Purchasing a home is often the most significant financial commitment an individual will make, and with it comes the potential risk of falling prey to mortgage scams. These scams can significantly complicate the already challenging process of selecting the right lender and underscore the importance of recognizing warning signs early on.
Given the substantial financial losses and recovery difficulties associated with mortgage scams, predatory lenders are continually evolving their tactics to evade detection and ensnare buyers. Staying vigilant against these deceptive practices is crucial, whether you’re a first-time buyer, in a precarious financial situation, or looking to refinance.
Pete Mugleston, MD and mortgage expert at Online Mortgage Advisor has identified three prevalent mortgage-related scams that individuals should be aware of deposit fraud, upfront fee scams, and baiting scams.
Deposit fraud
Mortgage deposit fraud is among the most financially damaging scams, with some victims losing tens of thousands of dollars. Known as ‘Friday afternoon fraud,’ this scam involves criminals intercepting communications between homebuyers and their solicitors or conveyancers on the day of completion, often a Friday. The fraudsters pose as either the homebuyer or the solicitor, directing the solicitor to transfer the deposit funds to a fraudulent account.
This scam leverages the urgency of property transactions, as completion day is when large sums of money are exchanged. By the time the fraud is uncovered, the funds are usually irretrievable, leaving the homebuyer facing a severe financial setback.
Despite its simplicity, this scheme is highly effective, catching many off guard during an already complex process. As fraudsters continually enhance their methods, they devise increasingly sophisticated schemes to abscond with individuals’ deposit funds.
To protect yourself, it’s essential to understand the process thoroughly. Solicitors will always clarify communication methods, particularly for fund transfers. Remember, law firms will never discuss banking details via email. It’s advisable to keep a hard copy of the firm’s bank details and consistently cross-reference them.
Upfront fee scams
Another prevalent scam is the upfront fee scam, where fraudsters contact unsuspecting homeowners via cold calls or phishing emails, posing as legitimate mortgage lenders. They typically offer to refinance the mortgage under attractive terms but demand an upfront fee to initiate the process.
Reputable lenders are only permitted to charge certain upfront fees, such as booking fees, arrangement fees, and valuation fees, and these can only be levied once the mortgage application is accepted. Therefore, any request for upfront fees before application approval should be treated with suspicion.
These scams exploit individuals in vulnerable financial situations, leading to substantial financial losses and emotional distress. It is crucial to remain cautious and sceptical when dealing with mortgage brokers and lenders, particularly if they request upfront fees prematurely.
Baiting scams
Often known as the ‘bait and switch’ scam, this tactic deceives borrowers by initially offering extremely favourable loan terms, such as ultra-low interest rates and monthly payments. However, after the borrower invests time and effort into the financing process, the lender suddenly changes the terms, presenting a significantly less favourable deal.
This approach leaves many borrowers feeling trapped, believing they have no other options and fearing rejection from other lenders. To avoid falling for this scam, steer clear of lenders who lure you with promotional flyers or door-to-door sales pitches. Reputable lenders generally do not employ such methods.
If an offer seems too good to be true, it probably is. Legitimate businesses aim to make a profit, not incur losses. If you find the terms and conditions of an offer confusing or suspect, it’s a red flag. Don’t hesitate to ask for additional information from the lender, and if they cannot provide clear details, it’s best to walk away.
Stay informed and vigilant
While mortgage scams are a significant threat, awareness and vigilance can help you avoid becoming a victim. Always verify the legitimacy of the lender, understand the process thoroughly, and seek professional advice if anything seems suspicious. Protecting yourself against these scams is essential for safeguarding your financial future.
