Most U.S. real-estate markets are past the worst of the housing bust, but homeowners—especially boomers—are still citing real-estate scams and mortgage frauds among their biggest complaints to federal regulators.
According to the Federal Trade Commission, real estate and mortgage issues were both in the top 25 categories of complaints for 2011 and 2012. And those in their 50s had the most to complain about, accounting for 23% of all fraud complaints.
Many boomers may be seeking to downsize from large family homes, while others are overextended or upside down in their mortgage.
Whether selling, buying or both, consumers need to beware of schemes to defraud them in what is likely one of if not the biggest asset in their portfolio: their home.
Many real estate scams just keep reinventing themselves, becoming the same old trick using a new way to get victims.
Paul Barbagelata, broker-owner of Barbagelata Real Estate in San Francisco, has worked in real estate for 23 years. His family has been in the business since 1952 and over the past 61 years they have seen some of the oldest scams come, go and come right back again.
“Forgery of documents showing someone is the owner of a property but really is not,” is one major problem, he said. “It’s been reinvented with technology as the duplicating of notary stamps and grant deeds is much easier with the use of the Internet,” he said.
He said, “selling swampland in Florida is the old-time ultimate scam.” But in recent years, he said, he’s seen scams “selling empty lots to people in rural areas who are promised utility service but never get it.”
Would-be homeowners also should not buy or rent property without seeing it first. That dream retirement home can be a nightmare if you fall for an online real estate scam.
The Internet has made it easy to research real estate, but just because something appears to be a legitimate piece of property for sale, doesn’t mean it is. Never wire or send money for a deposit without proper guidance from a trusted source such as your attorney or a Realtor.
The FTC says there are certain buzz words consumers need to be wary of when it comes to real-estate loans. If a mortgage ad offers a “fixed” rate be sure to find out how long it is fixed for. Some of these rates are as little as 30 days and consumers have a rude awakening when their loan payment goes up before they have even finished unpacking the boxes.
When you see the words “very low rates,” make sure you are clear if they are referring to a payment rate or the interest rate. This big detail may be buried in the fine print. The difference is the interest rate will be the rate used to calculate the interest owed to the lender every month. The payment rate will be the rate used to calculate the amount of the monthly payment.
And to add to the confusion and cost, if the payment rate is less than the interest rate, the interest due will not be covered. What that boils down to is “negative amortization,” whereby the loan balance increases.
Homeowners who find themselves at risk of foreclosure, or in foreclosure, face another group of scams: mortgage relief.
These scams have made it into the FTC’s top 15 complaints the past three years in a row. You will hear all the things you want to hear: your monthly payment will be reduced, a money-back guarantee offer or even that the company is affiliated with the government or your lender.
According to the FTC, companies will promise that “they’ll negotiate a deal with your lender to reduce your mortgage payments or to save your home. They may claim to be attorneys or represent a law firm. They may tell you not to contact your lender, lawyer, or credit counselor. They promise to handle all the details once you pay them a fee. Then they stop returning your calls and take off with your money.” Read more from the FTC’s Consumer Information publication on mortgage-relief scams.
The FTC’s Mortgage Assistance Relief Services Rule makes it illegal for a company to collect fees until the homeowner has received and accepted an offer of relief from the homeowner’s lender. So, even if you agree to receive the help from one of these companies, you don’t need to pay a dime until you get the results you want.
Even without mortgage schemes and real-estate scams, a legitimate real-estate transaction in an unsettled or recovering market can have its problems.
Barbegelata says one of the most common mistakes an anxious buyer makes is not taking the time to understand all the details of the loan process and fees associated with buying.
As for anxious sellers, he said their biggest mistake is “rushing a home on the market. Not putting money into staging and cosmetics can often times lead to a loss of tens of thousands of dollars.”
The more rushed you are, the more likely you will overlook something or sign a document before fully understanding it. When it comes to real estate and mortgages, knowing the people working with you is key. And if you are new to the process, ask friends for referrals, check references and make sure they are familiar with property values and the community you are buying into.
And sometimes it’s not a scam that ends up costing people more than it should. Emotions can run high when you are in bidding wars and there are delays in the mortgage approval process. Stay cool. Don’t rush, work with a team you trust and remember the adage that has been around for as long as scams: if it seems too good to be true, it usually is.
Emmy Award-winning broadcast journalist, documentarian and author Jeanette Pavini covers consumer and investigative news for numerous publications, radio and television. Jeanette is based in the San Francisco Bay Area.