Homeowners who purchased homes at the height of the real estate bubble sometimes face a double-whammy. Not only are they underwater, owing more than their home is now worth, sometimes they have an adjustable rate mortgage that are adjusting higher.

People in these challenging circumstances can be easy targets for operators of refinancing scams. Fraudulent refinancing offers may begin with a call from an "underwriter," who may refer to the homeowner's good payment record, good credit, or current mortgage rate to confuse the homeowner into believing that the call is from the homeowner's current mortgage lender.

Alarm bells

The refinancing offer may almost sound too good to be true: a lower interest rate, no closing costs, guaranteed approval, no required appraisal, and a speedy closing. In this climate those kinds of deals are few and far between, so such an offer should set off alarm bells.

But the victim is caught off guard, since the scammers has created the impression that their current mortgage lender is offering the deal. Wanting to believe that they are finally getting a break, they don't question the offer.

After the caller convinces the homeowner to refinance, the homeowner is asked to pay a fee to proceed with the refinancing, which can be as high as two mortgage payments. Once the homeowner provides payment for the refinancing, nothing happens. The money and the scammer are gone and the loan never closes.

Hard to detect

"These types of scams are hard to detect because the refinancing process can be confusing, and terms, fees and conditions of a refinance can vary from person to person," said Minnesota Attorney General Lori Swanson.

Even if the loan offer is real, and not a scam, it might not be in your best interest. It's wise to go slowly, and even shop around.

Before agreeing to any refinancing deal, clarify who you are dealing with. If you believe the refinancing offer is being made by your current lender, confirm this before proceeding with the transaction, especially if you are relying on the caller's affiliation with your current lender as a basis to agree to refinance. Fraudsters may make statements about your credit history, payment history or current interest rate to mislead you into believing that they are affiliated with your current bank.

Good faith estimate

You should see an offer in writing before agreeing to any terms. You are entitled to certain disclosures about your refinancing, including a good faith estimate, which outlines the fees associated with the refinance, and truth-in-lending statement, which spells out the APR (annual percentage rate), representing the total cost of the loan for a year.

While the good faith estimate and truth-in-lending statement provide the borrower with the information needed to determine the cost of the mortgage, they do not prevent the borrower from being overcharged. You should shop around to make sure you are getting the best loan.

Because refinancing fees can be rolled into the loan, they are easy to disguise, and unscrupulous lenders may offer you a great rate and no "out-of-pocket" expenses, while charging excessive fees that are financed through the loan. Fees are oftentimes based on your credit and financial profile, and can vary from person to person.

Pressure

If the loan salesperson applies pressure of any kind, it's a very bad sign. It may be tempting to lock in immediately when offered a great rate with great terms, but rates may go up or down, and taking a day or two to consider the offer or research the company should not alter the refinance offer too drastically.

Watch out for the term "pre-approved." It really means nothing. You are not guaranteed a loan or a rate until you have undergone a thorough credit check. Anyone who tells you differently has a different agenda.

Finally, don't agree to or sign anything that is contrary to what you were promised. Many consumers find themselves agreeing to an arrangement in writing or in a recording that is different from the offer given to them. It is difficult to dispute an unauthorized charge if there is a contract or recording that shows you agreed to the arrangement.