November 20, 2020 | by Katie Claflin
Categories: Financial Education, Homeownership, Housing Counseling, Lending
This post was originally published on April 13, 2018. However, we are publishing it again as the topics covered in this post are relevant today.
Unfortunately, due to the ongoing health and economic crises, scams have been on the rise. Because of this, we'd like to take the opportunity to educate our readers on a few ways to stay protected from lending and housing scams.
Scammers target families and individuals in a variety of ways, robbing them of thousands of dollars and threatening their financial security. With help from the U.S. Department of Housing and Urban Development, the Homeownership Preservation Foundation, and the International Code Council, this week's blog post highlights three common housing scams.
Predatory Mortgage Lending
- What It Is: Merriam-Webster defines predatory lending as the practice of lending money to a borrower by the use of aggressive, deceptive, fraudulent, or discriminatory means. Victims of predatory mortgage lending risk paying more in fees and interest, damaging their credit, or even losing their home.
- How to Identify: Look for higher than average loan fees, penalties for paying your loan off early, ads that say your credit doesn’t matter, or loans that include a large interest rate adjustment or balloon payment.
- How to Avoid: Take a pre-purchase education course from a HUD-approved housing counseling agency; contact multiple lenders to compare interest rates, fees, and terms; and don’t sign any documents you don't understand.
Foreclosure Rescue Scams
- What They Are: Scammers offer to help you save your home or lower your mortgage payments, but end up taking your money and sometimes even your home.
- How to Identify: Look for companies that charge you in advance, offer you a guarantee that they can save your home, try to buy your home for much less than its value, or ask you to pay them instead of your mortgage company.
- How to Avoid: Contact a HUD-approved housing counseling agency who can provide FREE foreclosure intervention counseling; always make payments directly to your mortgage company; don’t pay money to anyone up front; and never sign over the deed to your home to a foreclosure relief company.
- What They Are: Companies or individuals that agree to make requested repairs, but perform sub-par work or disappear with the homeowner’s money without making any repairs at all. These types of scams become even more common in areas recovering from natural disasters.
- How to Identify: Look for contractors asking for a large amount of money up front, bids that are significantly lower than others, contractors without proper licenses, and contractors that offer to perform work without a contract or without pulling permits.
- How to Avoid: Ask trusted friends and family members for references; always get multiple bids for repair projects; search and verify contractors through state licensing websites; and get all bids, permits, and contracts in writing.
How to Report a Scam
If you encounter a scam, we recommend reporting it to the following agencies:
Texas Attorney General’s Office
Federal Trade Commission
On the House blog posts are meant to provide general information on various housing-related issues, research and programs. We are not liable for any errors or inaccuracies in the information provided by blog sources. Furthermore, this blog is not legal advice and should not be used as a substitute for legal advice from a licensed professional attorney.