Identifying and Preventing Mortgage Fraud

No doubt you've seen headlines that fraud is on the rise in multiple ways — and that includes real estate fraud. Mortgage scams can be particularly distressing — and costly — given the stress and sums of money involved in a real estate transaction.

The best way to avoid being a victim is to be vigilant throughout the transaction, beginning by becoming aware of potential mortgage scams. Read on to find out what you need to know to protect yourself – and your bank account.

What Is Mortgage Fraud?

Real estate fraud is a large category that covers a wide variety of potential mortgage scams. But the more you know, the better your ability to spot a potential red flag or something that just seems “off." Here are four common types of real estate fraud to watch out for.

Escrow wire fraud

When you're in the middle of a financial transaction, you become accustomed to requests for personal and financial information, which makes you more likely to let your guard down. Here's how it works: Someone sends you an email that appears to be from your title or escrow company, giving you directions on where to wire your escrow money. If you comply, the money ends up right in the scammer's account — and is long gone before you realize what happened.

To avoid being a victim, never click a link in an unsolicited email. Always double-check any procedures for wiring money by referring to your original documents and calling the phone number found on those documents to confirm instructions with a live person. If you have any doubts, don't call the number in the email. If the email is fraudulent, the phone number in it can be fraudulent too.

Closing phishing scams

In this scam, thieves aim to claim your hefty down payment and closing costs. This sophisticated scheme entails compromising your real estate agent's email address so the message you receive appears as though it's coming from them. As with the previous mortgage scam, clicking on the link sends your hard-earned money straight to someone else's bank account.

To avoid being duped, never click on a link you've been emailed. Your real estate agent will likely have discussed the closing procedure in advance, so be wary of any last-minute changes. Call your real estate agent (the number you've previously used, not one you find in an email or that has been texted to you) to verify all directions before wiring any funds.

Mortgage relief scams

As many consumers face tenuous financial situations, it's no surprise that unscrupulous companies have intensified efforts to prey upon homeowners desperate to stay in their houses. In this type of scam, someone will contact you and offer to seek changes to your loan in exchange for an upfront fee. This is illegal. While there are some companies that can help you with a loan modification, the Mortgage Assistance Relief Services (MARS) Rule1 prevents them from taking an upfront fee.

Another common scam might ask you to transfer the deed to another person or firm to secure relief. Never do this, as the deed legally proves who owns the home.

It's wise to always be vigilant if any third-party person contacts you proactively to offer relief or services.

The good news is that you may be eligible for a legitimate program designed to help homeowners seeking assistance with their mortgage payment. If you need to adjust your payment, start with your mortgage servicer or lender to determine your options. And if your financial institution gives you permission to alter your payment cadence, make sure to get these instructions in writing to ensure you don't inadvertently miss a payment and negatively affect your credit.

Appraisal fraud

As many regions see housing prices skyrocket, appraisal fraud — deliberately overstating the “fair market value" of a home — could thrive. In this scam, a seller colludes with an appraiser to inflate a property's value in order to justify a higher market price, which means a buyer could unwittingly overpay. In some cases, the appraiser is in on the scam. In others, the seller physically alters the appraisal with digital editing tools.

If you're a buyer, it's wise to solicit an independent second appraisal if the seller shows you an appraisal. And while it can be tempting to just acquiesce and pay more to secure a house in a hot market, never compromise on sufficient due diligence for such an expensive financial transaction.