How to Avoid Loan Fraud

Protect Yourself From Predatory Lenders

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It’s hard to know the line between snatching an exciting real estate deal and falling into a loan fraud trap. The desire to save money often clouds our hunch that, if a deal seems too good to be true, it probably is. While there are a number of lenders, appraisers, real estate professionals, and counselors eager to help you make the best purchase for you and your family, it’s important to remain vigilant as a well-informed home buyer to avoid any unnecessary risks. By understanding predatory lending, the tactics that such lenders use, and the best way to remain a smart consumer, there’s no doubt you’ll make the appropriate real estate investment free of hassle or worry.

Though we would like to think that most people aiding us in real estate purchases are honest and forthcoming, the truth is — we aren’t always so lucky. It’s important to keep your eyes open for lenders, appraisers, mortgage brokers, or home improvement contractors who commit various types of fraud that can cost you valuable money and time.

The techniques they employ vary, but each involves some sort of cajoling a potential homebuyer should look out for. Such fraudulent behaviors include encouraging borrowers to lie about finances to obtain a loan or, conversely, knowingly lending a borrower more than he can repay. Charging unnecessary fees or charging higher interest rates for reasons other than credit history are other things to look out for. Some lenders will even target vulnerable borrowers, encouraging them to accept higher-risk loans, interest only payments, or to cash-out refinances when in financial trouble.

It’s not uncommon for a predatory lender to “strip” a homeowner’s equity by encouraging them to repeatedly refinance unnecessarily. Not even home improvement contractors can swindle an investor by using high-pressure sales tactics to sell improvements that they then finance at high interest rates. Some real estate professionals might even conspire with appraisers to sell properties for far above their value using false appraisals.

While buying property is a big decision and has some complex nuances, you should never feel uncomfortable in the process. If you do, perhaps you should be wary of the professionals you’re dealing with. If you feel unnecessarily pressured — a lender claims to be your only chance at getting a loan, you’re asked to sign suspicious papers, the final cost is different than what you initially agreed upon, the house you’re considering costs a lot more than neighboring homes for no apparent reason — it would be wise to ask around before you continue your investment. It can never hurt to get multiple opinions and offers on such a major decision. You should always feel free to shop around, and compare houses and prices. Take your time could may lessen your chances of becoming a victim of loan fraud.

There are a number of ways to prepare yourself to make a sound financial investment and avoid loan fraud. Below is a list of 11 ways to remain a smart consumer, courtesy of the U.S. Department of Housing and Urban Development:

• 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.
• Interview several real estate professionals (agents), and ask for and check references before you select one to help you buy or sell a home.
• Get information about the prices of other homes in the neighborhood. Don't be fooled into paying too much.
• 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.
• Shop for a lender and compare costs. Be suspicious if anyone tries to steer you to just one lender.
• 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.
• 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.
• Never sign a blank document or a document contain

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