How to Spot and Avoid Mortgage Scams | Mortgages and Advice

Mortgages are big business. According to the Federal Reserve Bank of New York, U.S. consumers owed $12.01 trillion on their homes in the second quarter of 2023.

Unfortunately, scammers see mortgage transactions as a chance to get a piece of that pie. “Because a lot of money is switching hands at one time, that’s literally the most attractive thing to any scammer anywhere in the world,” says Jason Zirkle, training director at the Association of Certified Fraud Examiners.

Protect yourself by learning how common mortgage scams work and how to spot some telltale signs of fraud.

While the details can vary from one scheme to the next, scammers often follow some similar patterns. Many scams fall into one of the following categories.

Scammers may promise that you’ll definitely qualify for a mortgage even if your credit is bad – a claim that would not appear in genuine offers. “In real life, your credit score is always going to impact your mortgage rate, and a legitimate lender is going to absolutely be looking at your credit score,” Zirkle says.

A lender that doesn’t investigate your credit, income or other financial details is likely trying to offer you a loan you can’t afford. If you agree to take out the mortgage, the lender typically charges you high upfront fees and moves on to the next victim – while you’re at risk of foreclosure if you can’t keep up with the monthly payments.

A scammer might offer you an interest rate that’s far lower than the rates advertised by legitimate lenders. “They try to hook you by saying that you may qualify for this rate, but no one ever qualifies,” Zirkle says.

You might learn the actual interest rate only when you’re about to sign the loan agreement or once you’ve paid inflated fees for closing services.

A dishonest lender could try to overvalue the home you’re buying. “They’re making appraisals that are definitely not in line with the current home’s condition and/or the market area surrounding that home,” says Veronica DePotty, housing education specialist and U.S. Department of Housing and Urban Development grant manager at the Michigan State Housing Development Authority.

An inaccurate appraisal might give the appearance that you qualify for a larger loan. If you accept the offer, you could end up with a mortgage you can’t afford. An overvalued home could also be difficult to sell later on.

Cybercriminals may hack into your email and learn that you’re about to close on a mortgage, or they could learn about an impending home sale from publicly available information. They then contact you and pose as a representative of the title company or the lender.

The scammers tell you to disregard any previous instructions from the title company and to wire your money to an account they provide, often one located outside the U.S.

By the time a homebuyer realizes what’s happened, it’s usually too late to stop the transfer. “Sadly, it isn’t until they get to the closing table that they find that they’ve been a victim of the scam,” DePotty says.

Some scammers advertise mortgage relief services online, claiming that they can help homeowners with distressed mortgages stay in their homes. They may also contact homeowners through letters, emails or phone calls. In states where mortgage delinquencies must be announced in local newspapers, scammers may find out which homeowners are facing foreclosure through those notices, DePotty says.

The scammers collect personal information and fees upfront but don’t follow through on their promises. “Generally, they either negotiate unfavorable terms that result in the eventual foreclosure or they actually never negotiate the terms at all,” DePotty says.

Scammers may contact older adults and offer to help them apply for a reverse mortgage. The scammers then pressure the victims to sign away equity in their home or instruct them to transfer funds to an overseas account. “Sometimes they’ll keep you on the hook and they will give you money to pay off your property taxes, things like that, from that lump sum, but then they keep the rest,” Zirkle says.

Watch out for these warning signs when you’re shopping for a mortgage. Any of the following red flags could mean that you aren’t dealing with a legitimate lender.

If you’re already a homeowner and you’re considering loan modification or other mortgage relief services, the following are probably signs that something’s amiss.

In addition to being aware of red flags, there are some steps you can take to protect yourself from scammers.

First, shop around and compare available loans. If you need help affording a home, learn about homebuying assistance programs. Scammers prey on people who feel they have no options, so you’re less vulnerable if you know what genuine lenders are offering and what kinds of help you could be eligible for.

Avoid getting all your information from someone who will profit from your home purchase. “Too many people just take the advice from their agent or the lender, and they just show up to closing and sign the documents and they never do any research,” Zirkle says.

Researching everything yourself can be overwhelming, so it’s a good idea to work with a counseling agency that’s been approved by the Department of Housing and Urban Development, or HUD. A housing counselor can provide information about the homebuying process and help you evaluate mortgage offers. “You need to talk to somebody who’s an expert who knows what they’re doing, who truly is impartial. And the best way to do that is by contacting a local HUD counselor,” Zirkle says.

Before you sign on a mortgage, go over the disclosure from the lender that you receive a few days before closing. The information in the disclosure shouldn’t differ from what you previously agreed to. “I encourage you to take time to read through those documents very carefully. And if there’s any red flags or anything that causes you pause, pay attention to that,” DePotty says.

If you have a mortgage and you’re struggling to make payments, be wary of anyone who contacts you and offers to help. “What we often tell [borrowers] is unsolicited advice will start to flood in,” DePotty says. “They’ll start to get calls. They’ll start to get letters sent to them.” It’s best to ignore these communications. Instead, reach out to a housing counselor.

And be on your guard against phishing. When you receive calls, letters, texts or emails that purport to be from your lender, mortgage servicer, real estate agent or title company representative, don’t click the links or call the numbers provided. Use the contact information you already have to get in touch with them and verify that they actually contacted you.

Contact the office of your state attorney general if you come across an offer that looks suspicious. They’ll ask you about what happened and take copies of any documents you’ve received. “They will take it to the step of investigation. And they will follow up with you to let you know what their findings are,” DePotty says.

If you believe you’ve been a victim of a mortgage scam, you should report it to your local police. And it’s important to tell your bank right away if you’ve sent any money or shared account information with a suspected scammer.

You may also need to get legal advice. If you don’t have an attorney, get in touch with your local legal aid office. They may provide help for free or on a sliding scale based on your income.