Mortgage Fraud: Scammers Get Victims With This Little known Way!

Mortgage fraud is very common, and when you don’t know what you’re doing in real estate, you can easily become a victim! Learn how to avoid mortgage fraud schemes and how to spot the red flags of a fake lender.

How to Prevent Mortgage Fraud

I want to tell you a tragic story that I heard recently about a beginner real estate investor who lost $205,000 to a loan scam before he even purchased a property.

Yes, this is a true story, so hang out a minute to hear what happened. For any of you out there reading this, please share this with any novice real estate investors that you know that need to hear this story.

It could save them tens of thousands of dollars and could prevent mortgage fraud. Education is one of the most valuable tools to fight mortgage fraud. So what happened?

How Peter Fell for a Fraudulent Lender

Peter is a new real estate investor looking for properties to buy. However, Peter did not know that when you buy a property, that you always use a third party to handle the money part of the transaction. This third party is the licensed title company and/or escrow company.

Mortgage scheme
Avoid Mortgage Fraud

A title or escrow company takes the money from the buyer and transfers it to the seller, as a go-between, and as a neutral third party. Peter did not know enough about how real estate transactions work to understand where the money goes on a purchase. He was just getting started looking at properties.

Once Peter found a property, he started talking to various lenders, and that’s where he encountered this loan scam. The loan scam was a fake lender who had no intention of making Peter a loan, but was just posing as a legit lender to try and get a newbie like Peter to pay him an upfront fee. But this wasn’t your typical “upfront fee” loan scam.

This Fraudulent Scheme Gets Worse!

Hang on for another second to discover why the scam that was perpetrated on Peter was much, much worse than the most common loan scam out there which is the “upfront fee scam.” But first, you may wonder, what is an upfront fee scam?

Let’s back up. Some lenders take upfront fees in advance of giving you the loan. It could be called a legal fee, administrative fee, etc. Upfront fee scam lenders don’t make loans, they just take upfront fees, never funding the loans. Once a fake lender gets the fee upfront from a borrower, the fake lender always disappears. And Peter fell right into the trap.

Peter was duped into giving this fake lender an upfront fee of $5,000 on the property that he was trying to buy. It was too easy! The fake lender realized that Peter didn’t understand real estate transactions at all. He then convinced Peter to wire him the down payment on the property, which was $200,000.

Remember This One Tip to Avoid Being Scammed!

Because Peter did not understand real estate transactions, he did not know that you NEVER, EVER wire a lender your down payment on a property purchase. You ALWAYS wire your down payment to a licensed title or escrow company. Just to reiterate, you NEVER EVER, under any circumstance wire your down payment to a lender on a new purchase.

So Peter wired the down payment of $200,000 to this fake lender. Then what happened?

Poof! The fake lender promptly took the funds, closed the account, and he was gone, that was it!

Peter lost $205,000 before he ever did his first real estate deal. Again this is a true story! So what’s the lesson learned?

Never wire a lender upfront money! But more important than that, never ever, for any reason wire a lender your down payment money on a purchase.

Avoiding Mortgage Fraud: Red Flags To Watch For

Learn to spot a fake lender! Look for real lender reviews and check credentials anytime you’re working with a lender that was not referred by a close friend, family member, or business partner.

Your down payment funds should always be wired to a licensed title company, or licensed escrow company. When in doubt, get your own real estate attorney involved, or hire your own title/escrow company to represent your side of the transaction.

And then, only wire your down payment funds to your appointed agent.

You can easily verify if a title or escrow company is licensed by checking with the regulatory body in the state where the title or escrow company is located. When in doubt, just hire your own real estate attorney, or your own title or escrow company in the city where the property you’re buying is located.

This was a hard lesson for Peter to learn. Being a newbie real estate investor, he didn’t understand enough about real estate transactions to know that he should NEVER wire his down payment money to a lender. Do you know any newbie real estate investors that could fall for this scheme?

Don’t assume someone knows! Go ahead and share this post with them. It could stop someone out there from perpetuating mortgage fraud.

Again, even if this seems like common sense to you, don’t expect that everyone out there understands lending scams and how real estate transactions should work. Share this post with them! You may be glad you did.

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About the author

Corey Curwick Dutton, MBA Park City, Utah - 2005 MBA Graduate with 10 years experience in Business Management including International Management. Corey is a Private Money Lender and Loan Officer. In her spare time Corey enjoys writing on topics in the private money lending industry. She also enjoys hobbies such as mountain biking and skiing in the great outdoors of Utah.