Crooks find new ways to prey on home woes

By Amy Hoak, MarketWatch

Fraudsters find a way to scam lenders and homeowners out of money no matter how the housing market is faring, but in recent years they’ve shifted their tactics to profit from the market’s downturn.

Today, there’s less identity fraud and misrepresentation of income or employment to obtain a mortgage, mainly because stricter validation criteria when a borrower applies for a loan makes that strategy much less successful.

But other types of fraud are replacing those scams. Some schemes target distressed homeowners who are looking for a way to save their home from foreclosure. Another tactic: Profiting off of short sales at the expense of the lender.

Foreclosure rescue

Schemes that prey on struggling homeowners heading toward foreclosure are still prevalent, even years into the foreclosure crisis.

It’s a crime of opportunity. There is an enormous pool of distressed homeowners.

Scammers use various pitches. Some say they can prepare your documents for you as you try for a loan modification; others claim to be an attorney or say they are working with an attorney. Often, these offers sound legitimate, echoing some of the same language used by big government programs and lenders to gain a homeowner’s trust.

They offer a service, take the homeowner’s money, then disappear.

But the Mortgage Assistance Relief Services Rule, in effect since January, prohibits firms offering mortgage-modification or mortgage-relief assistance to accept up-front fees, so homeowners should never pay before services are rendered. There’s an exception for attorneys, causing some scammers to pose as representatives of law offices, she said.

Other fraudsters get homeowners to sign a quit-claim deed, which transfers ownership of the home to the scammer, who promises the homeowner a situation where he or she will be able to remain in the house. In a newer scam, those who have already lost their homes are being approached to pay money to get the home back, she said.

Don’t give anyone money to help you with this. Instead, seek out a U.S. Department of Housing and Urban Development-approved housing counselor and your servicer.

Short-sale fraud

A short sale can be a lifeline for a distressed homeowner heading for foreclosure. That’s because in a short sale the lender accepts a lower mortgage payoff when the homeowner owes more than the home is currently worth.

But fraudsters have found ways to make a profit off these deals.

One of the most common forms of short-sale fraud happens when a seller or someone representing a seller doesn’t submit the best offer to the lender. A middleman purchases the short-sale property at the lower price, then turns around and resells the property to a legitimate buyer at a higher price — often on the same day, according to a recent Federal Bureau of Investigation report on mortgage fraud.

The middleman pockets the difference, sometimes sharing it with an accomplice.

It does require a pretty sound knowledge of how a conventional loan is closed and how a short sale is negotiated and approved. Some fraudsters are real-estate agents marketing themselves as “short-sale specialists.” Title companies and settlement agents may be in on the scam too, he said.

Sometimes fraudsters try to manipulate the price lower by encouraging the owner to make the house look worse than it is, referred to in the industry as “reverse staging.”

That means you don’t weed the yard, don’t shovel the sidewalks, don’t do any continued maintenance of the property, don’t worry about putting a fresh coat of paint on it, or even keep it neat and clean. That reduces the value of the property when the appraiser or broker comes to evaluate it.

Often, short-sale fraud and flips are between real-estate agents. But homeowners can get entangled in the mess as well. If you get wind of a fishy scheme — or if an agent offers a way for you to profit from the deal — run the other way.

Other schemes

Another scam is when the title or closing agent doesn’t remit payoffs as he should. An example: You refi your mortgage, the refi closes, you go on your way and make payments to the mortgage company, but your title company hasn’t remitted payoffs to the old company. Fraudsters take funds for their own use, and it can be a month or two before evidence of the scam is found in the public record.

There surely will be more scams emerging as fraudsters find other system weaknesses to exploit.