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How to Avoid Mortgage Refinancing Scams

When looking to refinance your mortgage, it can be hard to tell the legitimate offers from the fraudulent ones. Scam artists are adept at playing vulnerable homeowners, and will work any angle to get what they want. However, homeowners who know what to look out for are less likely to fall victim to these persuasive swindlers. Here are some pointers to help you do just that.
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Steer Clear of Upfront Fees
One of the telltale signs of a mortgage refinance scam is the demand for money before services have been rendered. The only fee a reputable lender will ever collect upfront is the cost of a credit report, which averages $40. This will ensure they can give you a proper estimate. 

Besides upfront fees, any loan that requires you to make payments to someone other than your lender is a shell game. Any money sent over a wire transfer, prepaid debit card, or gift cards is untraceable — it’s likely the scammer and money will be long gone before you ever contact the authorities. 

Know the Tricks of Scammers and Unscrupulous Lenders
Generally speaking, a person has to seek help to refinance their mortgage. If that help comes knocking on your door, calling your phone, or posting flyers on telephone poles, they’re likely to be involved in fraudulent services. Your current lender has to approve and sign off on any changes to your mortgage, and it’s doubtful any such transaction will take place over email or a phone call with a third party. 

Here are couple outside scams to be aware of.

- Equity Stripping
Although equity stripping can occur in a number of ways, the bare bones of it remains the same: a scam artist finds a way gain ownership of a home, then borrows against or sells it, takes the proceeds and disappears. This, of course, leaves the owner with a sizeable mortgage balance and no place to live. 

In equity stripping scams, a scam artist will offer more loan than the borrower can afford — or encourage them to pad their income on a loan application. They’re counting on foreclosing on the property when the homeowner falls behind on payments.

Or, alternately, they talk the homeowner into selling their home at a discount or signing over the deed. They’ll say they can secure better loan terms if the homeowner’s name isn’t on the mortgage — with a promise that they can stay in their home as a renter until the refinancing is finalized, and then buy it back. However, once the deed is handed over, they drain equity by borrowing against the house, often evicting the former homeowner in the process. 

-Phantom Help
Scam artists often claim to be affiliated with the government when offering to help with refinancing. They use of official-sounding acronyms and official-looking website addresses to gain a homeowner’s trust. Once they do, they charge for access to government assistance — or worse, extract enough personal information to commit identity theft. Legitimate government programs will never require a fee for information. 

As if scammers weren’t bad enough, there are also dishonest lenders out there who rely on confusing paperwork or uneducated homeowners in order to get more than their fair share. Here are two such scams to be mindful of.

-Bait and switch
Unethical lenders have been known to change loans documents on closing day — usually increasing costs — in hopes that homeowners will be too invested to walk away.

Current regulation requires that borrowers receive an official loan estimate no more than three days after applying for a mortgage, and a closing disclosure form no fewer than three days before closing. The final loan information should be the same as the estimate, unless the lender informed the borrower of changes beforehand. 

-Loan Flipping 
Targeted at homeowners looking to get money back when refinancing a mortgage, loan flipping occurs when a lender, after receiving a few payments, comes back with another offer of refinance — with the promise of even more cash back. Loan flippers often charge much more than the standard 3% to 6% interest, all while quietly rolling the settlement costs into the loan to disguise the total charges. This leaves a homeowner with outrageously high monthly payments, and usually more than they can afford.

What to Do if You Think You’ve Been Scammed
If you think you’ve been a victim of fraud or identity theft, take the following action:
•File a police report with your local law enforcement agency

Once you’re done with official reports, take some time to enter an account of the scam into BBB’s scam tracker. This will go a long way in protecting others from suffering the same fate.  

The best way to protect yourself from mortgage refinancing scams is to educate yourself. If you get an offer from someone who isn’t your current lender, and you don’t know the company or individual making the offer, it should set off alarms. If you think a company may be on the ball, be sure to do your homework before giving out personal information or paying for services.

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