Mortgage borrowers should guard against mortgage scams, which can mislead them into entering loans that are difficult to repay or ultimately jeopardize their foreclosure defense. High interest rates, other credit and closing costs and unclear documents can be financial quicksand. Documents should be carefully read and reviewed. A purchaser should not sign any agreement if there are new terms that were not disclosed to them. Explanations should be provided on any cost, term or condition that is too high or ambiguous.
Extras like life, disability and credit insurance should be carefully reviewed because these may be sold to raise fees for the lender. Requiring credit insurance as a condition of the loan is illegal. Purchasers should not be pressured into signing over a deed as a condition for the loan.
A purchaser signing a mortgage that is not the loan for buying the home may rescind it if certain disclosures were not provided. The right to rescind expires on midnight of the third day the loan is signed if certain conditions are met.
Loan servicers are now required to give substantial information on written mortgage statements. Purchasers must receive 45-days’ notice that insurance lapsed before adding insurance. Servicers should also notify purchasers that they can provide help if there are problems paying the mortgage.
Scams include equity stripping, in which the lender provides a loan based on the equity in the home instead of the ability to repay. Loan flipping occurs when a lender encourages repeat refinancing to pay off missed payments or other debts.
Bait and switch occurs when loan terms are changed at the closing, when a purchaser feels pressure to execute the sale documents and mortgage. These include raising interest rates or changing a fixed rate loan to an adjustable rate loan.
When dealing with unmet mortgage debt, do not use a company that asks for an upfront fee. Never stop paying a mortgage to qualify for a loan modification. Lease, buyback options or deeding the home to someone else should be avoided.