In a time where identity theft and Ponzi schemes are plastered across the daily news, the last thing you want to worry about is yet another way to lose your hard-earned money.
But as a homeowner, you need to be aware of crimes on the rise known as mortgage fraud and real estate title fraud.
The most common type of mortgage fraud involves a criminal obtaining a property, then increasing its value through a series of sales and resales involving the fraudster and someone working in cooperation with them. A mortgage is then secured for the property based on the inflated price.
Following are some red flags for mortgage fraud:
"Straw buyer" scheme
Another term for mortgage fraud is the "straw" or "dummy" home buyer scheme. For instance, a renter does not have a good credit rating or is self-employed and cannot get a mortgage, or doesn't have a sufficient down payment, so he or she cannot purchase a home. He/she or an associate approaches someone else with solid credit. This person is offered a sum of money (can be as much as $10,000) to go through the motions of buying a property on the other person's behalf - acting as a straw buyer. The person with good credit lends their name and credit rating to the person who cannot be approved for a mortgage for his or her purchase of a home.
Other types of criminal activity often dovetail with mortgage fraud or title fraud. For example, people who run "grow ops" or meth labs may use these forms of fraud to "purchase" their properties.
Sadly, the only red flag for title fraud occurs when your mortgage mysteriously goes into default and the lender begins foreclosure proceedings. Even worse, as the homeowner, you are the one hurt by title fraud, rather than the lender, as is often the case with mortgage fraud.
Unlike with mortgage fraud, during title fraud, you haven't been approached or offered anything - this is a form of identity theft.
Here's what happens with title fraud: A criminal - using false identification to pose as you - registers forged documents transferring your property to his/her name, then registers a forced discharge of your existing mortgage and gets a new mortgage against your property. Then the fraudster makes off with the new home loan money without making mortgage payments. The bank thinks you are the one defaulting - and your economic downfall begins.
Following are ways you can protect yourself from title fraud:
It's important to remember that if something doesn't seem right, it usually isn't - always follow your instincts when it comes to red flags during the home buying and mortgage processes.
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