What Are Common 2nd Mortgage Scams?
An unfortunate fact is that there are an overwhelming number of individuals and organizations without high moral values or ethics, and for the rest of the population this presents a potentially significant threat. The mortgage seeker is one of the most popular targets for schemes and scams, so any potential applicant should perform his due diligence and research every company and/or offer that he plans to pursue.
Another disturbing issue is the speed with which such unscrupulous individuals and organizations are creating new methods of scamming honest working people out of their hard-earned savings. However, despite such facts, any potential borrower should be able to spot a scam with a little investigation and research because there are actually only a few generic types of scams that exist.
Types of Scams
Bait & Switch – This is one of the most common type of mortgage scams out there today, and it is also one of easiest to spot from the beginning. In this scenario, mortgage brokers and lenders will entice people to apply for a loan with ridiculously low offers and advertisements claiming the lowest interest rates available, or perhaps some other appealing programs. However, once a potential applicant contacts the company or the broker, they are distracted from the details of the advertised program and pushed toward another, less attractive, product. Those customers who realize they’re being pushed toward something other than what they originally requested are often told a series of vague lies or statements about advertising errors, unavailability of such programs, difficulty in qualifying, etc.
Refinancing a Perfectly Good Loan – Another common second mortgage scam is the insistence that homeowners refinance their existing first mortgage into a brand new loan that includes the equity they wanted to cash out, rather than simply allowing the borrower to get the loan they requested. In this scenario, the lender or broker will insist that the primary mortgage be completely wrapped into the brand new loan, called a Cash Out Refinance. The benefit to the lender is that they now have the front position on the property in the event of foreclosure, plus the additional interest profit from the longer loan. Many borrowers are sucked into such situations by the promise of lower monthly payments, yet do not realize that they will be paying tens of thousands of dollars extra because the new loan is amortized several years longer.
Contractors Home Improvement Loans – This is perhaps the fastest-growing second mortgage scam on the market today. Home improvement companies working in conjunction with unethical lenders will solicit homeowners for contracting work, and once an agreement has been made will originate a home equity loan to pay for the work. The fact that the financing is in the form of a second mortgage is very often withheld or not fully explained to the homeowner. Additionally, once the loan has been approved, the homeowner is obligated to pay back the money regardless of whether or not the home improvements are actually completed. In too many situations, the improvement companies are paid directly from the lender, so if the job is not completed or not performed correctly, the homeowner is responsible for filing suit. Lenders claim no knowledge or responsibility for the work that was to be done, despite the fact that there is typically a long-standing agreement between the lender and the home improvement company.
