Mortgage Fraud Red Flags

Even though 2016 has seen a general slowing of the number of new foreclosures nationally, New Jersey still leads the country with the highest number of properties currently in the foreclosure process, according to figures gathered throughout the beginning half of the year.

Some good news is that the excessive holding pattern, which was created in New Jersey courts during the national mortgage crisis that began around 2007, has been alleviated, expediting the NJ foreclosure process in general. In fact, as of the date of this post, only several hundred homes are “stuck” somewhere in New Jersey’s judicial foreclosure channels. The rest of the 15,000+ NJ foreclosure properties are moving swiftly along and are predicted to take much less than the nearly one year average to make it to Sheriff’s Sale.

The overall housing market in the garden state is in a better place now than it has been since the housing crisis began nearly a decade ago, but there is still significant room for improvement. With that being said, some New Jersey residents are excited by the positive feedback about the housing market, and are once again looking to either list their home for sale or make an offer on a property.

Naturally, this is exciting news for those who make their living in the real estate and/or lending market. Times have been extremely tough for real estate agents and mortgage brokerage firms during the housing crisis.

“Desperate times call for desperate measures.”

Even with the slow improvement in the housing market, home sales simply haven’t returned to their pre-crisis levels yet. Many New Jerseyans who work in the housing industry have had to turn to second jobs in order to support their families; some people abandoned the real estate industry entirely and took up new employment.

A third group, made up mostly of lending companies, remained steadfast in their conviction to wait out the housing bubble. But how did they continue to make money all these years without qualified buyers and with very few homes on the market?

Unfortunately, they did so by using unscrupulous tactics. Because more people turned to renting instead of buying over the past decade, lenders that wanted to stay in business had to actively seek out potential mortgagees. In doing so, they often targeted people who were under-qualified for a mortgage.

A mortgage “scam” is one in which the lender goes to extraordinary lengths to push borrowers through to approval – even when the potential borrowers won’t actually be able to afford the mortgage payments. Naturally, this only perpetuates the foreclosure problem in this country.

Under normal circumstances, a lending company goes to great lengths to ensure that each and every borrower has the capacity to repay a loan before they get approved. Avoiding potential foreclosures is typically at the top of every lender’s priority list.

However, when push came to shove, some New Jersey mortgage company owners acted fraudulently in order to sustain their businesses and to maintain their lifestyles. As the housing market still struggles to return to pre-crisis levels, it’s important that borrowers do their homework on the reputation of any lender who offers them a mortgage. Red flags for mortgage fraud include:

• It seems too good to be true. This is a good statement to live by in general, but especially when it comes to someone offering to lend you a ton of money. If you keep waiting for ‘the catch,’ and none materializes, you can be sure that the catch is hidden and will make itself known when you least expect it.

• They’re offering you more than you can afford. Your debt-to-income ratio should not be more than 28%. What that means is that your mortgage payment shouldn’t be more than 28% of your total monthly income (pre-tax). If you’re being offered a mortgage that doesn’t fall within the 28% range, don’t sign.

• Your loan documents contain incorrect information. If a lender is asking you to put your John Hancock on a mortgage agreement that has ANY false information, walk away. Not only is falsifying mortgage documents a bad idea for your future financial wellness; it’s also illegal.

Bottom line: keep your eyes wide open and do plenty of research before taking on a mortgage as the nation is still in its recovery phase from the housing crisis. It’s always wise to have an attorney who is well-versed in real estate contracts look over your mortgage paperwork before you close on a property. For your peace of mind and your financial stability, bring your attorney along to the closing, too.

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