Articles > Money & Financing
Don’t Be A Victim of Loan Fraud
Protect Yourself from Predatory Lenders
Buying or refinancing your home may be one of the most important and complex
financial decisions you'll ever make. Many lenders, appraisers, and real estate
professionals stand ready to help you get a nice home and a great loan. However,
you need to understand the home buying process to be a smart consumer. Every
year, misinformed homebuyers, often first-time purchasers or seniors, become
victims of predatory lending or loan fraud.
Don't let this happen to you!
11 Tips On Being A Smart Consumer
1. Before you buy a home, attend a homeownership education course offered by
the U.S. Department of Housing and Urban Development (HUD)-approved, non-profit
counseling agencies.
2. Interview several real estate professionals (agents), and ask for and
check references before you select one to help you buy or sell a home.
3. Get information about the prices of other homes in the neighborhood. Don't
be fooled into paying too much.
4. Hire a properly qualified and licensed home inspector to carefully inspect
the property before you are obligated to buy. Determine whether you or the
seller is going to be responsible for paying for the repairs. If you have to pay
for the repairs, determine whether or not you can afford to make them.
5. Shop for a lender and compare costs. Be suspicious if anyone tries to
steer you to just one lender.
6. Do NOT let anyone persuade you to make a false statement on your loan
application, such as overstating your income, the source of your downpayment,
failing to disclose the nature and amount of your debts, or even how long you
have been employed. When you apply for a mortgage loan, every piece of
information that you submit must be accurate and complete. Lying on a mortgage
application is fraud and may result in criminal penalties.
7. Do NOT let anyone convince you to borrow more money than you know you can
afford to repay. If you get behind on your payments, you risk losing your house
and all of the money you put into your property.
8. Never sign a blank document or a document containing blanks. If
information is inserted by someone else after you have signed, you may still be
bound to the terms of the contract. Insert "N/A" (i.e., not applicable) or cross
through any blanks.
9. Read everything carefully and ask questions. Do not sign anything that you
don't understand. Before signing, have your contract and loan agreement reviewed
by an attorney skilled in real estate law, consult with a trusted real estate
professional or ask for help from a housing counselor with a HUD-approved
agency. If you cannot afford an attorney, take your documents to the
HUD-approved housing counseling agency near you to find out if they will review
the documents or can refer you to an attorney who will help you for free or at
low cost.
10. Be suspicious when the cost of a home improvement goes up if you don't
accept the contractor's financing.
11. Be honest about your intention to occupy the house. Stating that you plan
to live there when, in fact, you are not (because you intend to rent the house
to someone else or fix it up and resell it) violates federal law and is a crime.
What is Predatory Lending?
In communities across America, people are losing their homes and their
investments because of predatory lenders, appraisers, mortgage brokers and home
improvement contractors who:
- Sell properties for much more than they are worth using false
appraisals.
- Encourage borrowers to lie about their income, expenses, or cash
available for down payments in order to get a loan.
- Knowingly lend more money than a borrower can afford to repay.
- Charge high interest rates to borrowers based on their race or national
origin and not on their credit history.
- Pressure borrowers to accept higher-risk loans such as balloon loans,
interest only payments, and steep pre-payment penalties.
- Target vulnerable borrowers to cash-out refinances offers when they know
borrowers are in need of cash due to medical, unemployment or debt problems.
- "Strip" homeowners' equity from their homes by convincing them to
refinance again and again when there is no benefit to the borrower.
- Use high pressure sales tactics to sell home improvements and then
finance them at high interest rates.
What Tactics Do Predators Use?
A lender or investor tells you that they are your only chance of getting a
loan or owning a home. You should be able to take your time to shop around and
compare prices and houses.
- The house you are buying costs a lot more than other homes in the
neighborhood, but isn't any bigger or better.
- You are asked to sign a sales contract or loan documents that are blank
or that contain information which is not true.
- You are told that the Federal Housing Administration insurance protects
you against property defects or loan fraud - it does not.
- The cost or loan terms at closing are not what you agreed to.
- You are told that refinancing can solve your credit or money problems.
- You are told that you can only get a good deal on a home improvement if
you finance it with a particular lender.
Remember:
If a deal to buy, repair or refinance a house sounds too good to be true, it
usually is!
Housing counselors working at HUD-approved agencies can help you be a smart
consumer. To find a counselor near you, call (800) 569-4287 or go to HUD's
housing counselors list online.
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