Many homeowners who are victims of lender fraud don’t even realize that they are victims. Lender Fraud can take many forms, including escrow fraud, insurance fraud, settlement charge fraud, document fees and prepayment fraud. These types of fraud are committed intentionally and unintentionally by lenders against borrowers. Whether committed with intent or not, the loss to borrowers can amount to thousands of dollars. When a borrower is facing foreclosure, uncovering evidence of fraud can mean the difference between saving a home and being served with an eviction notice.
The potential for fraud exists at all phases of a home purchase. Many homeowners know very little about mortgage laws and regulations when they purchase a home, making the potential for fraud even more possible. Buying a home and applying for a loan can be as confusing as it is exciting. Homeowners put their faith in their lenders that they won’t be taken for a ride, but like many other things in life, nothing is guaranteed.
An escrow account is a special account established by a person’s lender in which funds are deposited to pay taxes and insurance costs on behalf of the borrower after the deal has closed. In most cases, a portion of a person’s monthly payments is used to build up the escrow account and a lender uses that money to pay off things like property taxes. Usually the amount of money in the escrow account is reduced throughout the year, but in some cases the lender will hold too much money in the account, making the money inaccessible to the borrower during times when the homeowner could use it most, like when they face foreclosure.
Mortgage insurance is often required when a homeowner makes a down payment of less than 20% of the desired loan amount. When the amount of equity in a home has reached 20%, lenders are required to advise their borrowers that they are able to cancel the mortgage insurance if they so choose. This notification is often not made or the lender requires a lender affiliated appraiser to verify that the necessary amount of equity has been reached. In either case, the borrower ends up having to pay more than they have to and more than they want to.
A common tactic used by lenders and lender agents to increase the amount of their commission is failing to inform homeowners that the rate of their title insurance may often be lowered to almost half of its original amount. Again, the borrower can potentially lose out on thousands of dollars the longer they are allowed to pay the higher rate.
When a new homeowner closes a mortgage deal, certain fees are often not disclosed but are still required to be paid by the borrower, such as the fees related to closing costs, courier services, or pulling credit reports. Since these fees are not disclosed, lenders are able to inflate these numbers without drawing much attention. Several states prohibit lenders from charging borrowers for the preparation of loan documents, so borrowers should research the laws in their state to see if their lenders have charged them when they shouldn’t have. Other lenders have been taken to court for charging their borrowers more prepayment fees than allowed by law.
Borrowers around the country have pursued mortgage litigation in each of the matters above. Many borrowers are victims of more than one type of fraud. Anyone who feels that they have been victims of any one of the types of fraud listed above should consult an experienced finance or real estate attorney in their area who can explain the borrower’s options. The attorney may be able to review loan and finance documents to ensure that a valid grievance exists. The verified presence of intentional or unintentional fraud may provide the borrower with enough leverage to successfully negotiate a foreclosure avoidance settlement.