As many of you know, over the past several years, mortgage interest rates have been at historical lows. These low interest rates have allowed many consumers to save great sums of money and lower their monthly mortgage payments. Better yet, some people have been allowed to take part in the “American Dream” by purchasing a home for the very first time. Unfortunately, as many new people enter the home buying market, and as mortgages become easier to obtain, more individuals find themselves becoming victims of a growing type of criminal activity known as “mortgage fraud.” The FBI has recently reported that mortgage fraud is at “epidemic” proportions. Losses associated with mortgage fraud increased to over $1 billion last year alone. According to the FBI, the losses associated with mortgage fraud are increasing.

I must point out, however, that mortgage fraud is nothing new. Our firm has been handling these type of claims for over a decade. Traditionally, the cases we handled involved primarily elderly, minority, or first-time home buyers who were promised a certain deal, but arrived at closing only to receive an entirely different and more expensive deal. Another common scam lawyers in our Fraud Section have seen over the years involves people being talked into a mortgage that has a temporary, low monthly payment that is based on a short-term interest rate and/or an adjustable interest rate. Often the temporary nature of this rate was not properly disclosed. When the interest rates inevitably changed, the monthly payments rose to a point where the consumer could no longer afford them and lost the home. Another common mortgage fraud case involves instances in which mortgage brokers falsify mortgage applications and get consumers approved for bigger loans that they otherwise can afford. Often the mortgage broker is only interested in making a slick sales pitch for the bigger loan amount so that he or she can make a larger commission on the larger mortgage.

But, as mortgage products become more diverse, and as more people enter the home buying market, we have seen more elaborate scams. One such scam is the marketing of land deals as investments and using mortgages to finance them. The scam can take on many facets and generally starts by inviting consumers with good credit to join an “investor’s club.” The consumers are told that they can participate in the “red hot housing boom” without risk of losing money. They are told they don’t even have to put up any money to participate in the investment. Instead, they are told that their good credit rating will be used to help secure the properties, without actually buying them. It is then explained that once the properties are sold, they would get a check from a portion of the sale.

Unfortunately, after a consumer discloses all of his or her personal information, he finds out he has been scammed. Sometimes the scam is simply to get the consumer’s personal financial information so that the crooks can steal their identity and rip off other vendors and credit card companies. But, the more complicated scams involve getting the consumer to sign documents that allow the broker to take out actual mortgages on other pieces of property, without the consumer’s actual knowledge. When those other properties are sold, the mortgage broker or financial advisor pockets the full amount of the proceeds. Another version of the scam involves the mortgage broker setting up a phony mortgage and receiving a brokerage fee from the bank. Only months later does the consumer realize that they have been used to purchase another property and the person responsible has skipped town. The worst cases are when people are tricked into giving their own home as collateral for these additional purchases and are forced to file bankruptcy or lose their entire life savings to get out of these scams.

For most American families, their home is the largest asset they own. Therefore, all of us should follow the advice of honest financial advisors when they suggest not using our home as collateral for our other investments. Another good recommendation is to never do business with a person until you have had an opportunity to check that person out. Always ask the mortgage brokers for names and references of customers they have helped in the past. The mortgage broker may tell you that he or she can’t give you that personal information. If they really want to help you, however, other clients will be made available as references. If a broker is not willing to do this, then you should be very wary and consider taking your business elsewhere.

Source: New York Times