 Scams Targeting Homeowners
If you are a homeowner and need repairs, or are falling behind in your mortgage payments, be very careful not to borrow money out of desperation. It may cause you to lose your home.
Home Improvement Scams
Home improvement contractors often go door-to-door asking people if they want home repairs. Some promise to provide financing for you, regardless of your credit history or income. Take caution when they offer to provide financing of the repairs, "regardless of your credit history or income." In many cases they are looking out for their own interests, not yours, and will provide you with shoddy work and an overpriced loan.
Refinancing Scams
Few things can be as unsettling as falling behind on your mortgage or getting into debt. Scam artists realize this, and see it as a perfect opportunity to take advantage of people who don't know what options they have.
If you fall behind on your mortgage payments or property taxes, or find yourself in debt on your credit cards, utilities, or other bills, you may receive mailings and/or visits from mortgage lenders or brokers who offer to provide refinancing and lower monthly payments. Once the papers are signed you may find that the loan and the monthly payments are much higher than expected, and are often unaffordable.
10 Warning Signs of High-Cost Mortgage Traps
- Door-to-Door Solicitation. Be extra cautious when someone comes to your door trying to talk you into borrowing money.
- Home improvement contractor arranges financing. A loan offered by a contractor to help you pay for repairs should be examined closely. You could end up with your home and your credit in disrepair.
- Monthy loan payments are too high for your income. Before you sign anything, make sure you know what the amount of the monthly loan payments will be. If you don't have enough income to make the monthly payments on the loan, you could be putting yourself at risk of foreclosure.
- Excessive interest rates, high broker's fees and other high settlement costs. If you have to pay thousands of dollars in points, broker's fees, and other charges and costs, the loan may not be in your best interest.
- Balloon payment. In a balloon loan, even if you make all monthly payments for several years, you will have to pay nearly the entire amount of the loan at the end of the term in one huge lump-sum "balloon payment". If you are unable to pay this balloon payment, you will lose your home, even if you have made all your payments until that time.
- Offers of debt consolidation. Some mortgage companies try to get you to refinance by offering to fold, or "consolidate," all your debts into one mortgage. You will not lose your home due to a failure to pay hospital bills, utility bills, or credit card bills. But if those bills are "consolidated" into a mortgage loan, your failure to pay can result in a foreclosure and loss of your home.
- Lender insists on refinancing lower interest loans. Most predatory lenders will insist on refinancing any lower interest loans or liens on your property into one large high-cost mortgage. This will greatly increase the amount of your mortgage debt and unnecessarily put you at risk of losing your home.
- False information on loan application. When you fill out or sign the loan application, make sure you know what is included. If the broker makes your income appear higher than it actually is, you will probably not be able to afford the loan. If the broker asks you to produce any false documents to make your income appear higher, do not agree to do so. This is illegal!
- Repeated offers to refinance. Repeated refinancing, or "loan flipping," can greatly increase your mortgage debt. Each time you refinance, the lender charges you more fees and costs. You may be charged a hidden penalty on the old loan each time you take out a new loan.
- Misrepresentations. Make sure that what you are told about the terms of the loan is the same as what is written in the papers you sign. Be aware that the lender, broker, contractor, and attorney often work together to rip you off.
Source: City-wide Foreclosure Prevention Task Force
How to Protect Yourself from Getting Ripped Off
Seek out alternative resources that won't force you into a high rate mortgage. Never agree to a loan if you don't have the income to make the monthly payments! Don't let the offer of home repairs or fast cash cloud your judgment. If you don't have the income to pay off the loan, you will probably lose your home. Don't agree to a loan from a door-to-door salesman or home improvement contractor, or someone who solicits loans over the telephone. Legitimate lenders, brokers, and contractors don't operate that way. Shop around for the best loan for your financial situation. Be wary of mortgage brokers who tell you there are no other options. Don’t let yourself be pressured. Get a second opinion. If possible, get free financial counseling from a community organization before you sign anything, or seek the advice of an attorney. Get copies of all documents before closing, and read them carefully. If you do not understand them, seek help in reviewing them. Don't sign anything that has blank spaces. Don’t agree to "consolidate" your debts into a mortgage or to refinance lower interest loans. Use the law to your advantage. You have the right to cancel the loan up to three days after the closing. If you have second thoughts immediately after signing, there is still time to get a second opinion, and to get out of a bad deal. Resources for Homeowners
For more information on resources for homeowners and seniors, click here. If you are looking for a flyer about predatory mortgage lending to post in your senior center or seniors organization, click here.
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