Because there’s so much money at stake in the sale/purchase of a home and so much potential profit for a seller, the real estate industry has its share of fraud and scams. And in the case of fraud, it’s usually the buyer – the one who lays out the cash – who suffers the most. The best way to avoid becoming a victim of fraud is to understand the common kinds of fraud and the preventive strategies. Here’s how to avoid home buyer fraud.
Common Kinds of Fraud
Today, there are several kinds of real estate fraud that home buyers need to watch out for. And knowing about these is the first step to take to avoid home buyer fraud.
Loan Origination Fraud
Loan origination fraud occurs because brokers play such a critical role in the loan origination process. A broker’s job is to act on the borrower’s behalf, trying to match the borrower’s needs with a lending institution’s mortgage programs and taking care of most of the loan processing steps. The broker then gets a commission on the loan.
Loan origination fraud usually happens when a broker takes advantage of a borrower by promising the borrower she will qualify for a loan that actually exceeds her ability to pay. In most cases, a broker commits this kind of fraud in order to get a much bigger commission on the much bigger loan – even if you can’t make the mortgage payments.
Illegal House Flipping
House flipping – buying a house, repairing/renovating it, and then selling it as soon as possible at a profit – is huge these days. So you also need to be aware of illegal flipping to avoid home buyer fraud in McKinney. Illegal flipping looks much the same on the surface but differs in that the “investor” sells the house at a much higher price than its appraised value, usually after making only very minor repairs. The fraudster makes a lot of profit, and the buyer overpays for a house that isn’t worth the price.
Wire fraud often occurs at some point after the early stages of the home-buying process – and it can be financially catastrophic. Basically, it is a scheme to fraudulently obtain money or property via wire transfer under false pretenses, usually a species of mortgage fraud with respect to home buyers. It usually occurs at or near closing when the buyer is requested to put down a deposit on the home. The fraudsters use illegal means to obtain your personal information, create an account that mimics the seller’s, and then get you to wire the deposit to them. When that happens, you have no recourse and no way to get your money back.
Preventive Strategies to Avoid Home Buyer Fraud
Knowing something about the various kinds of fraud is a good first step to avoid home buyer fraud, but you also need to be armed with some knowledge of specific actions to take, such as . . .
Know Exactly What a Lender Can and Can't Do
Legitimate lenders cannot persuade or coerce you into borrowing more than you can actually afford to repay. So if a lender tries to get you to sign loan documents with incorrect or missing information such as your length of employment, debt history, or income . . . beware.
Fully Understand Anything You Sign
Mortgage documents are complex, jargon-laden, and run to many pages. Nevertheless, you have to invest the time and effort to read and understand them. The basic rule of thumb is to never sign anything you don’t fully understand. And this is where you may need expert help.
Have a Good Team
Probably the most important part of a strategy to avoid home buyer fraud is having a good real estate team in your corner. This would include, at a minimum, both a real estate attorney and a good real estate agent. They can advise you along the way and help you navigate the whole confusing process.