Friday, February 17, 2006

Housing Scams That Target Minorities and the Poor

I just came across some information that needs to be disseminated as far and wide as possible. It’s regarding mortgage scams that are being perpetrated against unsuspecting, enthusiastic families who are looking to purchase a home. The targets of these scams – usually minorities or poorer people who might have some credit problems – can be bilked for thousands of dollars. So far, I only have information on two of these cons. Do us all a favor and pass this along. Here’s the first:

  1. Properties that can easily appraise higher than current market rates (new homes or revitalized neighborhoods) are found.

  1. The "investor" goes to the seller with a proposal to purchase the property at a higher price than the selling price (or with a new home, it may be at the listing price). The investor places a secondary lien on the home before the home is sold to them, many times in another person's name. The mortgage broker (who is in on this too, he is selling the note to an unsuspecting company) has an appraiser who will appraise high to make the property look good to an underwriter.

  1. The home is sold and the "investor" and the mortgage banker (and possibly the builder) take the money from the closing on the second lien and split it. The house sits for months (many times as long as a year) and eventually goes into foreclosure. This can take very long because of the huge number of foreclosures each company is dealing with.

So let's say a recently built house, which had been listed at $369,900, is done in this way. The investor puts a $40,000 lien on the home. They close on the house with no money down. They get $40k and split with the shady mortgage broker. They let it go into foreclosure, they have no reason to want to rent it....they have money in their pocket.

Many times, they are using identity theft to do this, taking someone's good credit to get the note. Model homes are particularly easy to do this way as well because they can appraise very high. The models are bought by the investor and then leased back by the builder. The builder is making payments, so the scam is hidden for a long time. The investor can continue to do this with many properties because they can show great payment history (since the payments are being made by the builder).

Here’s the second scheme. This particular one was executed on a black couple two houses down from where we live.

  1. Owner/Investor takes over home and rents it out. Has renter put down a down payment with a lease-to-own agreement.

  1. Then, the owner collects monthly rent from his tenants and makes no mortgage payments.

  1. The house is foreclosed and the renters are forced out onto the street with complete loss of down payment and any equity above normal rent fees.



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