent, either homeowners lie about their income or loan brokers coerce or flat-out falsify documents to get a loan approved.
Result: Homeowners end up with loans they can't afford.
REVERSE MORTGAGE FRAUD
Method: Elderly people who might have lost retirement funds sometimes turn to a reverse mortgage, which allows them to take a new mortgage out on a house they've already paid off. While this is sometimes a helpful tool, industry watchers and government officials warn about people charging sky-high fees.
Result: Elderly people are either cheated by high fees or, in worst-case scenarios, lose their house because they signed documents they did not understand.
PHANTOM HELP
Method: A type of foreclosure rescue scam in which a fraudster collects an upfront fee from homeowners trying to save their homes from foreclosure -- and then disappears.
Result: Criminals do nothing and pocket the fee.
MORTGAGE-RELATED IDENTITY THEFT
Method: Perpetrators use stolen identities to buy properties outright or take out mortgages.
Result: Victims find out they are on the hook for mortgages and loans.
SHORT SALE FRAUD
Method: A buyer colludes with real estate agents or others to give faulty appraisals to banks and convinces them a property is worth less than it is.
Result: Banks are defrauded and surrounding property values can drop.
BAIT AND BUMP
Method: Lenders or brokers dangle attractive loans in front of desperate homeowners. But when it comes time to close, buyers are told it's too late to switch.
Result: New homeowners are left with mortgages they can't pay or end up signing away their homes.
EQUITY STRIPPING OR SKIMMING
Method: There are several definitions for this, one of which is synonymous with lease buy-back (see below). Another iteration is when a fraudster convinces people to invest in or buy properties, using their credit to get loans for inflated property values, but walks away.
Result: Investor or group of investors is left with properties, which often have been neglected and have gone into foreclosure.
LEASE BUY-BACK
Method: Homeowners facing foreclosure sign over the deed to a company or individual who promises to sell it back after a year, during which the homeowners can get their finances in order. In the meantime, they are told they will be allowed to rent the house.
Result: The scammer evicts the original homeowner-turned-renter and keeps or sells the property.
HOW DO I AVOID BECOMING A VICTIM?
• Be skeptical of people who make unsolicited contact.
• Don't hesitate to ask as many questions as you need until you understand what you are signing.
• Don't sign blank forms.
• Check to make sure your name is correct on documents and matches your identification.
• Check mortgage agent, real estate agent and lawyer's certifications through state agencies.
• Review the value of the home by comparing it with others nearby, and go over the sales history of the home to see whether the value has been inflated through multiple sales.
• Remember, if it's too good to be true, it probably is.
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