How can you avoid being targeted by scammers when taking out a mortgage and transferring money? Here are some red flags to look out for
Scammers are everywhere and the high-value transactions involved in buying a home mean that mortgages are one place they hunt diligently.
Therefore, it is crucial that home buyers and mortgage lenders are alert to the signs of their methods.
To help you, says Pete Mugleston, MD and mortgage expert at www.onlinemortgageadvisor.co.uk, has outlined the most common mortgage-related scams to help you weed out predatory practices.
Deposit fraud
Deposit fraud typically involves criminals intercepting communications between homebuyers and their lawyers or conveyancers on the day of completion, Mugleston explains.
Completion refers to the very last stage of the homebuying process when ownership of the property is transferred, the final funds are received and the new owners receive the key to the door. It often falls on a Friday – which is why deposit fraud is also called ‘Friday afternoon fraud’.
The fraudsters pose as the home buyer or the lawyer and in this way can divert the money for the down payment of the property to a fraudulent account.
Mugleston said: “This scam takes advantage of the time-sensitive nature of property transactions as the day of completion is the day on which large sums of money are transferred between parties.
“By the time the fraud is discovered, the money is usually impossible to get back, causing the home buyer to suffer a significant financial loss.”
So how do you avoid becoming a victim? Mugleston explained that fraudsters are constantly refining their methods to make their scams seem more convincing.
However, if you remain vigilant and aware of the process involved in its completion, you will be in a better position.
“Lawyers will always educate clients on communication methods,” says Mugleston, “especially when it comes to transferring money.”
“Law firms will never discuss banking details via email so it is advised that borrowers keep a paper copy of the firm’s banking details and always refer to this and cross-reference it as necessary.”
Prepayment scam
This involves scammers making cold calls or sending phishing emails to unsuspecting homeowners, posing as legitimate mortgage lenders.
Mugleston said the fraudsters typically offer to refinance the mortgage on attractive terms, but they charge an upfront fee to start the process.
“It is critical to note that reputable lenders may only charge specific fees costs in advancesuch as booking fees, arrangement fees and valuation fees,” Mugleston explains.
“Importantly, these charges can only be levied once the mortgage application has been accepted, ensuring transparency and legality in the lending process.”
To avoid being drawn into this scam, Mugleston urges homeowners to be cautious and skeptical when faced with requests for advance payments. If someone approaches you with such a request, it may indicate fraudulent activity aimed at exploiting vulnerable people seeking mortgage assistance.
These scammers typically take advantage of the precarious situation of people seeking mortgage help, leading to significant financial losses and emotional turmoil.
Scam
Often called the classic “bait and switch,” this scam deceives borrowers by initially offering seemingly irresistible loan terms: ultra-low interest rates and monthly payments.
But after the borrower has invested significant time and effort in the financing process and prepared to close the deal, the lender executes a sudden about-face, revealing entirely different loan terms compared to the original offer.
Mugleston said: “This tactic leaves many borrowers feeling trapped, as they believe they have limited alternatives and fear rejection from other lenders.
“To avoid falling victim to this deception, avoid those who try to arouse your interest through advertising brochures or door-to-door sales pitches. Reputable lenders generally refrain from such promotional methods.”
Beware of anything that seems too good to be true. Interest rates and monthly repayments that seem suspiciously low should be a red flag, according to Mugleston.
Ditto, and terms that don’t make sense or are difficult to understand.
“Do not hesitate to request further information from the seller or loan officer,” he added, “and if they cannot provide the necessary details, it is advised not to proceed with them.”