Buying or refinancing a home may be one of the most important and complex financial decisions a person will ever make. Many lenders, appraisers, and real estate professionals stand ready to help these people get a nice home and a great loan.

However, the buyer needs to understand the home buying process. Misinformed homebuyers, often first-time buyers, fall victims of loan fraud or predatory lending.

What is Predatory Lending?

People are losing their investments and sometimes their homes because of loan fraud done by predatory lenders, appraisers, mortgage brokers and home improvement contractors with the following modus operandi:

1. Use of false appraisals and sell properties for much more than they are worth.
2. In order to get a loan, encourage borrowers to lie about their income, expenses, or cash available for downpayments.
3. Lend more money than a borrower can afford to repay.
4. Charge high interest rates to borrowers based not on their credit history but on their race or national origin.
5. Collect fees for unnecessary or nonexistent products and services.
6. Pressure borrowers to accept higher-risk loans such as balloon loans, interest only payments, and steep pre-payment penalties.
7. Target vulnerable borrowers to cash-out refinances offers when they know borrowers are in need of cash due to medical, unemployment or debt problems.
8. Convince homeowners to refinance again and again when there is no benefit to the borrower and eventually strip from them equity from their homes.
9. Use high pressure sales tactics to sell home improvements and then finance them at high interest rates.

Loan Fraud Tactics

1. A lender or investor tells the buyer that he/she is the only chance of the buyer getting a loan or owning a home. You should be able to take your time to shop around and compare prices and houses.
2. The house being bought costs a lot more than other homes in the neighborhood, but isn't any bigger or better.
3. Pressure buyer to sign a sales contract or loan documents that are blank or that contain information which is not true.
4. Misinform borrower that the Federal Housing Administration insurance has protection provision against property defects or loan fraud - it does not.
5. The cost or loan terms at closing are not what was agreed upon.
6. Convince the borrowers that refinancing can solve credit or money problems.
7. Inform borrower that he can only get a good deal on a home improvement if it is financed by particular lender.

Loan Fraud prevention tips

1. Interview several real estate professionals (agents), and ask for and check references before you select one to help you buy or sell a home.

2. Get information about the prices of other homes in the neighborhood. Don't be fooled into paying too much.

3. Hire a properly qualified and licensed home inspector to carefully inspect the property before you are obligated to buy. Determine whether you or the seller is going to be responsible for paying for the repairs. If you have to pay for the repairs, determine whether or not you can afford to make them.

4. Shop for a lender and compare costs. Be suspicious if anyone tries to steer you to just one lender.

5. Do NOT let anyone persuade you to make a false statement on your loan application, such as overstating your income, the source of your downpayment, failing to disclose the nature and amount of your debts, or even how long you have been employed. When you apply for a mortgage loan, every piece of information that you submit must be accurate and complete. Lying on a mortgage application is fraud and may result in criminal penalties.

6. Do NOT let anyone convince you to borrow more money than you know you can afford to repay. If you get behind on your payments, you risk losing your house and all of the money you put into your property.

7. Never sign a blank document or a document containing blanks. If information is inserted by someone else after you have signed, you may still be bound to the terms of the contract. Insert "N/A" (i.e., not applicable) or cross through any blanks.

8. Read everything carefully and ask questions. Do not sign anything that you don't understand. Before signing, have your contract and loan agreement reviewed by an attorney skilled in real estate law, consult with a trusted "real estate professional" or ask for help from a housing counselor.

9. Be suspicious when the cost of a home improvement goes up if you don't accept the contractor's financing.

10. Be honest about your intention to occupy the house. Stating that you plan to live there when, in fact, you are not (because you intend to rent the house to someone else or fix it up and resell it) violates federal law and is a crime.

11. Before buying a home, attend a homeownership education course offered by government approved, non-profit counseling agencies.

Be cautious and suspicious… for most deals that are too good to be true usually are “too good to be true”…