Foreclosure Rescue Scam
“Rescuers” promise home owners who are in financial trouble that they can save their home from foreclosure.
Their goal is to make a quick profit through fees or mortgage payments they collect.
Red Flags:
• The “rescuer” guarantees to stop the foreclosure process – no matter what the
circumstance.
• The borrower is instructed not to contact his/her lender or lawyer.
• The “rescuer” collects a fee before providing any service.
• The borrower is encouraged to deed the property over to the “rescuer,” lease it, and
buy it back over time.
• The “rescuer” tells the borrower to make the mortgage payments directly to it instead
of the lender.
How to prevent this type of fraud:
• Remember that there is no quick fix for someone who has defaulted on their mortgage
payments for a long period of time.
• Borrowers should NEVER send their mortgage payments to anyone other than the
lender or per the lender’s direction.
Short Sale Flipping Scams
Borrowers owe more than the current value of their home so they fake financial hardship and no longer make
their mortgage payments. An accomplice of the borrower then submits a low offer to purchase the property
via short sale. The lender agrees to the short sale, unaware that it was premeditated. The property is then
resold at the home’s actual value for profit.
Red Flags:
• The borrower suddenly defaults on the mortgage with no workout discussions with
the lender.
• An immediate offer is made to the lender at a short sale price.
• Cash back is offered at closing to the seller (disguised as repairs or other payouts).
How to prevent this type of fraud:
• DISCLOSE!! If the property is going to be resold, the short sale lender should be
informed of this in writing by both parties and must agree to it.
• If the property is to be resold, the sales must be 2 separate, arms-length transactions.
IRS also looks into that.
• Most short sale lenders require buyers and sellers to sign statements affirming that
the transactions are arms length and there are no agreements in place to resell the
property.
• If you are the listing agent on a short sale, do your due diligence to make sure you are
getting the best offer.
• Watch out for cash back to the seller on short sales. Most short sale lenders do not
allow the sellers to receive any money back.
• Under HAFA, the buyer agrees not to sell the property within 90 days of closing.
Straw Buyer Scam
A straw buyer allows someone else to use their credit profile to obtain a mortgage they are unable to secure
on their own. The lender then qualifies the straw buyer and the loan closes in the straw buyer’s name, but he
never makes a mortgage payment and the property goes into foreclosure. In other words, the money
disappears, leaving the lender with a huge loss.
Red Flags:
• A quit claim deed is recorded right before the loan closing.
• Investment property is represented as owner-occupied.
• Someone signed on the borrower’s behalf.
• Names were added to the purchase contract.
• Sale involves a relative or a related party.
How to prevent this type of fraud:
• Know your clients, always verify their identity.
• Check with the title company to see if any quit claim deeds were recorded right before
closing.
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