by Francine L. Huff
Old House Web Columnist
Purchasing a home can be an emotional experience. But even if you've found the old home of your dreams, it's important to keep your emotions in check to guard against potential mortgage fraud when closing on the deal.
More than 28,300 reports of mortgage fraud in the U.S. were filed by federally-insured financial institutions last year, a six-fold increase over the past five years according to the Mortgage Bankers Association.
Inflated Property Values
Mortgage fraud generally involves flipping properties or falsifying property appraisals and sales contracts to show that houses are worth more than their actual value. In some cases, more than one mortgage is obtained for the same property, defrauding more than one lender. Often, unwitting homebuyers find themselves saddled with large mortgages that they really can't afford, putting them on track for foreclosure and even bankruptcy.
Spotting Mortgage Fraud
To avoid falling prey to mortgage fraud, keep the following things in mind:
- In many cases, professionals working inside the mortgage industry such as appraisers and attorneys are in on the scheme. Be suspicious if your mortgage broker insists that you use a specific lender or tries to get you to borrow more money than you can afford.
- Make sure you receive copies of all mortgage loan documents that you are required to sign.
- Hire your own appraiser to evaluate any property you plan to purchase.
- Get recommendations from friends and relatives for a reputable mortgage broker and attorney.
- Inflated property appraisals often occur in inner-city neighborhoods that have old homes.
Keep Your Emotions in Check
Even if you've "fallen in love" with an old home, it's important to keep your head on straight. Pay attention to what your lender is doing and make sure it's all on the up and up. Be suspicious of high-pressure sales tactics and promises of a huge increase in equity over a short time period. If a deal feels too good to be true, it probably is.
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