How to protect yourself from homebuyer fraud
Whether it is your first time buying a home or you are a seasoned pro, purchasing a home is a complicated process. Unfortunately, this leaves homebuyers vulnerable to fraud. The following are three of the most common types of homebuyer fraud, as well as how to protect yourself from falling prey to these unscrupulous schemes.
1. Fraudulent Loan Origination
Fraudulent loan origination occurs when homeowners are approved for a loan they are not qualified for. This can happen in two ways: fraud by the lender or fraud by the borrower. In fraud by the lender, the lender knowingly approves the loan despite the buyers being unqualified; this rarely can happen accidentally and is often the result of a lender falsifying information. Fraud by the borrower occurs when borrowers purposefully falsify information when applying for loans. Brokers can also cause fraudulent loans by promising buyers loans larger than they can repay in order to increase their own profits.
To prevent fraudulent loan origination, ask friends or family for lenders they have used in the past of those they trust. Comparing rates from several lenders – including both online and brick and mortar institutions – can give you a better idea of the general loan amount and APR you can qualify for. Asking more in-depth questions, including asking for a Good Faith Estimate right away, can help you root out unscrupulous lenders.
2. Illegal flipping
Thanks to HGTV, most buyers are extremely familiar with home flipping; flippers buy an out-of-date home at a low price, quickly make improvements, and sell the home as soon as possible for a profit. However, flipping can be done illegally; flippers attempt to sell a house for significantly higher than its appraised price after making only very minor improvements.
A knowledgeable real estate agent can help you avoid looking at illegally flipped homes, or help you identify red flags in the flipped homes you do see. Illegally flipped homes are often owned by a trust on an LLC instead of an individual, have only had cosmetic improvements, or may have paperwork that doesn’t match the current public records for the home.
3. Wire fraud
You hired a real estate agent, got preapproved for a mortgage, looked at plenty of listings, and finally found your dream home! However, preparing to make your first deposit on your new home may make you vulnerable to wire fraud. Hackers can gain access to your information from public listing records or listing services; they then create a fake email account nearly identical to the seller or broker and request for the home deposit.
There are a number of common sense ways to avoid wire fraud. First, double check that the email address is identical to the one you have on file; keeping emails in one continuous chain is one way to do this. Because hackers can duplicate logos and email formatting, check with your agent, broker, or seller by phone before making any transfers. Lastly, be cautious in changing communication. If the seller has only previously called, be wary of a sudden email asking for a wire transfer.