4 Ways to Spot Loan and Appraisal Fraud

September 10, 2016
Arnold Wadsworth Coggins

Unfortunately it is not uncommon to see a significant amount of dishonesty in the real estate industry.

Many of the players in the real estate game work off commission, so they have an incentive to make every house worth as much as possible. Because of this incentive, it’s fairly common to have some combination of the builder, real estate agent, appraiser, and loan officer conspiring together to set the purchase price and loan amount as high as possible.

If that routine sounds a little familiar, it’s because appraisal inflation was one of the shady banking practices that helped bring about the global financial crisis of 2007 – 2009. Despite nearly wrecking the world economy, this kind of behavior continues to this day.

Don’t be a victim—here are 4 ways to spot loan and appraisal fraud:  

  1.       The Last Minute Modification Savior

For this trick, the scammer identifies a homeowner that’s so behind on their mortgage payments that they risk losing their property. The scammer then offers to negotiate with the lender and modify the loan (for a sizable upfront fee, of course). Then, they take the money and run without bothering to actually modify the loan.

Be skeptical of anyone who jumps in at a desperate moment and claims they can fix everything.

  1.       “Too Good to Be True” Promises

Any offer that sounds too good to be true, promising you huge profits at little to no risk, is best ignored. Chances are good that it is probably some sort of scam. If nothing else, be sure to conduct extensive research into the legitimacy of the offer.

  1.       Watch out for Blank Spaces

Don’t sign any documents with blank spaces. Though it may seem obvious to some, loan or appraisal scammers may try to leave blank spaces on contracts or agreements that they can then fill in later without your knowledge in a manner that benefits them and harms you. If you are ever confused or unsure about something you are signing, do not sign it until you have it review by a professional.

  1.       Understand Everything You Sign

The phrases and syntax used in legal documents can look so exotic next to everyday speech that it might as well be a different language. In fact, it is oftentimes referred to as “legalese.”

Indeed, legalese can be all but impossible for the layman to understand.

There are predatory lenders out there who will use the naturally confusing quality of written legal contracts to take advantage of borrowers and lock them into bad deals. At the same time, lenders who mean well can also be hard to understand. A confusing legal document isn’t necessarily predatory. But if you’re not a lawyer, how can you know the difference?

That’s why you need to hire a lawyer for such matters, or any situation in which you are concerned you could be taken advantage of in the loan or property appraisal process.

If you have any questions about loan and appraisal fraud, or you think you’ve been taken advantage of by a scammer, please do not hesitate to contact Arnold, Wadsworth & Coggins to discuss your situation and your options.