Loan flipping mortgage scams prey on the twin problems of financial anxiety and ignorance. Educate yourself to mount a defense.
The loan-flipping mortgage scam is the evil twin of the helpful home equity loan, which can help put some cash into your pocket for smart purchases like your childâ€™s education or a car you need for commuting.
How can you tell the scam from the legit loan? If youâ€™ve fallen into the clutches of a lender whoâ€™s pressing you to take one loan after another, stretching the boundaries between what you need and what you want, you may have become the victim of a con artist.
Are you vulnerable?
If you have some equity in your home but bills to pay, youâ€™re especially likely to catch the interest of a scammer who over-encourages you to use your home like a piggybank.
It will start innocently enough: You get a call out of the blue. Scammers may simply have a call center set up to target neighborhoods where they think thereâ€™ll be ripe pickings and, they hope, unsophisticated home owners.
What do loan-flipping scammers do to you?
Scammers, posing as legitimate lenders, ask if you want to refinance your mortgage and get some cash back â€” the so-called cash-out refi.
A legitimate lender would stop there. But loan-flipping scammers keep coming back: You like your new car? Then take another loan for a showroom kitchen. Two weeks in Hawaii. A catamaran.
Scammers are counting on you to be so entranced by their smooth line and all the goodies that you donâ€™t notice the repayment bills piling up, or the hefty fees they charge to arrange these loans, which may be substantially higher than the 3% to 6% legit lenders charge.
When the con artists have pushed you to take every dime of equity from your house, they disappear into the night, leaving you with repayments you canâ€™t afford. You might even lose your home. Meanwhile, theyâ€™re flush with all the fees and prepayment penalty fees theyâ€™ve charged you again and again.
Protect yourself against loan-flipping scammers
Donâ€™t sign with a lender youâ€™ve never heard of who calls you up with a persuasive line on tapping home equity. Deal with well-known banks.
When going through a refi, question every fee. Ask about any item you donâ€™t understand. Walk away if the lender is evasive.
Delay closing until youâ€™re 100% sure about the details.
Make sure the lender is a member of a major trade group, such as the Mortgage Bankers Association or the National Association of Mortgage Brokers, which promote ethical practices.