How to avoid mortgage refinance scams
Watch out for sneaky tactics by scammers and predatory lenders
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The Federal Trade Commission (FTC) says Americans lost nearly $8.8 billion in 2022 to various schemes, including imposter scams, investment-related scams and fake business and job opportunities. And that figure doesn't even encompass all the fraud that occurred — only financial losses that were actually reported to authorities.
Not surprisingly, mortgage-related scams are also relatively common. According to the Mortgage Fraud Report from CoreLogic, around 0.76% of mortgage applications showed signs of fraud in the second quarter of 2022.
When it comes to mortgage refinancing scams, an ounce of prevention is worth a pound of cure. Here are some of the common types of mortgage refinance scams to be aware of and some tips for spotting them before they happen.
- Mortgage refinance scams run the gamut from phishing schemes to loan flipping and everything in between.
- Common signs of a mortgage-related scam include demands for upfront payment, high-pressure sales tactics and requests to sign over the title to your home.
- Before you take steps to refinance or modify a home loan, make sure the company you're working with is legitimate and highly rated by past customers.
Signs of a mortgage refinance scam
Some mortgage scams are targeted at homeowners in financial distress, whereas others aim to trap anyone who is unlucky enough to be a target. Here's a rundown of some of the signs to look for.
If a company asks you to pay upfront fees to refinance or modify your home loan, that’s a huge red flag and a sign of predatory lending. According to the FTC, it’s illegal for a lender or other company in the mortgage industry to ask for upfront payment before providing any services.
It is illegal for a mortgage lender to ask for upfront payment before providing any services.
Requests to sign over a title
A third-party company should never ask you to sign over the title to your home. The FTC warns that if you legally transfer your property to a scammer, you may never get it back.
If a company asks you to start making mortgage payments to someone other than your current lender or servicer, this is a sign you're being targeted for fraud. The same is true if you’re asked to stop making mortgage payments altogether.
High-pressure or hurried sales tactics
David A. Krebs, the principal broker at DAK Mortgage in Miami, says that high-pressure sales tactics are a red flag. These tactics often appear alongside promises of incredibly low rates that seem too good to be true.
"Another sign is a lender who rushes the process and discourages you from reading the fine print or consulting with a lawyer or financial advisor," he said.
» MORE: Reverse mortgage scams
Common types of refinance scams
In the world of mortgage refinance scams, fraud techniques come in many forms. The following mortgage refinancing scams are some of the most common.
- Loan modification scams
- Loan modification scams are often targeted at homeowners who have fallen behind on payments and are facing foreclosure. According to American Consumer Credit Counseling (ACCC), scammers will pose as mortgage relief experts who want to help you modify your existing loan to get a lower monthly payment or better terms.
"They may request upfront fees or ask you to make mortgage payments to them directly, but they provide no actual assistance or modification," said the ACCC in an email to ConsumerAffairs.
- Bait-and-switch scams
- Another prevalent scam involves "bait-and-switch" tactics, in which terms agreed upon initially are changed at closing without the borrower's knowledge.
The FTC says this scam is often targeted at homeowners who are behind on their payments and trying to dig their way out. In this scenario, the scammer will try to bury the homeowner in so much paperwork that they can't read it all, then hurry the process and try to get them to sign away the title to their home.
- Foreclosure scams
- Some scammers might call themselves “foreclosure consultants” or “mortgage consultants," but their goal is to trick you into paying unnecessary fees or signing over your home. The Federal Deposit Insurance Corporation (FDIC) says these companies target borrowers in distress, claiming they can help you refinance into a new home loan or change the terms of your current loan.
However, “these ‘options’ are intended to convince you to take the wrong steps so they can take your money and possibly your home," according to the FDIC’s website.
- Loan flipping scams
- Loan flipping is when a mortgage officer tries to increase their income through excessive fees and commissions. The loan officer convinces unsuspecting homeowners to refinance their mortgage repeatedly under false pretenses.
For example, they might convince you that a new loan saves you money when it actually costs more.
- Phishing scams
- There are also regular phishing scams to be aware of, which usually take place through email or over the phone.
The FDIC says thieves may try to entice you into refinancing your home with a lower interest rate, but what they really want is sensitive financial information like your Social Security number and banking details.
How to ensure a mortgage lender is legitimate
Before you decide to refinance your mortgage or apply for some type of mortgage relief, you'll want to make sure the companies you're considering are legitimate and reputable.
- Research companies online. According to Krebs, consumers can use the Nationwide Mortgage Licensing System’s online database to confirm if a mortgage company is registered. "They should also check for the company's rating with the Better Business Bureau," he said.
- Read lender reviews. Reading reviews from past customers is an excellent way to get an idea of the experience you'll have with a mortgage refinance company — and if it’s legit. You can read reviews of many companies directly on ConsumerAffairs.
- Search for complaints. Use the Consumer Financial Protection Bureau’s Consumer Complaint Database to search for problems with mortgage companies you're considering. You can search for specific lenders and filter your results to find complaints from the last few years or any other timeline.
What to do if you spot a refinance scam
If you are the victim of a mortgage refinance scam or you know you were targeted, the FTC says you should report the fraud (or potential fraud) in two ways:
The FTC also has advice for victims who lost money during their encounters with fraud. For example, you may be able to file a fraud report and get some or all of your money back if you paid fake fees with your credit card or debit card. If you made a transfer to a fraudster using your bank account or a wire transfer company, you can ask for assistance with reclaiming funds from your bank or the third-party company that facilitated the transfer.
Will my mortgage company ever call me to refinance?
It's possible your mortgage company will contact you to see if you're interested in refinancing your current loan. However, you'll want to confirm it's actually your mortgage company reaching out before you disclose any sensitive information during your conversation.
Who do mortgage scammers target most?
Most mortgage scams target homeowners who are struggling to keep up with their mortgage payments, as well as those who are at high risk of losing their homes to foreclosure.
Should I refinance with a different lender than my current mortgage?
You can and should refinance your mortgage with a different lender if the lender offers a lower interest rate, better loan terms or both. Make sure to compare offers across multiple home mortgage lenders and run all the numbers before you decide.
- Article sources
- ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- Federal Trade Commission, "Mortgage Relief Scams." Accessed July 8, 2023.
- Federal Trade Commission, "New FTC Data Show Consumers Reported Losing Nearly $8.8 Billion to Scams in 2022." Accessed July 8, 2023.
- Federal Deposit Insurance Corporation, "Mortgage Scams." Accessed July 8, 2023.
- Verified, "Loan Flipping Scams May Result in Losing Your Home." Accessed July 8, 2023.
- CoreLogic, "2022 Mortgage Fraud Report." Accessed July 8, 2023.
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