Being under financial stress makes people extremely vulnerable to scams, whether in New York or elsewhere. The key is being aware, being educated and being skeptical. And of course, it never hurts to have an experienced New York bankruptcy attorney to check in with.
Here are five common mortgage scams that every New Yorker should know about. Of course, this isn’t a comprehensive list since the scam artists are always coming up with new and more creative ideas. But this is a good start.
1. Reverse mortgage scam
Senior citizens are frequent victims of reverse mortgage scams, which involve a third party promising to help set up a loan that enables the homeowner to live in their home for free while also getting cash in the form of a home loan. However, the scam artist sets it up in such a way that they end up keeping the money, and the homeowner is responsible for the new mortgage. If you do plan on doing a reverse mortgage, make sure it’s with a reputable broker.
2. Short-sale Fraud
A short-sale fraud is actually committed by a homeowner. A short-sale is where a mortgage lender allows a homeowner to sell its home for an amount that is less than the mortgage amount but which the lender accepts as full payment for the mortgage. However, if a homeowner makes this arrangement with the mortgage lender, but then sells the home for a higher price to a new buyer, the homeowner is committing short-sale fraud against the lender.
3. Builder bailout
Builder bailouts are often found in places where housing developments were built but many remain unpurchased and unoccupied. The scam involves collusion between the builder and a buyer. The builder sets up the transaction so that incentives are characterized as a down payment. The existence of a down payment then gives the impression that the property has equity in it, which increases the likelihood that the lender makes a loan to the buyer. This kind of manipulation by a builder and buyer is essentially a kickback and is a form of fraud.
4. Loan modification scam
There are too many non-lawyer services to count that offer to help homeowners obtain a loan modification. However, many of these charge large fees up-front (which is now illegal). And frequently the homeowners never see any benefit once they’ve made payment. A warning: Never pay any service up-front for loan modification services (or debt consolidation or reduction services either, for that matter). While there are plenty of legitimate loan modification services, always be careful and check references as there are many that are not so reputable.
5. Affinity fraud
“Affinity” refers to affinity groups such as a religious group or ethnic or professional group. The scam artist might set up a scheme and then get members of that group involved in marketing the scheme. Or pretend to be a member of that group themselves. So you’re more likely to trust them if you’re a member of that group. So make sure to watch yourself, even amidst the communities in which you feel most comfortable.
The key, of course, is to always do good due diligence. If it involves money, it’s fair and reasonable to ask tough questions. Don’t worry about being embarrassed or being made to feel like you don’t have knowledge. If you don’t understand it, don’t give away your money.