If you’re in the market to buy a home and you don’t want to run into trouble (like the more than 2 million homeowners facing foreclosure this year), there are steps you can take to protect yourself.
When you know what to expect at closing, you reduce your chances of becoming a victim of mortgage fraud.
We often hear stories about people arriving at the closing only to find out someone at the table wants more money. This is often a case of mortgage fraud. How can you make sure there are no surprises?
Read your documents carefully before going to the closing. Of all these documents, the closing statement, also known as the HUD-1, is particularly important.
“Typically the buyer should be provided with a copy [of the closing statement] within 24 hours of closing by the title company,” says Jenny Brawley, a mortgage fraud auditing educator from the Association of Certified Fraud Examiners.
While reading mortgage documents may not be as riveting as a Stephen King novel, knowing what you’re signing can save you money and protect you and your family from mortgage fraud.
What are some signs of mortgage fraud? Brawley provides some tips:
Look at the “sales price agreed to and the real estate agent commission to see if it’s excessive,” she advises. If the commission is more than 10 percent it’s excessive, she says, and could be a sign of collusion. Someone may be getting a kickback for the sale.
If you’re not putting any money down and your documents say you’re putting $25,000 down, that’s another sign of fraud, says Brawley. The sale “was misrepresented by the lender,” she says. In today’s market lenders require some sort of equity contribution from the borrower. The lower your credit score, the more cash you may have to put down on the property to secure your financing.
Review your completed loan application in detail and make sure it’s correct, Brawley says. Look at your employment information, income information, debt and assets, she advises. You may have provided the correct information but someone may have embellished it along the way thus committing mortgage fraud.
Read the occupancy certification and make sure it’s correct. Loan terms vary depending on whether you’re going to live in the home or rent it out, Brawley says.
Some of these red flags for mortgage fraud may seem like common sense, but if you don’t read your closing documents you’re not going to find them. And once you sign your closing documents you’re bound by their terms. Signing documents and initialing each page signifies that you’ve read them and agree to what they say.
“There are some out there who are abusing the trust that is placed in them by consumers,” Brawley says. “However, at the end of the day, the consumer is the one who’s signing the documents and that includes the language that everything is actual and accurate.